The EU Directive Loops for Heavy-Duty Transport

Article Published in Latvijas Bizness, September 12

Discussing Competitiveness in the Context of Climate Change

Although freight vehicles, municipal transport, and buses account for more than 40% of all road transport emissions in Latvia, broader discussions on the decarbonization of heavy-duty transport and the related challenges had so far been lacking.

A glimpse into the challenges ahead, as well as an understanding of the risks of sanctions if the EU Green Deal targets are not met, was provided at last week’s seminar in Riga: “Decarbonization of Freight Vehicles, Municipal Transport, and Buses – How Will We Achieve the 2030 Renewable Energy and Competitiveness Targets?”

The event was attended by specialists from companies interested in fleet renewal (freight and passenger carriers), alternative fuel and electricity providers, vehicle manufacturers and dealers, charging network developers, and other stakeholders. Can We Afford to Do Nothing?

The European Green Deal is increasingly encompassing various sectors of the economy, setting new and stricter requirements for higher sustainability standards to reduce greenhouse gas (GHG) emissions. The freight and passenger transport segment is no exception, as European regulations and directives are tightening the loop around vehicle manufacturers and carriers, pushing them to produce, supply, and use “cleaner” vehicles.

According to official estimates, freight trucks, city buses, and long-distance buses in EU countries generate on average about 25% of road transport GHG emissions. In Latvia, this share is already nearly twice as high, and GHG emissions in this segment continue to grow 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 reduction targets for heavy-duty vehicles starting from 2030. In this context, new regulations have been adopted, and changes to existing ones have been made or are planned. The targets set and to be achieved in the transport sector differ for each country, adapted to its specific circumstances. There are many regulations and resulting obligations, with percentages and figures that only experts can truly navigate. During the seminar, experts concluded that in practically all key indicators, compared to other countries, Latvia once again ranks at the bottom.

The only somewhat acceptable situation is in the area of promoting the use of “clean” and energy-efficient transport vehicles in urban and regional passenger transport—data from the Road Traffic Safety Directorate (CSDD) show that in Latvia, buses powered by alternative fuels are increasingly appearing. These are mainly buses running on compressed natural gas (CNG) and electricity.

Progress with fulfilling other obligations has been poor, and it seems that the greatest challenges may arise from the Alternative Fuels Infrastructure Regulation, which sets specific targets for infrastructure development—both for charging infrastructure for heavy-duty electric vehicles and for hydrogen and liquefied methane refueling infrastructure.

Indeed, meeting these obligations will create challenges not only for Latvia but also for our closest neighbors and probably many other EU countries. For example, in a presentation on Estonia’s EU policy at a session of the Estonian Parliament (Riigikogu), Estonia’s Prime Minister Kaja Kallas stated that delays in emission reductions could cost Estonia up to €225 million per year in quota purchases in certain sectors. Meanwhile, the seminar moderator, Armands Gūtmanis, Chairman of the Sustainability Cluster Latvia, remarked that in Lithuania, under a “delay and do nothing” scenario, the cost of purchasing the necessary quotas could reach €640 million, while in Latvia, this additional burden for society could be somewhere between the two neighboring countries.

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-electric vehicles—should be implemented to meet EU directive requirements and avoid massive fines. The real situation, not just what is outlined in “policy planning” documents, but from the perspective of businesses, was clearly highlighted by Jānis Bethers, Business Development Manager at Virši.

Virši has been developing its network of natural gas (CNG) refueling stations since 2019. Since 2022, the company has also been involved in the development of an electric vehicle charging network, participated in the establishment of a local biomethane production facility, and overall holds a leading position in alternative fuel retail in Latvia. From this perspective, the company representative concluded that the fuel currently available for road transport in Latvia is the “least green” in Europe.

The main reasons are low motivation to develop alternative fuel supply and the lack of clear targets. Estonia defined such targets in 2020, Lithuania last year, but Latvia still has none. The only advantage in this situation is the ability to learn from both the successes and failures of neighboring countries.

However, as long as target setting is delayed, there is a significant risk of losing both the implementations and the locally produced fuel—biomethane. Since there is no local demand, the development of biomethane production must rely on long-term export contracts, in which Germany is currently very interested. Therefore, by the time Latvia’s transport sector seriously focuses on developing alternative fuel stations, locally produced biogas will most likely no longer be available and will have to be imported.

Why There Is No Motivation

The waste management company Eco Baltia Vide was the first commercial operator in Latvia to start integrating CNG-powered vehicles into its fleet in 2020.

From what Andris Karlsons, Development Director at Eco Baltia, shared, it is clear that the company’s management made this decision not so much for business reasons, but for the sake of the company’s reputation and the broader idea of climate neutrality. At the time, it provided no advantages in Latvian procurements or local competitiveness, and it still does not.

CNG vehicles are on average about 20% more expensive than conventional vehicles. Currently, the company has only five such vehicles. However, by optimizing routes within the limited refueling possibilities and combining costs and revenues in a single “pool,” the company breaks even.

If a decision were made to purchase “clean” electric or hydrogen heavy vehicles—which are several times more expensive than conventional ones—the cost of services would have to increase, and competitiveness would be lost.

The company believes the situation could be improved and climate neutrality targets advanced, for example, by establishing zones in Latvia’s largest cities where only low-emission vehicles are allowed. Changes are also needed in the tax system so that companies purchasing new, greener vehicles gain advantages over competitors that do not.

Long-Distance Carriers Face a Similar Situation. As Aleksandrs Pociluiko, Secretary General of the Road Carriers Association “Latvijas Auto,” explained, our trucks operate in the European free market and, for now, can only compete using older engine vehicles. The industry is ready to change, but at present it is waiting to see how the Green Deal will develop overall, and there is practically no commercially viable technological solution available for long-distance carriers.

This was also confirmed by Gunārs Valdmanis, Director of the Energy Market Department at the Ministry of Climate and Energy (KEM)—unlike light vehicles, there is currently no clear path for the commercialization of alternative solutions in heavy transport. Opportunities remain open, which creates an “unknown territory” for everyone. His recommendation is that businesses themselves should closely monitor technological developments and trends, as the costs of fossil fuel transport are inevitably expected to rise.

Experts believe that transport companies could, of course, hope that the European Green Deal will not affect their operations and simply ignore it. However, such an approach will create insurmountable long-term challenges, including the potential loss of market share or even the entire business to competitors who have followed trends and complied with the requirements. Abroad, an increasing number of companies have already opted to comply with green requirements, focusing on developing and implementing sustainability strategies and demonstrating progress in managing sustainability issues. Therefore, it is certain that similar requirements will soon be imposed on service providers. What This Means for Latvia

Whether sooner or later, Latvia will also have to address the issues raised at the seminar. Listing the Ministry of Transport’s proposals for measures affecting heavy-duty vehicles, Annija Novikova, Director of the Public Transport Services Department, informed that the ministry has already prepared for government review proposals for the introduction of low-emission zones, the development of a heavy transport greening program, the creation of charging infrastructure networks for small and large electric vehicles, and other measures to comply with EU regulations.

“This battery-powered electric truck is a model that Scania is already producing in series. Clients in Latvia have the opportunity to test this vehicle for a whole week,” explained and demonstrated Aigars Pušinskis, Managing Director of Scania Latvia, one of the seminar lecturers

LB_12_septembris_2023.pdf

Download PDF • 3.26MB