Sustainable Freight and Passenger Transport – Which Regulations Will Promote It?

The European Green Deal is increasingly entwining itself around various sectors of the economy, setting the requirement for them to comply with higher sustainability standards in order to reduce greenhouse gas (GHG) emissions. For some companies, this creates new business opportunities, while for others, it brings new challenges, prompting questions such as – why is all this necessary, and how will it affect my business?

The freight and passenger transport segment is no exception, where European regulations and directives are tightening the loop around vehicle manufacturers and carriers, pushing them to produce, supply, and use “cleaner” vehicles. This article discusses these and other planned European Union (EU) initiatives that will promote the decarbonization of the freight and passenger transport sector.

“Clean” road transport procurement

In mid-2021, amendments to the Directive on the promotion of clean and energy-efficient road transport vehicles came into force, the requirements of which have been transposed into the Public Procurement Law and the Law on Procurement by Public Service Providers. This regulation sets different target indicators for each EU Member State, which must be observed in public procurement when contracting authorities and public service providers purchase vehicles. The target indicators to be achieved are defined for two periods and vary depending on the category (group) of vehicles being procured.

Figure 1. Procurement targets for “clean” vehicles to be achieved by Latvia.

This regulation applies to any category M and N vehicle, i.e., city buses, minibuses, passenger cars, pickups, vans, commercial vehicles, and heavy-duty commercial vehicles, with the exception of long-distance buses. In relation to freight and passenger transport, it is important to highlight the definition of a “clean” heavy-duty vehicle and the definition of a heavy-duty zero-emission vehicle.

By definition, a “clean” heavy-duty vehicle is an M3 category vehicle (city bus), or an N2 or N3 category vehicle (heavy-duty truck) powered by alternative fuels, but a heavy-duty zero-emission vehicle is a “clean” heavy-duty vehicle without an internal combustion engine or with such an engine whose emissions are less than one gram of CO2/kWh or less than one gram of CO2/km. When procuring M3 category vehicles (city buses), it is necessary to comply both with the minimum targets set out in the Directive and with the requirement that 50% of “clean” heavy-duty vehicles must meet the definition of a heavy-duty zero-emission vehicle.

According to the latest data published by the Public Procurement Monitoring Bureau (IUB) on “clean” vehicle procurement in Latvia, for the period from 1 August 2021 to 1 August 2022, only a slight deviation from the target is observed regarding city bus procurements.

Figure 2. Implementation of “clean” vehicle procurement targets in Latvia

A more detailed analysis of “clean” road transport procurement with respect to buses can be carried out by examining CSDD data on their first registration in Latvia:

Revision of CO2 Emission Standards for Heavy-Duty Vehicles

Heavy-duty vehicles, such as trucks, city buses, and long-distance 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 have been increasing year by year. Considering 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 from 2030 onward, in order to push vehicle manufacturers to supply more efficient and environmentally friendly vehicles to the market. The specific proposal still needs to be approved by the European Parliament and the EU Council, but if adopted, it would be the world-leading standard for heavy-duty vehicles.

Alternative Fuels Infrastructure Regulation

Given the increasing diversity of fuel types for motorized vehicles, EU Member States are required to include the development of necessary charging and refueling infrastructure as a key element in their regulations. This is especially relevant for heavy-duty vehicles, whose refueling and charging infrastructure has so far been unable 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 sector, both regarding charging infrastructure for heavy-duty electric vehicles and refueling infrastructure for hydrogen and liquefied methane.

Revision of the Renewable Energy Directive

In 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 local renewable energy sources to meet GHG emission reduction targets. The agreement includes target indicators and measures to support the use of renewable energy across various economic sectors, including transport. In all EU countries, the share of renewable energy in transport must reach at least 29% of total final energy consumption by 2030 (the previous target was 14%). The directive stipulates that achieving this target should be done through nationally designated fuel suppliers, obliging them to provide renewable energy. As a result, fuel supplied for freight and passenger transport is likely to become more sustainable, as the directive sets sub-targets to promote the consumption 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 Tax Directive to align the taxation of energy products with current EU energy and climate policies. In some sectors, a green transition cannot occur without the use of various legislative instruments. Both “sticks” and “carrots” will be necessary, but tax “levers” should not be forgotten, as they can be decisive in changing consumer and business choices.

It is expected that, following the revision of the Energy Tax Directive, fuels will be taxed based on their energy content and environmental characteristics rather than volume, thereby helping businesses and consumers make more climate-friendly choices. According to this ranking, traditional fossil fuels, such as diesel and gasoline, will be subject to the highest tax, while electricity will be taxed at the lowest rate. Exemptions for certain products will gradually be removed, so fossil fuels can no longer be taxed below minimum rates. In June 2023, during Sweden’s EU Council presidency, the Council noted progress in the revision of this directive and found several compromise solutions. However, work on this document continues to achieve a balanced compromise.

Corporate Sustainability Reporting Directive

The recently adopted Corporate Sustainability Reporting Directive will also have a certain impact on how transport operations are conducted, particularly freight transport, which consumes a large volume of energy resources. This directive requires companies to report on the sustainability measures they have in place, their targets, and the results achieved. Although the directive applies to approximately 50,000 companies across Europe and is mandatory for relatively large enterprises—those meeting at least two of the following three criteria: annual net turnover of €40 million, total assets of €20 million, and 250 employees—its impact could extend much further. Even if companies are not directly affected, the directive’s implications can indirectly influence nearly every procurement of goods and services, as more and more companies are developing sustainable procurement policies.

Companies might hope that the European Green Deal will not affect their operations and choose to ignore it, but such an approach can create significant long-term challenges, including the potential loss of business and market share to competitors. An increasing number of companies have already opted to comply with green requirements and have begun developing and implementing sustainability strategies, demonstrating their objectives and progress in managing sustainability issues.