Article Published Latvian Business, September 12th
Discussion on Maintaining Competitiveness in the Context of Climate Change
Although freight vehicles, public transportation, and buses account for more than 40% of all road transport emissions in Latvia, there has been no broader discussion to date on the decarbonization of heavy-duty transport and the related challenges.
Last week’s seminar in Riga, titled “Decarbonization of Freight Vehicles, Public Transport, and Buses — How Will We Achieve the 2030 Renewable Energy and Competitiveness Goals?”
The event was attended by specialists from companies interested in fleet replacement (freight and passenger carriers), as well as manufacturers and distributors of alternative fuels, electricity, and vehicles, charging network developers, and other interested parties.
CAN WE JUST DO NOTHING?
The European Green Deal is increasingly encroaching on various sectors of the economy, imposing new and stricter requirements for higher sustainability standards in order to reduce greenhouse gas (GHG) emissions. The freight and passenger road transport sector is no exception, as European regulations and directives are tightening the noose around vehicle manufacturers and transport operators, forcing them to produce, supply, and use “cleaner” vehicles.
According to official estimates, trucks, city buses, and long-distance buses in EU countries account for an average of about 25% of road transport GHG emissions. In Latvia, this share is already nearly twice as high, and GHG emissions in this segment are increasing year after year. Given that 99% of heavy-duty vehicles in the EU fleet are still powered by imported fossil fuels, the European Commission has proposed significantly increasing CO2 emission reduction targets for heavy-duty vehicles starting in 2030.
In this regard, new regulations have been adopted, and changes have been made or are planned for existing ones. The targets set and to be achieved in the transportation sector differ for each country, tailored to its specific circumstances. There are many regulations and resulting obligations; only experts can truly navigate their interrelationships, percentages, and various figures. These experts concluded at the seminar that, in practically all key indicators, we once again rank last compared to other countries. The only somewhat acceptable situation is in the area of promoting the use of “clean” and energy-efficient vehicles specifically in urban and regional passenger transport — CSDD data shows that buses powered by alternative fuels are becoming increasingly common in Latvia. These are primarily buses powered by compressed natural gas (CNG) and electricity. Progress on fulfilling other commitments has been slow, and it appears that the Alternative Fuels Infrastructure Regulation—which sets specific targets for infrastructure, including the development of charging infrastructure for high-capacity electric vehicles, as well as the construction of hydrogen and liquefied natural gas refueling infrastructure.
Admittedly, fulfilling these obligations will pose challenges not only for Latvia, but also for our closest neighbors and, most likely, for many other EU countries as well. For example, Estonian Prime Minister Kaja Kallas, in a presentation on Estonia’s European Union policy during a session of the Estonian Parliament (Riigikogu), stated that, due to delays in reducing emissions, purchasing emission allowances in certain sectors could cost Estonia as much as 225 million euros per year. Meanwhile, the seminar moderator, Armands Gūtmanis, chairman of the board of the association “Latvian Climate Neutrality Cluster,” noted that in Lithuania, in the event of a “procrastination and inaction scenario,” the cost of purchasing the necessary allowances could reach as much as 640 million euros, while in Latvia, this additional tax on society as a whole could fall somewhere between the figures for its two neighbors.
TRANSPORT ENERGY IN LATVIA – CURRENTLY THE “LEAST GREEN” IN EUROPE
One of the central topics of the seminar was how quickly and in what manner alternative fuels—biogas, natural gas, hydrogen, or battery-powered vehicles—should be introduced in order to comply with the requirements of the EU directive and avoid massive fines. Jānis Bethers, Head of Business Development at “Virši,” clearly outlined the actual situation—not based on some “policy” planning documents, but from the perspective of businesses.
“Virši” has been developing its network of compressed natural gas (CNG) refueling stations since 2019; and since 2022, the company has also been involved in the development of an electric vehicle charging network, is participating in the establishment of a local biomethane production facility, and overall holds a leading position in the retail market for alternative fuels in Latvia. From this perspective, a representative of “Viršu” was forced to conclude that the fuel currently available for motor vehicles in Latvia is the “least green” in Europe. The main reasons are low motivation to develop the supply of alternative fuels, as well as a lack of clear goals. In Estonia, these goals were defined as early as 2020; in Lithuania, last year. Latvia has none. The only benefit in this situation is to learn from our neighbors’ experiences, both good and bad.
However, as long as the setting of targets is delayed, there is a significant risk of losing the groundwork that has been laid and the local fuel—biomethane—that has already been produced. Since there is no domestic demand, the development of biomethane production must be supported by long-term export contracts, which Germany is reportedly very interested in concluding at this time. Therefore, by the time Latvia’s transportation sector also begins to seriously focus on the development of alternative fuel stations, local biogas will most likely no longer be available and will have to be imported.
WHY IS THERE A LACK OF MOTIVATION?
The waste management company “Eco Baltia Vide” was the first business in Latvia to begin integrating CNG-powered vehicles into its fleet in 2020.
According to Andris Karlson, Eco Baltia’s director of development, it was clear that the group’s management made this decision not so much for business reasons as for the sake of the company’s reputation and the broader concept of climate neutrality, since this has not provided the company with any advantages in Latvian procurement or local competitiveness at that time, nor does it do so now.
CNG vehicles are reportedly 20% more expensive on average than conventional ones. There are currently only five such vehicles, but by optimizing routes given the limited refueling options and pooling expenses and revenues into a single “pot,” the company breaks even. However, if a decision were made to purchase “clean” electric or hydrogen-powered heavy-duty vehicles—which are several times more expensive than conventional ones—the cost of the service would have to be raised, resulting in a loss of competitiveness. The business leader believes the situation could be addressed and climate neutrality goals brought closer by, for example, establishing zones in Latvia’s largest cities where only low-emission vehicles are permitted. Changes are also needed in the tax system so that companies that purchase new, greener vehicles gain an advantage over competitors who do not.
Long-haul truckers are in a similar situation. According to Aleksandrs Pociluiko, secretary general of the road transport association “Latvijas Auto,” our trucks are competing in the European free market and, for the time being, can only compete with vehicles equipped with older engines. The industry would be ready to change, but for now it is waiting to see how the Green Deal develops overall; moreover, there are practically no commercially viable technological solutions available for long-haul truckers.
This was also confirmed by Gunārs Valdmanis, Director of the Energy Market Department at the Ministry of Climate and Energy (MCE)—unlike with light-duty vehicles, there is currently no clear direction for the commercialization of alternatives for heavy-duty vehicles; opportunities remain open, and thus it is “uncharted territory” for everyone. The MCE representative’s recommendation is for businesses themselves to keep track of technological developments and trends, as it is inevitable that the costs of fossil-fuel-based transportation will rise.
Experts believe that transportation companies can, of course, hope that the European Green Deal will not affect their business and simply ignore the whole thing. However, such an attitude will, in the long run, lead to various insurmountable challenges, including the loss of market share or even the complete loss of business to competitors who have kept up with trends and complied with requirements. This is because an increasing number of companies abroad have already chosen to comply with green requirements, have turned their attention to developing and implementing sustainability strategies, and are demonstrating progress in managing sustainability issues. Therefore, there should be no doubt that these companies will soon impose similar requirements on service providers as well.
As for Latvia—sooner or later, the issues raised at the seminar will have to be addressed. In listing the Ministry of Transport’s proposed measures concerning heavy-duty vehicles, Annija Novikova, Director of the Public Transport Services Department, reported that the ministry has already prepared for government review proposals for the introduction of low-emission zones, the development of a program to make heavy-duty transport more environmentally friendly, the creation of a charging infrastructure network for light- and heavy-duty electric vehicles, and other proposals in line with EU regulations.
“This battery-powered electric truck is a model that Scania is already producing in series. Customers in Latvia have the opportunity to test drive this vehicle for a full week,” explained Aigars Pušinskis, head of Scania Latvia and one of the seminar’s speakers.