Why a mix of technologies holds the key to carbon-neutral road mobility in Europe and how policymakers can support urgently needed infrastructure investments

Getting on track for climate neutrality by 2050

The European Union is striving to achieve zero net emissions of greenhouse gases (GHG) across all sectors under its Green Deal no later than 2050.

While some parts of the European economy (e.g. the power and industrial sectors) have achieved significant reductions in recent years, the transport sector’s GHG emissions have remained high. Growing mobility demand – in particular for road transport – has (at least partially) exceeded performance gains in vehicle technology and efficiency improvements in combustion engines. As a result, the European road sector and its more than 325m vehicles (EU27+UK) still account for around 20% of Europe’s total GHG emissions.

Unsurprisingly, a multitude of stakeholders are calling for action to support a swift phase-out of fossil fuels by the European road sector. Most recently, a ban on new registrations of internal combustion engine vehicles (ICEVs) for passenger cars and vans from 2035, the move to electrification as well as the use potential role of synthetic fuels (e-fuels”) for road transport, have been at the core of the political debate in Europe.

A mix of technologies as the fast track to carbon neutrality

The EU’s current policy approach to net zero in the road sector primarily focuses on tailpipe emissions for road vehicles (“Tank-to-Wheel” (TtW) emissions), largely ignoring emissions from vehicle production and the associated fuel supply chain (“Well-to-Tank” (WtT) emissions).

In our study “Future Fuels Study IVb” (2022) for FVV, the German Research Association for Combustion Engines, we provide a more comprehensive view of the pathway to net zero. We explicitly take into account “Well-to-Wheel” (WtW) emissions – including supply chain and tailpipe emissions – to address the question of how to minimise cumulative GHG emissions by 2050.

Our model-based optimisation considers 11 carbon-neutral powertrains – including battery-electric vehicles and plug-in hybrids as well as vehicles running on e-fuels, hydrogen or e-methane (all exclusively powered by renewable energy). The model explicitly incorporates vehicle needs in relation to the energy value chain, i.e. the number of charging points per electric vehicle. It also takes account of technically feasible ramp-up rates for investments in infrastructure and raw materials to achieve a carbon-neutral vehicle stock (for all types of vehicles, from small passenger cars to heavy-duty trucks) in Europe as quickly as possible.

Our key finding is that a mix of carbon-neutral powertrains – instead of focusing on a single technology – can speed up the transition to carbon-neutrality for Europe’s road sector significantly by leveraging on a balanced set of material and infrastructure supply across the carbon-neutral powertrains considered.

The majority of projected GHG emissions will be produced during the phase-out of the vehicle legacy fleet, which still largely runs on fossil fuels. So the sooner defossilised vehicles can be introduced and the accompanying provision of infrastructure and raw materials is in place, the lower cumulative GHG emissions and the impact on climate change will be (see Figure 1). The speed by which carbon neutral vehicle can be deployed is in this regard more relevant than the choice of the carbon neutral technology.

Figure 1 - A mix of carbon-neutral powertrains significantly reduces cumulative GHG emissions by 2050 (WtW emissions EU27+UK vehicle stock)

Source: Frontier Economics (FVV Fuels Study IVb, 2022)

Frontier’s modelling further shows that all carbon-neutral pathways considered will face bottlenecks of various kinds over time. These include limitations in expanding the European power grid and charging infrastructure for electric vehicles, as well as the scale-up of plants for synthesising e-fuels.

Our work shows conclusively that emissions will be higher than necessary if the variety of options to power the European road sector with carbon-neutral energy carriers is significantly restricted. That is because an undue focus on a single carbon-neutral technology implies that more vehicles would be reliant on the same scarce raw materials and infrastructure. The result would be significant delays on the path to net zero, as fossil-fuelled vehicles retained a higher market share for a longer period of time because of a lack of available alternatives. We would be driving, temporarily, into a dead end.

Such an outcome can be avoided by adopting a mix of competing carbon-neutral technologies, say by combining battery-electric, hydrogen or e-fuel-powered vehicles. For example, if the power network required for electric vehicles cannot be expanded sufficiently in a given year to meet the demand for emissions-neutral mobility, another carbon-neutral technology, such as green hydrogen, could fill the gap.

Looking at WtW emissions over vehicle lifetimes, we find that the marginal increase in switching from the ‘first-best’ carbon-neutral powertrain to the next-best available has only a minor impact on cumulative emissions by 2050. But, importantly, it generates significant savings compared to keeping fossil-fuelled vehicles on the road longer than necessary.

The role of infrastructure bottlenecks in achieving a fast transition

The expansion of carbon-neutral fuel supply chains is of particular relevance to a rapid transition. Various bottlenecks in the roll-out of infrastructure and the supply of key raw materials are set to significantly constrain progress to net zero even under a mix of carbon-neutral powertrains (Figure 2).

Figure 2 - Different raw material and infrastructure bottlenecks restrict the ramp-up of carbon-neutral vehicles

Source: Frontier Economics (FVV Fuels Study IVb, 2022)

The speed of the transition to a carbon-neutral road sector will be ultimately determined by the time needed to provide the required infrastructure. The build-up of some infrastructure is restricted by the availability of specialised equipment and highly skilled labour and will be tough to mitigate both in the short run (until 2025) and in the medium term. But the slow roll-out of other critical infrastructure is rooted in underlying market failures. These can be addressed on the political level by adopting appropriate policies.

Efficient tendering to overcome failures in the EV charging market

The deployment of charging infrastructure for electric vehicles (EVs) is a good example of how policymakers can address the challenge of ensuring the availability of sufficient raw materials and infrastructure to enable the European road sector to make the transition to net zero.

European customers can already choose among a range of vehicle types from different manufacturers, but limited public charging infrastructure is currently hindering a more aggressive expansion of the market and thus a faster phase-out of fossil-fuelled vehicles.

For customers, the lack of sufficient charging infrastructure obstructs the development of the EV market. But operators of charging stations prefer to carve out a significant market share before constructing a dense network of chargepoints. This creates a classic chicken-and-egg problem preventing the smooth expansion of the EV market. Despite the economic benefits for society as a whole, incentives for both customers and suppliers of EV charging infrastructure are currently inadequate. In short, we are witnessing a market failure.

National and EU policymakers can address such market failures through suitable policy interventions, for example well-designed public tenders to accelerate the development of charging infrastructure. This would make EVs more attractive to consumers and in turn lead to further infrastructure investment.

Frontier has advised the German Federal Ministry for Digital and Transport (BMDV) and the German National Centre for Charging Infrastructure (NLL) on the design of a public tender for over 1,000 fast-charging locations worth €2bn.

Frontier proposed a set of regulatory incentives aimed at securing the efficient use of taxpayers’ money:

• Market-based incentives for private investments should remain in place. This will ensure that subsidised charging points do not crowd out planned investments beyond the scope of the tender, which, without financial support, would need to recoup investment outlays through mark-ups on short-term variable costs.
• Prices at fast-charging hubs that receive financial support through the planned tender should correspond to market prices at hubs that do not form part of the funding scheme.
• Non-discriminatory access to the charging points, for example via harmonised payment standards, should be assured and the exploitation of any local market power should be prevented.

The transition to net zero is an immense challenge. But it is also an opportunity for policymakers to design policies that will create the incentives required to accelerate the shift. In the case of road transport, our research is conclusive: the way to reduce GHG emissions as fast as possible is not to bank on a single clean technology but to adopt a mix of carbon-neutral powertrains.