$400bn needed annually to reduce oil consumption in the transport sector


Source:  www.ameinfo.com

A report released by the World Economic Forum in collaboration with Booz & Company argues that countries seeking to reduce oil dependency and emissions of their transport sector must support the development, distribution and adoption of new technologies in transport through a structured policy approach, strong public-private partnerships, risk hedging and collaborative financing.

Global transportation and fossil fuels are inextricably linked. More than 60% of the 87 million barrels of oil consumed every day powers the world’s transportation system, and liquid fossil fuels account for more than 96% of the current energy supply to the transport sector.

The Repowering Transport report estimates that a $400bn annual investment is required to achieve 25% penetration of alternative energy sources (electricity, biofuels, CNG/LPG) from 2010 to 2030 and reduce total oil consumption in transport by 0.5% per year. The capital needed is moderate in relation to the $740bn annual expense in global oil subsidies or the global transport industry’s annual $4,500bn revenue. Research found that lack of financing for green transportation is not a matter of capital availability but rather of uncertainty in the regulatory environment and challenges in assessing the risk involved.

The report’s proposed two-pronged policy approach to achieve energy diversification involves establishing regulation (fuel taxes, carbon fees) and/or setting performance standards that the market can meet independent of the technology choice, while supporting technology-specific policies chosen based on the country’s own competitive advantage.

“Understanding the opportunities and challenges in energy supply across all modes of transport is a highly complex undertaking; this report is the first to provide a comprehensive framework identifying critical enablers and ensuring deployment of the broadest range of technologies,” said Nick Pennell, Vice President of Booz & Company.

As examples, the report features China, whose $15bn investment pledge in electric vehicles, coupled with a tight-knit collaboration between government and private enterprise, aims to put 5-10 million electric vehicles on the road by 2020. The report also highlights Brazil’s consistent 30-year policy supporting the development of biofuels, a technology that today powers 20% of the country’s entire transportation system. Brazil continues to support biofuels with up to $2.5bn dollars per annum of tax breaks and other consumption incentives.

Specifically, the Middle East is prone to rethink its consumption of fossil fuel for transport and mobility. While already having some of the largest CO2 emissions per capita, public transport in the Gulf Cooperation Council (GCC) countries only accounts for about 5-10% of all motorized trips. Urban transport demand is expected to double by 2025 in Middle Eastern Cities. Establishing efficient public transport systems and achieving a public transport share of approximately 30-40% as planned by several GCC countries is not only beneficial to mitigate increasing congestion but also provides a significant lever to reduce CO2 emissions in the region.

“The Middle East needs a whole new approach to mobility and public transport”, says Fadi Majdalani, Vice President of Booz & Company, “current emission levels are simply not sustainable. A comprehensive approach of establishing excellent public transport systems and reducing the usage of private cars by means of road tolling, as well as an increase in fuel prices and a systematic demand management are required – and many cities such as Dubai, Abu Dhabi, Doha, Kuwait and Jeddah in the region are actually acting accordingly.”

Also today, freight transport and logistics in the Middle East region are highly inefficient and dominated by road transport. Governments in the region have initiated multi-billion US Dollar programs to establish a rail network in the Middle East / GCC to benefit from the lower emissions of rail freight transport and to accommodate the significantly increased demand. “Rail freight is only measure to reduce emissions in the transport and logistics sector”, says Ulrich Koegler, Vice President of Booz & Company.

“Yet, it is not even enough to off-set the emissions which will result from the growth of the sector. In land transport a comprehensive program of tight emissions charging schemes and promotion of modern and emission efficient technologies as well as taxation of fossil fuels is required simply to maintain current levels of CO2 emission. But the sector can do far better. A fundamental restructuring of the supply chains and technology-driven improvements of truck fleet utilization have been key factors in the reduced emissions sector in Europe.” Also, recent experiences in slow steaming in maritime transport have shown that this process can not only be beneficial to the cost of transport but also reduce fuel consumption by up to 20%.

Still, the Middle East region as a whole has not embarked on a program of modern and biofuels. “We see Brazil, Germany and many other countries paving the way to complement fossil fuels with bio-generated components”, states George Chehade, Vice President of Booz & Company, “These countries truly invest in CO2-reducing fuels. Already today’s engine technology can accommodate a significant share of bio-fuels and we expect that in the near term the technology will allow for up to 30% and more of bio-components. Yet, there are no policies and incentives across the region for the industry to provide such modern fuels. It will not happen on its own – this is a call for government regulation and support to make it happen.” Also, the automotive industry is working intensively on providing cost-effective electric vehicles.

While energy storage of batteries used in electric vehicles is still a significant challenge, the Middle East regions solar power potential could be a great source of energy provision. “Why do we need to wait for Siemens and other Western Industry Players to come up with programs such as Desert Tec to provide solar power on a large scale?”, asks Walid Fayad, Vice President of Booz & Company, “Masdar, the Abu Dhabi-based renewable energy company is developing concepts and technologies for 100% emission-free transportation. This is the time where the Middle East/GCC could truly pave the way for emission-free
mobility and transport. However, significantly larger innovation and investment efforts are required”.

“The report finds that oil will continue to be the dominant fuel for transportation over the next 20 years, but innovative partnerships among business, government, academia and civil society markets are accelerating technology development of alternative sources,” said John Moavenzadeh, Head of Mobility Industries at the World Economic Forum.

The report sets out a framework to identify the most useful partnerships at each point of the technology lifecycle. Successful partnership case studies at the global and country level are featured in the report, including examples from Canada, Sweden, the United Kingdom and the US.