The European transport sector is going on a green road trip! In this blog post, Publyon’s Consultant Sara Orcalli brings you five major consequences of increased carbon pricing across different transport modalities to help you understand the European Commission’s greening efforts in the transport sector and how these will impact your business operations.
With the European Green Deal and the ‘Fit for 55’ package, the EU is putting the pedal to the metal in the fight against climate change, committed as they are in reducing their carbon footprint and dependence on fossil fuels.
What is the goal for the EU? Achieving 55% emissions reduction by 2030 and becoming climate neutral by 2050.
The EU is taking crucial steps towards a more sustainable and innovative transport, putting forward several initiatives. Many more are underway.
And you, what specific actions is your business taking to contribute to a low-carbon mobility?
The wheels of the European economy keep turning, but at what cost to the planet? Now, more than ever, businesses have the chance to steer towards a more sustainable future and pave the way for a greener transport sector.
Green growth on the go: the business benefits of carbon pricing in the transport sector
1. The cost of going green: financial impact of carbon pricing.
The EU’s plan to reduce emissions will have financial consequences for companies throughout the value chain. Carbon pricing measures, such as the ‘cap and trade’ system of the EU Emissions Trading System (ETS) or the Energy Taxation Directive (ETD), put a price on greenhouse gas emissions.
This would increase costs for companies that still heavily rely on fossil fuels and emission-intensive options for transport. These measures will affect road, maritime, air and rail transport and will likely result in higher costs for companies that use fossil fuels for their logistic operations.
Businesses should also consider that partners who depend on fossil fuels for their transport operations might pass over the extra costs throughout the value chain.
2. Incentives for a green transport system
Carbon pricing policies can incentivise businesses to adopt clean and low-carbon transport options. The EU wants to stimulate the market demand for green transport modalities. But what benefits can businesses expect as a result? Companies might profit from new technologies available in the EU market.
In addition, the upcoming Greening Transport Package aims to support the transition towards multimodal transport in logistics. This involves using rail or inland modes for the majority of the journey, with road transport only used in the final leg.
Higher prices for fossil fuels will prompt companies to seek out new technologies and practices to reduce their carbon footprint. For instance, businesses may replace their fleet with fuel-efficient vehicles or implement eco-driving training programs for their drivers.
3. Carbon pricing drives innovation in transport: revving up the race to net-zero
The new EU rules to decarbonise the transport sector also provide incentives for manufacturers to develop and invest in net-zero technologies, such as electric vehicles, e-fuels and biofuels.
Picture this: a world where cars, buses, and trucks do not pollute the air we breathe. A world where transportation is sustainable, efficient, and innovative.
Multiple EU legislations (see for example the CO2 standards for cars and heavy-duty vehicles) aim to support innovative technologies. They do so by setting targets for the phase-out of fossil fuels and by embracing low carbon or net-zero transport options.
The EU does not only set obligations but also provides financial and regulatory support for the development and deployment of these technologies. With a range of funding programs targeting innovative technologies and initiatives like the Net-Zero Industry Act, the EU is cutting red tape, reducing administrative burdens for the production of strategic net-zero technologies, such as batteries for electric vehicles.
4. Going green: competitive (dis)advantage
As EU policy aims to heavily reduce transport sector greenhouse gas emissions, carbon pricing will favour companies that are leaders in the transition to a low-carbon economy and that are already investing in the decarbonisation of their fleet and their operations.
This means that businesses that can reduce their carbon footprint will have a competitive advantage. These companies will more likely attract environmentally conscious customers, investors and business clients willing to further decarbonise their value chain.
However, the higher carbon pricing risks put EU companies in a competitive disadvantage compared to non-EU competitors. The latter are not burdened by extra costs as they do not have to comply with such high sustainability standards.
This could impact international transport, leading to carbon leakage. Moreover, logistics and transportation could be more expensive for European companies exporting outside the EU.
5. Navigating the regulatory maze can be expensive…
Carbon pricing schemes will also lead to increasing administrative burdens for companies both large and small. Business will be required to comply with the new EU legislation and reporting requirements, which would generate extra costs in their operations.
New reporting rules could cost companies more. The extra costs could potentially passed on to business partners and customers down the line.
Zooming in on key objectives and targets
The EU is taking bold steps to decarbonize the road transport sector. One of the most significant measures is the introduction of strict CO2 standards for cars and vans. This will require all new vehicles sold in the EU to be zero-emission by 2035.
But the EU’s commitment to reducing carbon emissions does not stop there. Heavy-duty vehicles will also face tighter regulations through the Eurovignette Directive, a user-pays and polluter-pays system across the core TEN-T network, and the revised CO2 standards for heavy-duty vehicles, which proposes a 90% reduction in CO2 by 2040, compared to 2019 levels.
The EU is also targeting pollutants other than CO2 with the new Euro 7 standards, requiring a 35% emissions reduction of nitrogen oxides (NOx) for cars and 56% for heavy-duty vehicles from 2035.
To ensure cost-efficient emissions reductions, a separate EU ETS will be created for road transport in 2027, holding fuel suppliers accountable for integrating the cost of carbon into the price for consumers.
The EU ETS also extend to maritime transport, incorporating carbon pricing, and phase out free allowances for the aviation sector, requiring operators to purchase emissions allowances.
Finally, the EU has proposed the revision of the Energy Taxation Directive (ETD) to tax fuels based on their energy content and environmental impact, potentially leading to higher taxes on more polluting fuels. However, the ETD requires unanimous approval from Member States to pass, and its fate remains uncertain.
Next steps in the carbon pricing of the EU transport sector
- The majority of the Fit for 55 legislation has now been adopted and has already or will shortly enter into force. Their implementation is now in the hands of the Member States.
- Negotiations on the proposed Euro 7 and CO2 standards for heavy-duty vehicles legislation are heating up in the European Parliament and Council of the EU. Stay tuned for new policy developments in the next few months.
- The Greening Transport Package, which will set further milestones for the decarbonisation of the freight transport, will be published on 21 June.
Is your business ready for the green transport transition?
The EU regulatory framework is not easy to navigate. Plus, the new initiatives that will enter into force in the next years will prove challenging for companies, which will have to comply with new obligations. Businesses need to start assessing their operations and anticipate possible risks in matching the new targets and requirements.
As a leading consultancy in EU transport policies, Publyon is committed to helping businesses navigate these changes. Carbon pricing measures are set to have a huge impact on your business.
Publyon offers tailor-made solutions to navigate the evolving policy environment at EU level. To learn more about the targets laid out by the EU carbon pricing measures and their impact on your business, reach out to our experts below. They would be delighted to arrange an introductory session and further deep dive into the proposal. You can also visit our services overview.