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Did you know that e-mobility is a pit stop on the road to decarbonization? You need multiple stakeholders to commit to clean energy and work together to reform the transportation sector. A good policy framework, supporting competition and innovation for efficient and green mass transportation is needed. In this episode, Roumeen Islam catches up with Bianca Bianchi Alves, urban transportation expert, to find out how.
This podcast series is produced by Fernando Di Laudo and Jonathan Davidar.
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Transcript
Roumeen Islam: Concerns with climate change and air pollution have increased. And, so has the interest in electric vehicles. In big cities, buses are getting more attention because they're used by large numbers of people to get to work and simply to get around. Today, 98 percent of electric buses are in one country, China. But increasingly, other countries, including those in Latin America are looking to electric buses.
Last year, Santiago had one of the largest stocks of electric buses outside China. In December, during the pandemic, the Bogota City Government and Public Transport Authority launched the first batch of 120 electric buses. Many more are planned. Of course, they're also investing in charging stations for the buses.
Compared with diesel buses, the pure electric bus fleet will save 12 and a half thousand tons of carbon dioxide and two and a half tons of dust particles from being emitted every year. Let's find out how countries are tackling the move to e-mobility. Good morning and welcome. I'm Roumeen Islam, host of Tell Me How.
And today, I welcome Bianca Alvis, urban transport specialist to speak to us about e-mobility. Welcome, Bianca.
Bianca Bianchi Alves: Nice to be here, Roumeen. Thank you.
Roumeen Islam: Very nice to have you. Whomever I talk to these days, Bianca, about getting around in a city, is talking about the future of transportation, how to make it more efficient, how to reduce pollution and greenhouse gas emissions. And in this debate, e-mobility seems to be the rage. What is this about?
Bianca Bianchi Alves: Well, e-mobility refers to all the transport services done by electric vehicles: cars, scooters, trains buses, rickshaws, powered, preferably with clean energy. There's more and more interest in these as they become cheaper and offer more autonomy.
They're very important part of decarbonizing transport and in the climate agenda, decarbonizing transport is the focus now because transport accounts for 24 percent of CO2 emissions worldwide and is the fastest growing sector. And, you know a fun fact: electric vehicles were being sold in the 1910s. And you know, what was the marketing line? They're so easy to drive that even a woman can.
Well, of course, Elon Musk and now, others after him, have made the vehicles very appealing to both men and women.
Roumeen Islam: Well, of course, I got interested in electric vehicles because of Elon Musk. So, if a country were actually interested in having better urban transport, Bianca, would it be enough if all the personal cars ran on electricity?
Bianca Bianchi Alves: Well, it's not just about electric cars. It's about urban transport systems. We hear about efficiency too, right? So, in the developing world, urbanization is still growing, and very fast in some places. So, we have to make sure that growth goes in the right direction. Meaning for instance, that investments in high quality public transport will be the key to reduce emissions, but also to make sure that cities are efficient. Clearly, we don't want clean congestion.
Roumeen Islam: I understand that, passenger road transportation, such as cars, buses, and motorcycles together account for just under half of the transport emissions, but cars account for most of this, right?
Bianca Bianchi Alves: Yeah. And that's why we want to move people to use public transportation as the main point is to get fewer vehicles on the road. Plus, upgrading buses to electric comes with additional benefits of reducing air pollution, and reducing air pollution is a big incentive for cities to change to electric vehicles.
Roumeen Islam: What you're saying is that sustainable transport means decarbonization, but also efficiency, greater efficiency. Can you expand on that?
Bianca Bianchi Alves: Yeah. Well, achieving sustainable transport is an effort that we have to center around three pillars: the first one is you have to make cities smarter, more concentrated, so you can avoid traveling long distances and you require less transport infrastructure.
The second is that you have to promote a shift to public transport, coupled with environmentally friendly feeder systems, such as walking, bicycles, scooters, rickshaws. And then, you have to improve technology and fuels such as electric vehicles. For passenger transport, the most bang for the buck in general is shifting to public transport.
It's also important because the poorest cannot afford a car. So, it makes sense to invest in high quality bus and metro infrastructure.
Roumeen Islam: You have done a lot of work on Latin America recently. And I'd like to know what has your work revealed in terms of the main barriers to e-mobility in public transport in Latin America?
Bianca Bianchi Alves: Well, Roumeen, we looked at the barriers and opportunities for the uptake of electric buses in Latin America, but the findings to be honest, can be pretty much generalized to other places. The key elements that we need are: first strong environmental policies, including fuel and emission standards, removal of fossil fuel subsidies, or putting a carbon tax, proper market structure and business models for the sector, and critically, generating clean energy to power the vehicles, the electric vehicles that we want to change. Plus, we found that a multi sector collaboration is the basis of this agenda everywhere. And of course, how to finance this transition to mobility.
Roumeen Islam: That's really a lot of things we need to pay attention to, but it's also important to know that what you find in Latin America are a set of general principles that you could apply elsewhere, as well. And, I guess it's clear that if governments don't have appropriate environmental policies, the incentives to reduce emissions are hurt.
But, can we talk a bit about the way business models are set up and subsidies are set up that discourage the switch?
Bianca Bianchi Alves: We have to start off with understanding that there were a lot of investments made in the past that reflect where we are now. Diesel fuel technologies are currently very reliable.... they're everywhere. In Latin America, many countries subsidize diesel. People see it as a right to have cheap diesel. We have a whole industry with millions and millions of people selling, maintaining, driving diesel vehicles. This configuration needs to be totally changed if we want to switch and there would be gainers and losers, of course.
Roumeen Islam: Yeah. They're always gainers and losers when you have some sort of market restructuring, but what prevents disruptors from coming into the market? What are the barriers to entry because disruptors come into all kinds of markets?
Bianca Bianchi Alves: True, some of the barriers we encountered in our study relate to the business models in the bus sector.
So, bus services are usually provided through a private public partnership, right? A PPP. In the majority of cases, there's very little accountability and transparency in the selection process for private contractors. Too often, contracts are set for too long. In some cases, they're basically perpetual.
Incumbents tend to own premium plots of land for the depot. So new entrants are blocked and cannot find affordable land available. Incumbents already have their own fleets and they're normally diesel. They don't want to invest to change. They also resell their old vehicles, diesel vehicles down the line, and make good money from it.
So, to increase efficiency, the biggest issue is resolving some of this lack of competition of the sector.
Roumeen Islam: All right. You mentioned quite a number of constraints. First, you mentioned the lack of competition, and then you talked about accountability and transparency in granting PPP contracts, which affects the terms of the contracts. And that also affects competition. So, what do you think is the way forward? What should governments do?
Bianca Bianchi Alves: Well, to improve competition, governments should try to set shorter concession terms and reduce the size of lots, much shorter, you know, such as London and Punta Arenas in Chile. Also, if you have to remove the operator during the concession period, it's very disruptive because you don't want to stop service and hurt your customers.
With shorter terms, they have the opportunity to reassess the performance of these operators more often and open to new entrants. They can also separate the vehicle provision from the service provision, make these two separate concessions. With that, they bring more players into the mix and may get better deals for the vehicles.
They could also even think of using publicly owned land to avoid landowners a disproportionate advantage in the competition, like in Singapore, for instance.
Roumeen Islam: Okay. So, the transition would definitely be easier if you had more competition in the market and a set of environmental policies, but is that all you need?
Bianca Bianchi Alves: Well, you need those, but there are a few other problems. For instance, there are also not that many manufacturers ready to sell vehicles in all places to replace the diesel buses, which are currently everywhere. Right? So, in some places, regulations may have to be changed to allow for new manufacturers.
Roumeen Islam: Oh, I see, so vehicle production is regulated as well. This means that current producers of diesel buses may leave.
Bianca Bianchi Alves: Yeah, exactly. And this is a significant challenge because they need to invest without necessarily having the big orders, right? But this is slowly changing and few Latin American cities, Santiago, Bogota, for instance, are ordering, you know, sizeable lots, that would make a difference.
Roumeen Islam: I understand that the upfront investment in new infrastructure and systems may be substantial. You'll need new vehicles. You need new charging stations. So, is lack of financing, then a large constraint for potential disruptors. Is this what I might conclude?
Bianca Bianchi Alves: Yeah. Well, there's a lot of interest in green financing, you know, private investors, pension funds, financing lines, available set by governments and commercial banks.
There are also new players wanting to finance e-buses, energy companies, you know, because they see the benefit of selling the energy down the line. But the transport sector is still not fully participating in these opportunities. The first thing you need to do is, you have to make the financing for your bus is comparatively better than the ones you have for diesel vehicles.
So, you have to remove diesel subsidies in the street, tax breaks, and other incentives for these or otherwise you, you won't get anywhere.
Roumeen Islam: Yes, of course, that makes sense. But then, once the subsidies are removed, are you saying this now becomes a profitable business for the private sector? Would they come in and invest?
Bianca Bianchi Alves: Because of this higher upfront cost, right? The bus, the electric bus, costs more upfront than the diesel bus. Even with the removal of diesel subsidies, in general, private sector cannot handle the financing all by themselves, especially because of many of the domestic private operators did not have the conditions to borrow in commercial markets in Latin America.
They are too informal. They are considered too risky for commercial markets. So, they might also need public resources or, or let's say public guarantees to back those investments that in general, come from the city governments, and sometimes from the central governments.
Roumeen Islam: I see. Well, does public transport ever make a sufficient return for private investors to enter or do you always need a subsidy?
Bianca Bianchi Alves: Well, in some cases, where diesel subsidies are eliminated, it can be a good investment, but remember poor people have to be able to afford it. So, some form of subsidy may still be needed at least for a while, at least for the poorest. Subsidies for Latin America, buses in general, are pretty high, although normally lower than in European cities. They represent around 40 percent of the total costs in Bogota and Sao Paolo where the user tariffs are already very high, and they reach 75 percent Buenos Aires. These are pre COVID numbers. That's why any improvement on the competition opens the space for investment.
Roumeen Islam: These are indeed really not subsidies. And you're saying that one could reduce subsidies substantially and still provide affordable service for the poor.
Bianca Bianchi Alves: Absolutely. Because operational costs of electric versus tend to be much lower than that of diesel buses.
So, there's a high cost upfront, but you do get returns down the line.
Roumeen Islam: All right. So, going back to something you mentioned earlier, you talked about the lack of competition as an important constraint to better service, but you also mentioned governance and coordination problems. Do you want to expand on this?
Bianca Bianchi Alves: Yeah. I mean, public transport is a sector that tends to be dealt with by local governments. But many of the decisions that influence transport are set up at the national level. For instance, national governments are the ones to decide on gasoline, diesel taxes, or subsidies in some cases. They also decide on some of the ownership taxes.
They set up special financing lines for certain types of vehicles. Brazil, for instance, has very good financing lines. It's for diesel bus technologies. On the other side, there's China with a very strong green industrial policy that turned them into the biggest manufacturer of electric buses. And then there are the governments within the local authorities.
Sometimes, the roads agency is different than the public transport agency, and sometimes the bus agency, which is different than the rail agency, all of them with their own projects. They are not necessarily always integrated.
Roumeen Islam: Yeah, I can see that. So, this is the issue of intergovernmental coordination, as well as accountability, which you need at the local level where all of this is actually implemented.
And then I suppose there are other sector ministries.
Bianca Bianchi Alves: Yeah, absolutely. Yeah, energy and environmental ministries have long, strong influence in this agenda. Now , it's important for the energy sector, for instance, to be committed, to transforming the electricity matrix into a low emissions matrix based on renewables or else, we will reduce the local pollution, but we continue to emit GHG elsewhere and environmental ministries need to ramp up their minimum standards.
Roumeen Islam: Well then how, how did Bogota do it? What did we learn from them?
Bianca Bianchi Alves: Well, Bogota implemented the necessary regulations. There's more coherence between federal and local policies, but most importantly, they changed its business model by separating the vehicle provision from the service provision, and then opened the market to new players.
Roumeen Islam: Okay. So, we've talked a lot about the supply side and how competition and better governance can help you reduce prices, make all of this more efficient and affordable. Let's go back, to the user. You mentioned that people need to shift to public transport. How can policy influence that demand?
Bianca Bianchi Alves: Well, when countries grow economically motorization grows too. Right? And we want countries to grow, obviously. So, government influences in many ways because they decide how much priority transport systems will have over other modes, and therefore how much it will cost to operate them. They define how much the user will pay for the services versus, you know, how much the taxpayer's money is going to share these costs.
They decide whether to prioritize good public transport systems in the budget, or just put money for urban roads for cars. They determine the cost of parking, all these elements.
Roumeen Islam: Right. So, I see that regulation can influence demand and, you know, once you have some sort of demand rising for public transport, I guess then private sector operation of public transport systems is common.
Bianca Bianchi Alves: It's very common in LAC and in many places around the world. It's great that this is the case. Now, private sector tends to be more flexible, cost-conscious, and efficient. We must acknowledge that the private sector though cannot bear all the risks. At least not alone. Governments have to bear some of the risks of the demand that I mentioned before, but also the technologies change, for instance, invest on the charging stations. In some cases, contract the fleet provider and lease the vehicles to the operators. Given that, you know, there is a little bit of a limited track record of electric buses so far when compared to these old technologies, this will likely be necessary.
Roumeen Islam: All right. It's I guess it's important to note that there are two very distinct risks that you're talking about here. One from demand, shortfalls, and another, from the use of a new technology in a new economic and social context. Now, how do these risks compare to other forms of public transport, for example, for metro and rail?
Bianca Bianchi Alves: Well, metros and rails are mostly already electric.
Roumeen Islam: I see. So, if the sector is opened up to competition and the government now wants to lower air pollution, Bianca, how do you think they might stage the transition?
Bianca Bianchi Alves: Well, first they need to set appropriate environmental standards. I mean, start by requiring less polluting fuel, like at least zero six, especially for new projects. They don't need to go electric all the way, but they need to have a plan to go into full decarbonization, a transition phase. The reason we need a plan is to make the process transparent and easy to organize that will make the sector know what to expect.
But the plan has to be credible, detailed, with budgeting, engineering studies, demand studies, timelines, all the details of an actionable plan. They will probably start with mixed fleets and a few charging stations. It's okay to have mixed fleets in the short-term. Maybe work with gas buses that have zero emissions at the pipe in some very specific cases, and then gradually, but firmly move on towards electric.
Roumeen Islam: I see that a staged transition may be much more feasible given the constraints on financing, given the constraints on demand, or the risks arising from demand, and all the coordination that needs to be done. Are there other things that you wanted to mention?
Bianca Bianchi Alves: You know, you have to be on the lookout because in terms of technology, hydrogen is coming, and it looks very promising.
Roumeen Islam: Yeah, we're indeed waiting for hydrogen, but this is a topic for another day. So, Bianca, maybe you want to say something about the work you've done in North America.
Bianca Bianchi Alves: Very exciting and challenging theme, Roumeen, and change is coming. I urge the listeners to read our recent study for Latin American cities called Green Your Bus Ride.
We also published, in 2020, a report detailing lessons from Chile's experience with e-mobility. They're all on the World Bank website, and they're full of fun facts.
Roumeen Islam: Thank you. I'm sure a lot of people will be excited to read that. Thank you, Bianca.
Bianca Bianchi Alves: Thank you, Roumeen. Well, listeners, we learned a number of things about building better public transport systems based on e-mobility.
Roumeen Islam: And these are important lessons for countries around the world. Firstly, we heard that it requires sectoral reform and competition, not just appropriate environmental policies, and standards. Secondly, the transition in transport need to be accompanied by a commitment to using clean energy, which entails restructuring of energy sources. Thirdly, a successful change requires drawing in multiple stakeholders, government at all levels, and consumers, to search for efficient, not just clean public transport. Finally, financing constraints may matter as the investment costs are high. Public and private sectors working well together can produce efficient systems that are affordable for all consumers. Thank you and bye for now.
If you have questions or comments, we’d love to hear from you. You can reach us at tellmehow@worldbank.org. Don’t forget to subscribe and thanks for listening!
View all episodes on our Tell Me How: The Infrastructure Podcast Series homepage