For the EU’s transport sector, the last year and a half was exceptionally challenging with passenger and freight transport being severely disrupted due to the COVID-19 pandemic. Although the recovery of the sector is of vital importance for Europe’s economy, it also provides a momentum for the industry to act on the ambition of decarbonization and reaching climate neutrality by 2050. The EU Strategy for Sustainable and Smart Mobility (“EUSSSM”), published by the European Commission on 9 December 2020, provided a blueprint on how the EU’s executive foresees to reduce transport emissions in broad terms. The recently published Fit for 55 package puts forward concrete legislative proposals to cut back carbon emissions across the different modes of transport. Published on 14 July 2021, the Fit for 55 package proposes concrete tools on how to reduce the carbon emissions of the European transport sector via new and revised legislation. Based on our latest intelligence and the positioning of our clients on the publications of these files, Dr2 Consultants’ transport practice presents four emerging trends that will shape the future of the EU transport sector in the years to come.
1. Prioritizing alternative fuels across all modes of transport
The uptake of alternative fuels will be a key priority for the Commission to cut emissions and create jobs. The EU’s executive arm aims to accelerate the production of low-emission fuels and the deployment of sustainable vehicles and vessels. Following the publication of the Hydrogen Strategy in the summer of 2019 and the EUSSSM further outlining the broader uptake of green hydrogen in the transport sector, several legislative proposals in the Fit for 55 package formulate ambitious targets for new types of alternative fuels.
The details of the fuel mix for the future of the EU transport sector are worked out in both FuelEU proposals (FuelEU Maritime and ReFuelEU Aviation) that set out a pathway for sustainable fuels to be used in the maritime and aviation sectors. The revision of the Renewable Energy Directive, the REDIII, provides targets for the EU energy mix as a whole, aiming to increase the share of renewables, electricity and hydrogen. In parallel, the Commission published a revision of the Directive on the infrastructure for alternative fuels, the new Alternative Fuels Infrastructure Regulation (AFIR). The proposed Regulation will accelerate the development of the necessary infrastructure across Member States to stimulate the uptake of sustainable fuels for all transport modes. The European Commission proposal upgrades the current AFID (a Directive) to a Regulation, which means the Member States will be obliged to meet the set targets. Transport ministers responded to the proposal by calling for clear objectives and the deployment of wide public network of recharging and refueling infrastructure for alternative fuels in transport. The ministers held that the new regulation should ensure the required deployment of interoperable and user-friendly refueling infrastructure for clean vehicles across the EU, and at the same time, stimulate the growth of the market and open new opportunities for the EU industry.
2. Safeguarding competition in the aviation sector
The second trend in the future of EU transport sector concerns European airlines, which have been intensively exploring potential pathways towards reducing their carbon footprints (by offsetting or market-based measures). To limit the climate impact of air travel, it is essential that a basket of measures is applied simultaneously to allow European aviation to fully contribute to the climate effort while long-term solutions are implemented to reduce emissions. These measures include, i.e. greener aircraft technologies, more efficient operations and infrastructure, the development of and appropriate support for sustainable aviation fuels (SAFs) and smart economic instruments.
The sustainable growth of aviation, which produces socio-economic benefits and contributes to achieving European environmental targets remains one of the industry’s most important objectives. There is an urgency to make bold political decisions that will help European aviation meet these objectives for the benefit of passengers and businesses that rely on sustainable air connectivity. The EU should however refrain from imposing unilateral measures at EU level that would hamper European airlines’ ability to compete at global level. The proposed EU ETS, ReFuelEU Aviation and Energy Taxation Directives are central in decarbonizing the sector but will require substantial investment from the aviation industry and thereby will challenge the competitiveness of the European aviation industry if not applied equally to non-EU carriers flying in and out of the EU.
3. A modal-neutral approach, facilitating sustainable transport
With the upcoming legislative initiatives, one sector seems to be the winner: the railway sector. While the EU ETS, ReFuelEU Aviation and Energy Taxation Directives put more pressure on the aviation sector, and Member States such as Austria and France announced that they are considering cutting short-haul flights significantly, there will be a gradual modal shift to railway. Moreover, 2021 marks the European Year of the Rail, an initiative proposed by the European Commission. This initiative highlights the benefits of rail as a sustainable, smart and safe mode of transport. Altogether, railway undertakings are already experiencing an increasing market demand for international rail passenger transport. According to the Dutch Railways (Nederlandse Spoorwegen – NS), the principal Dutch rail passenger operator, in shaping the future of the EU transport sector, EU legislation should stimulate the modal shift and the uptake of climate-friendly alternatives such as rail. In order to promote the development of an international passenger service market, the NS is of the opinion that the EU should strive towards the creation of a European high-speed network that is interoperable, linking European capitals and major cities and connecting urban nodes and airports. A level playing field between the different transport modes will be crucial to ensure the swift decarbonization of the European transport sector as a whole.
While both the EUSSSM as well as the Fit for 55 package have a modal-neutral approach, both focus on facilitating the market demands and stimulate sustainable modes of transport. Through the proposed legislation and revisions, the European Commission addresses issues related to establishing a level playing field between the modes of transport (i.e. fuel taxation, infrastructure charges), improving intermodal ticketing services and increasing the customer experience through digital solutions such as the Mobility as a Service (MaaS) concept.
4. Green funding to enhance the resilience of the EU transport industry
In order to stimulate the resilience of the European transport industry and to realize the ambitions that are set out in the EUSSSM and Fit for 55 package, investments are needed. With a combined firepower of more than €1,800 trillion in the EU budget and Next Generation EU recovery fund, EU Member States will have various funding instruments at their disposal to finance the recovery of the EU transport sector.
Member States have been drawing up national recovery plans in order to receive funds from the Recovery Fund. Most Member States, with the exception of Bulgaria and the Netherlands, have submitted these plans, 12 of which were approved this summer by the Council of the EU. The Commission has requested the Member States to focus their recovery plans on the EU ambitions in the fields of digitization and sustainability. In the plans that have already been submitted by most Member States we can see a focus on green hydrogen, charging infrastructure and e-mobility. The submission and approval of these recovery plans means that the money from the recovery fund, approved almost a year earlier, can finally start being paid out. Projects that have a cross-border impact, a clear link to sustainability objectives and which can be executed in the next five years will get priority. According to the Commission, 30% of all funding through the Recovery Fund and in the new EU budget will be spent on sustainable projects. CINEA will open its first CEF Transport calls on 16 September, meaning that the distribution of funds is expected to start very soon.
Following the official publication of the package of proposals by the European Commission on 14 July, the legislative processes in the European Parliament and the Council of the EU have officially started. Once the institutions defined their own positions, most proposals are expected to go into Trilogue negotiations next year, but for some more controversial files (such as the Energy Taxation Directive and the new proposed EU ETS system) these timelines are likely to be extended.
Additionally, several important proposals for the transport sector are still expected on 14 December 2021: The revision of the TEN-T Regulation (focused on transport infrastructure along a core network of corridors), the revision of the Intelligent Transport Systems (ITS) Directive, and the EU Rail Corridor Initiative. Consequently, legislative processes will run far into 2022, maybe even 2023 for some files, meaning that there is a significant window of opportunity for EU stakeholders to get involved in the process.
Is your business Fit for 55?
The Fit for 55 Package will shape the legislative landscape for the upcoming decade, trigger the public debate and impact businesses across the different transport modalities. The revised and updated CO2 emission standards might radically impact your day-to-day business operations. More than ever, making your voice heard is crucial.
Over the last years, Dr2 Consultants has built up a track record in advising a broad range of transport clients in navigating the EU ecosystem. Would you like to know more about what the ‘Fit for 55 Package’ means for your organization? Feel free to reach out to us or visit our Fit for 55 webpage. You can also sign up for our weekly Fit for 55 policy updates here.