The European Green Deal is increasingly intertwined with various sectors of the economy, requiring them to meet higher sustainability standards in order to reduce greenhouse gas (GHG) emissions. For some companies, this creates new business opportunities, while for others it presents new challenges, prompting questions such as: Why is all this necessary, and how will it affect my business?
The freight and passenger road transport sector is no exception, as European regulations and directives are tightening the noose around vehicle manufacturers and carriers, forcing them to produce, supply, and use “cleaner” vehicles. This article discusses this and other planned European Union (EU) initiatives that will promote the decarbonization of the freight and passenger road transport sector.
Procurement of “Clean” Motor Vehicles
In mid-2021, amendments to the Directive on the promotion of the use of “clean” and energy-efficient road transport vehicles entered into force; the requirements of this Directive have been incorporated into the Public Procurement Law and the Public Service Providers Procurement Law. This regulation sets different target indicators for each European Union (EU) member state, which contracting authorities and public service providers must comply with when procuring motor vehicles. The target indicators to be achieved are set for two periods and vary depending on the category (group) of vehicles being procured.
Figure 1. Latvia’s procurement targets for “clean” vehicles.
This regulation applies to any vehicle in categories M and N, including city buses, minibuses, light passenger cars, pickup trucks, vans, commercial vehicles, and heavy commercial vehicles, with the exception of intercity buses. With regard to freight and passenger road transport, the definitions of a “clean” heavy-duty vehicle and a zero-emission heavy-duty vehicle should be highlighted.
By definition, a “clean” heavy-duty vehicle is a vehicle in the M3 (city bus), N2, or N3 (heavy-duty (freight) vehicle) category that is powered by alternative fuels, whereas a heavy-duty zero-emission vehicle is a “clean” heavy-duty motor vehicle without an internal combustion engine or with an internal combustion engine whose emissions are less than one gram of CO2 per kWh or less than one gram of CO2 per kilometer. When conducting procurements for Category M3 vehicles (city buses), both the minimum targets set out in the directive must be met, and it must also be taken into account that 50% of “clean” heavy-duty vehicles must meet the criteria for a heavy-duty zero-emission vehicle.
According to the latest data published by the Procurement Monitoring Bureau (PMB) on the procurement of “clean” vehicles in Latvia for the period from August 1, 2021, to August 1, 2022, there was only a slight deviation from the target regarding city bus procurements.
Figure 2. Achievement of Procurement Targets for “Clean” Vehicles in Latvia
We can conduct a more detailed analysis of the procurement of “clean” motor vehicles—specifically buses—by examining CSDD data on their initial registration in Latvia:
From this data, we can see that buses powered by alternative fuels are indeed becoming increasingly common in Latvia. These are primarily buses powered by compressed natural gas (CNG) and electricity.
Revision of CO2 Emission Standards for Heavy-Duty Vehicles
Heavy-duty vehicles, such as trucks, city buses, and intercity buses, account for more than 25% of road transport GHG emissions in the European Union. In Latvia, this share is even higher, and GHG emissions in this segment are increasing year after year. Given that 99% of heavy-duty vehicles in the EU fleet are powered directly by imported fossil fuels, the European Commission has proposed revising CO2 emission targets for new heavy-duty vehicles starting in 2030, to compel vehicle manufacturers to bring more efficient and environmentally friendly vehicles to market. The specific proposal still needs to be approved by the European Parliament and the Council of the EU, but if adopted, it would set the world’s leading standard for heavy-duty vehicles.
Regulation on Alternative Fuel Infrastructure
Given the ever-increasing variety of fuels used in motor vehicles, EU Member States must include the development of the necessary charging and refueling infrastructure as a key element in their regulations. This is particularly true for heavy-duty vehicles, for which refueling and charging infrastructure has not yet been able to develop due to low demand. The new Alternative Fuels Infrastructure Regulation (AFIR) pays special attention to this issue. AFIR sets target indicators for infrastructure in the road transport sector, covering both charging infrastructure for heavy-duty electric vehicles and refueling infrastructure for hydrogen and liquefied natural gas.
Revision of the Renewable Energy Directive
In the spring, an agreement was reached on amendments to the Renewable Energy Directive, which will raise the targets for promoting renewable energy. This reaffirms the EU’s commitment to achieving energy independence by accelerating the deployment of domestic renewable energy to meet GHG emission reduction targets. The agreement includes targets and measures to support the use of renewable energy in various economic sectors, including transportation. In all EU countries, the share of renewable energy in transportation must account for at least 29% of total final energy consumption by 2030 (the previous target was 14%). The directive stipulates that this target must be achieved through state-designated fuel suppliers, who will be required to supply renewable energy. Consequently, the fuel supplied to freight and passenger road transport will likely become more sustainable, as the directive sets sub-targets to promote the use of biomethane and other advanced biofuels, hydrogen, and renewable electricity.
Revision of the Energy Tax Directive
As part of the Green Deal, the EU also plans to revise the existing Energy Taxation Directive to align the taxation of energy products with current EU energy and climate policies. In some sectors, the green transition certainly cannot take place without the use of various legislative instruments. Both the so-called “sticks” and “carrots” will be needed, but tax “levers” should not be overlooked either, as they can be decisive in changing the choices made by consumers and businesses.
It is expected that, with the revision of the Energy Taxation Directive, fuels will begin to be taxed based on their energy content and environmental characteristics rather than their volume, thereby helping businesses and consumers make more climate-friendly choices. Under this system, traditional fossil fuels, such as diesel and gasoline, will be subject to the highest tax rates, while electricity will be subject to the lowest. Exemptions for certain products will be phased out, meaning that fossil fuels can no longer be taxed at rates below the minimum thresholds. In June 2023, during the Swedish Presidency, the Council of the EU noted that it had made progress in revising this directive and had identified several compromise solutions. However, work on this document is still ongoing to reach a balanced compromise.
Corporate Sustainability Reporting Directive
The recently adopted Corporate Sustainability Reporting Directive will also have a certain impact on how road transport is carried out, particularly freight transport, which consumes large amounts of energy. This directive requires companies to report on their sustainability policies, targets, and results. Although the directive applies to approximately 50,000 companies across Europe and its implementation is mandatory for relatively large companies whose operations meet at least two of the following three criteria—annual net revenue of 40 million euros, total assets of 20 million euros, or 250 employees—its impact could extend much further. Even if a company is not directly affected by this directive, its implications may indirectly impact nearly every purchase of goods and services, as more and more companies are developing sustainable procurement policies.
Companies can, of course, hope that the European Green Deal will not affect their business and simply ignore it all; however, such an attitude may, in the long term, create various insurmountable challenges, including the complete loss of business and market share to their competitors. An increasing number of companies have already chosen to comply with green requirements and have turned their attention to developing and implementing sustainability strategies, demonstrating their goals and progress in managing sustainability issues.