Adaptation to more sustainable transports

– Countries prioritise differently

Many countries have a vision of what technology and fuels will make the transport sector more sustainable. Because countries have different interests as regards society and trade and industry and it is uncertain which technology will be predominant in the future, there
are several competing alternatives that are supported with state funds.

Many countries have a vision of what technology and fuels will make the transport sector more sustainable. Because countries have different interests as regards society and trade and industry and it is uncertain which technology will be predominant in the future, there are several competing alternatives that are supported with state funds.

Countries with a large motor vehicle industry tend to go for electric vehicles or hydrogen. The UK, Germany, France and Japan are examples of countries that have chosen this direction, one reason being to support their vehicle manufacturers. Countries with strong interests in natural gas and LNG, like the Netherlands and Italy, employ policies that favour the use of such fuels. This applies primarily to freight transports, not to cars. Finland also has a clear focus on LNG for ships. One reason for that is the Finnish engine manufacturer, Wärtsilä. Otherwise, Finland’s transport policy focuses on the production of biofuel from forest materials. Finland’s three large forest industries all collaborate closely with the fuel industry. UPM collaborates with St1, Stora Enso with Neste and the Metsä Group with Gasum.

Innovation policy is a matter of giving support to research and the use of new technology

Countries whose policy for the adaptation of the transport system is based on policies for trade and industry tend to have policy instruments that support both the development of a specific type of technology and the demand for that technology. In the UK, aid is given to both the development of electric cars and the purchase of such cars and charging stations in the home. Moreover, for more than a decade, the tax system has been differentiated towards carbon dioxide emissions which has made electric cars more competitive.

In Finland, the policy has been to create a competitive forest industry. This has included the development of new areas of use for forest materials through investments in biorefineries. Even if the aim of these initiatives has been primarily to produce biofuel, they have also been justified because they create knowledge which is of value for the development of other parts of the Finnish bio-economy.

Hydrogen as an energy-carrier is a prioritised area in Japan’s growth strategy.  One of the most important measures is to favour fuel cell cars. Important reasons for this initiative is to strengthen the competitiveness of the Japanese car manufacturers, reduce climate impact and increase security of supply. Toyota has already launched a fuel cell car, Mirai, which will begin to be sold in Sweden in the summer of 2016. Nissan and Honda are expected to launch fuel cell cars in the next few years. The Japanese government supports the entire supply chain for hydrogen. A number of cities also have intervention programmes for hydrogen. Tokyo has major investment plans for hydrogen for the Olympic Games in 2020. Alongside the hydrogen initiative, there is extensive investment in electric cars. Hydrogen and electricity cars are in fact viewed as complementing each other.

Countries promote second generation biofuels

In contrast to Sweden, Finland, Italy and the USA have designed their aid system for biofuels so there are extra incentives for the use of second generation biofuels. In Finland, this is part of their policy to secure the value of the Finnish forests. In the USA, there has been a ceiling imposed as of 2015 for how much biofuel can be made from corn ethanol in the quota obligation system.

Strong focus on gas for freight transports

Even though freight transports constitute a growing share of the energy consumption of the transport sector, few countries have a clear vision for the adaptation of this type of transport. One exception is France that is building separate railway lines for freight trains. Another trend is that many countries are focusing on gas for both lorries and ships. Two EU directives have also contributed to this trend: the directive on the deployment of alternative fuels infrastructure (2014/94/EU) and the directive on sulphur (2012/33/EG).  The over-capacity in the LNG terminals in the Netherlands and Italy has contributed to increased interest in gas as a fuel and probably also the formulating of both of the EU directives.

Germany as a transit country makes rail transport more difficult

Germany’s transport policy focuses primarily on strengthening the national vehicle industry. One of the consequences of this is that there are no measures to move both private and freight transports over to the railway. Policy is aimed at road transports. Another consequence of this is that the German railway is finding it increasingly difficult to compete. This also makes it more difficult to bring about a large-scale European expansion of the railway. Because Germany is a centrally located transit country for transports, it needs to invest in its rail system so as to make it possible to travel by rail between European countries.

The investments that are made in high-speed trains in Europe are primarily for domestic routes. The UK is an example of a country where the major cities are to be linked together with high-speed trains.

Ambitious plans for biofuels for air travel

There are expectations that new materials and communication technology will be able to contribute to a reduction in the emission of greenhouse gases from air transport in the future. To reduce emissions even further, biofuels are seen as being important solutions, as is hydrogen too (in the long term). The use of biofuels for air transport is already growing fast today. The objective in China is that 30 % of air transport fuel that is used 2020 shall come from biofuel. Finland’s ambition is that Helsinki’s airport will be a central point in the EU for journeys to Asia using biofuels. The fuel company Neste is the player behind this initiative.

In the EU, KLM has been a central player in the development of biofuel for air transport. One example of this is the collaboration project with Amsterdam’s airport Schiphol. For this venture, KLM has founded the company SkyNRG with partners like Finnair, Air France, Boeing and Airbus. SkyNRG was one of the players involved in ensuring there is biofuel at the airports in Karlstad and Gardemoen.

The government in Japan is supporting an initiative to achieve a breakthrough for biofuel for air traffic to the Olympic Games in Tokyo in 2020. A plan for the entire supply chain has been drawn up by, among others, Japan Airlines, Nippon Cargo, Boeing and Tokyo University for commercial production. A demonstration plant doe the production of aircraft fuel from algae is being built in Yokohama with financial aid from the City. It is planned to be in operation by 2018.

Sweden should prioritise or justify its research initiatives

Just like the other countries in the study, Sweden’s government policy in the area of transport is clearly based on Sweden’s vehicle industry. There are trade and industry policy arguments to support this but at the same time, there is a risk of old solutions preserving policy, not least with regard to road vehicles.

Sweden has chosen to focus on handling market obstructions. This means policy is aimed at dealing with problems like climate change through cost-effective policy instruments. With this approach, the interests of trade and industry are not the most important aspect. There are few policy instruments that reduce the market risk for radical new technology for the adaptation of society. One consequence of this is that trade and industry do not dare to do this type of research. One example is the Swedish Energy Agency’s research aid to biofuels. About two thirds of the money paid out in 2011 went to projects from companies. There were high hopes that there would be Swedish production of second generation biofuels. In the absence of policy instruments that could generate a demand for these biofuels, the companies lost interest. In 2014, only 10 % of the money paid out went to company projects. even though the sales of biofuels doubled during those years. However, those biofuels were imported.

The aim should be to combine the Swedish model with cost-effective policy instruments to handle market failures with certain deviations in order to develop further the type of industrial competence that Sweden clearly has a headstart. One example of such an exception could be the development of aircraft fuel from forest biomass through the development of biorefineries. This would be justifiable because of the high expertise of the Swedish forest sector. However, such an initiative would require that policy instruments that create a demand for these aircraft fuels would need to be introduced. However, Finland has already come much further than Sweden in this field. Not least through Helsinki airport’s focus on air services to Asia and the ambition to make the airport a node for aircraft biofuels.  Test facilities for the vehicle industry is probably another important area for government aid.

It is therefore essential that the government prioritises the handling of societal challenges through trade and industry policy so as to facilitate the involvement of the companies. This need is something that was also identified in Growth Analysis’s evaluation of energy research in Sweden.¹

Another significant lesson learned is the importance of including cities and regions in the formulating of state transport policy. It is precisely their needs that government initiatives must provide for. This applies not least to a country like Sweden where the needs in the inland regions of Norrland (northern Sweden) are completely different from those of the metropolis regions. 

¹ Research and innovation for the adaptation of the energy system – an analysis of the Swedish Energy Agency’s R&D activities. Growth Analysis report 2015:08

Adaptation to more sustainable transports – Countries prioritise differently

Serial number: Direct response 2016:12

Reference number: 2016/016

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