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FEATURE STORY December 15, 2020

Transport Decarbonization: How Do We Make the Economics Work?

Reducing emissions from transport will be essential in the race against climate change. But even though many countries have been scaling up investment in low-carbon mobility over the past few years, COVID-19 threatens to break the dynamic and divert attention away from climate. With less than a year to go before COP26, how can the transport sector flip the script—and reconcile immediate recovery with long-term climate goals?

In a context where the COVID-19 pandemic and associated recession have caused fierce competition for funding, the international transport community is grappling with another urgent challenge: the need to raise ambition and accelerate action toward zero carbon emission in transport.

Transport stakeholders, experts, corporate decision-makers, and practitioners converged virtually at the En Route to COP26 event last week for a deep-dive discussion about how the current pandemic impacts progress towards transport decarbonization. 

"Making the economics of transport decarbonization work is crucial not only to the COVID recovery but to the outlook for sustainable transport and our climate goals in the future," said Makhtar Diop, the World Bank's Vice President for Infrastructure, in his opening statement.

A quarter of global energy-related greenhouse gas emissions come from transport due to the high amount of fossil fuel consumes across the sector. "This could grow to a third by 2050 if nothing is done," Diop said.

Transitioning to zero-carbon transport worldwide is essential to achieving the SDGs and keep climate change in check. Zero-carbon transport can also improve quality of life while promoting healthy economies globally. For example, transitioning from fossil fuels to electric mobility could create new jobs and economic opportunities, especially if supported by a strong partnership between the transport and energy sectors.

But the gap in funding transport decarbonization stands as a significant roadblock to the zero carbon emission ambition. 

“Innovative finance can help bring the scale that we need for funding decarbonization in the transport sector,” said Arunma Oteh, Executive-In-Residence, SAID Business School, University of Oxford. Examining some of the innovative finance instruments that have worked for other sectors, Oteh explained how similar tools can be leveraged to raise the funds needed to decarbonize transportation. These include disaster risk reduction management bonds, asset recycling, infrastructure funds, private equity, donor-funded multilateral agencies, green bonds, and public-private partnerships. 

Transport decarbonization offer enormous sustainable business opportunity. “The strength is in the investment community, the supportive environment, innovations in the traditional funding mechanisms, in the capital market and the banking sector,” Oteh explained. Low carbon economy alone can yield gains of about $26 trillion by 2030.

Earlier this year, the Sustainable Mobility for All initiative (SuM4All) and South Africa launched a pilot project to reimagine the future of transport in the country, using the Global Roadmap of Action Toward Sustainable Mobility (GRA) as their guiding framework. During the En Route to COP26 event, Ethiopia Transport Minister, Dagmawit Moges Bekele, said Ethiopia will develop a similar partnership with SuM4All. 

"I will like to appreciate the effort that has commenced as a pilot project in South Africa,” said Bekele. Adding, “Ethiopia also has the need for data-based mobility decision. This road map of action towards sustainable mobility at country level, I believe, could help my country make the right investment and policy choice evidenced by proper data.”

Ethiopia, which ranks 94th among countries contributing to global gas emissions, has the ambition to reduce its gas emissions by 64 percent by capping its net greenhouse gas (GHG) emissions at 145 MtCO2e or lower by 2030. Although transport contributes only three percent to its total carbon emissions, decarbonizing the sector is still a national priority. 

Other experts shared their views on what it will take to make the economics work for transport decarbonization during a global recession. In the panel discussion, Ahmed Al Qabany, Manager, Islamic Development Bank Group; Michael Traver, Chair, Oil and Gas Climate Initiative (OGCI), Transport Workstream; and Tracey Crowe, Chief of Staff, Sustainable Energy for All (SEforALL); shared their perspective on the current context of COVID-19 and how it helps or deters progress towards decarbonizing the sector.

Additional speakers, including John Graham, Principal Industry Specialist, IFC; Raul Alfaro-Pelico, Sustainability Manager, ACCIONA; Suzanne Greene, Program Manager, Sustainable Supply Chains initiative, MIT Center for Transportation & Logistics; and Ariel Alvarez, Project Manager for UNDP's MOVÉS project, Uruguay; shared their perspective with examples of what has worked and how others can replicate it.

Here are four takeaways from the discussion that resonated with us:

  1. Vision, leadership, and political will. Changes around climate commitments and actions towards zero carbon emissions globally may be slow. Still, more than 20 countries have already committed to 100 percent emission-free transport., with many countries focusing their efforts on phasing out fossil fuel cars. But these commitments can only be realized through strong political will and visionary leadership. In Uruguay, for example, the government is successfully implementing policies and driving changes in consumer behavior in favor of electric-powered vehicles. For proper integration, its Ministry of Energy built a strong collaboration with other government ministries, including the Ministry of Environment. As part of this effort, the country has also been working to produce green electricity locally and promote e-mobility.
  2. Countries need to make the right investment decisions based on data and evidence. Tools such as the GRA can help inform governments' investment and policy choices to achieve sustainable mobility based on data and evidence. Government leaders and transport stakeholders also need to be proactive in adapting to changing demands and needs. For example, the Ethiopian government plans to continue investing resources to promote walking, cycling, and electric-powered public transport. 
  3. Optimize finance instruments and move from silos to systems. The current investment gap for transport decarbonization can be seen either as a challenge or as an untapped economic opportunity for the sector. As transport decarbonization does not affect only one transport mode or one stakeholder, there is a need for comprehensive investment strategies that will foster synergies across the sector. For example, while private cars' electrification has made steady progress, we cannot leave aviation, shipping, and railways, trucking, and buses out of the conversation.
  4. Develop a Global Policy Framework. Dr. Nancy Vandycke, Head of the SuM4All coalition, reiterated the need to develop a policy framework that resonates and can be implemented globally by all policy-makers. "We need to tackle the problem in a very global way," said Dr. Vandycke in her call for action. "There is a need to help countries integrate transport mitigation targets and policies in their Nationally determined contributions (NDCs) and support large demonstration projects that show that mobility and zero emissions are compatible," Dr. Vandycke added.