Comparison with the Net Zero Scenario and policy implications

The window for achieving net-zero emissions in the road transport sector by 2050 is closing quickly. We have extended our Economic Transition Scenario analysis to 2050 to better compare trajectories with our new Net Zero Scenario. Some vehicle segments are almost on track for net zero under the ETS; others are not.

An immediate increase in policy action is needed to bend the curve toward net zero. To get on track for a net-zero global fleet by 2050, zero-emission vehicles need to represent almost 60% of global new passenger vehicle sales by 2030. In our Economic Transition Scenario, ZEVs only achieve a 34%

share by that year, though some markets go much higher. The fleet of electric vehicles hits 169 million in 2030 in the Economic Transition Scenario but needs to jump to 218 million by the same date in the Net Zero Scenario.

2030 is only two model-refresh cycles away for automakers, so policy certainty will be needed very soon to enable the investments for such a high rate of penetration. This is particularly true for countries that do not already have tightening vehicle CO2 emissions or fuel economy standards. Early adoption is important for building infrastructure and broader consumer interest in our adoption models.

Urgent action is needed from policymakers in all countries on the heavy-truck segment, which is the furthest from achieving net zero. By 2040, zero-emission medium and heavy commercial vehicles are 95% of sales in our Net Zero Scenario, but just 30% in the ETS. This represents an ‘adoption gap’ of 65 percentage points in 2040.

In addition to introducing tighter fuel economy or CO2 standards for trucks, governments may need to consider mandates for the electrification of fleets, including those of governments and transport operators. Governments should also consider incentives to push freight into smaller trucks which can electrify faster than larger ones. At the municipal level, tighter regulations for vehicles entering urban areas will help make the economics of zero-emissions vehicles more attractive, especially for commercial fleet operators.

In contrast, the ‘adoption gap’ is much smaller for two/three-wheelers (23 percentage points in 2035) and buses (13 percentage points in 2035). For cars, the gap is a sizeable 42 percentage points in 2035, which must be addressed through accelerated charging infrastructure deployment, and further policy support in emerging economies.

Across all segments, sales of new internal combustion vehicles need to be phased out by just after 2035 to stay on track for the Net Zero Scenario. Even with that, some early retirements and conversions of older vehicles will be needed in the 2040s.

Direct electrification via batteries is the most economically attractive and efficient approach to decarbonizing road transport and should be pursued wherever possible. Hydrogen fuel cell vehicles can help fill the small gaps left by electrification in some heavy vehicles, in regions or duty cycles where batteries struggle. In the Net Zero Scenario, hydrogen fuel cell vehicles are 10% of medium and heavy commercial trucks on the road in 2050, some 16% of municipal buses, and less than 1% of the passenger vehicle fleet. The balance is fully electric vehicles.

Electric vehicles represent a $7 trillion market opportunity between today and 2030, and $46 trillion between today and 2050. While there are notable leading EV manufacturers today, the sheer scale of growth expected in the coming decades means that there is inherent uncertainty over which companies and countries may come to dominate this new value chain. Countries should be giving serious consideration to how they can create economic value-add and domestic jobs from this growth.

Today's leading markets (China, Europe, North America and South Korea) have invested significant sums from both private and public funds into enabling the EV transition, but tomorrow's growth markets - such as India and other emerging economies - will require much lower investment. The scale being driven by today's leading markets will push down battery and infrastructure costs such that the 'cost of going electric' for the next wave of countries should be negative. Emerging economies should ready themselves to take advantage of this trend within the next five years.

Given the minor additional push needed to bend the curve on buses and 2/3-wheelers to net zero, policymakers should have high confidence that electrification targets in these segments can be met. Policy action for these segments should be taken without delay.

Investments in public transit and active mobility are an important part of the solution mix for net zero, as they can reduce demand for vehicles and vehicle miles, while also delivering a public-health benefit. Even a modest 10% reduction in total kilometers traveled by car globally in 2050 can make the task of achieving net zero much easier.

In addition to pushing for more zero-emission vehicles, governments should prioritize investments in cycling and walking, and enabling higher-density urban areas. In the wake of the Covid-19 pandemic, when the finances of public transit systems are under pressure, governments should continue to invest for the long-term development and expansion of these systems. All of the above will be needed.