The Draghi Report, published on September 9th, 2024, delivers a stark assessment of the European Union’s transport sector. It highlights the urgent need for coordinated planning and investment to meet decarbonisation goals and warns that the EU’s ambitious climate targets are at risk unless significant hurdles are overcome.
Transport: A Major Emitter with Stagnant Emissions
Transport accounts for a quarter of all greenhouse gas emissions in the EU, and unlike other sectors, its CO2 emissions remain stubbornly high – 3.5% above 1990 levels, according to the report. “Transport is a key enabler of economic activity, but it is also a significant source of emissions and environmental degradation,” the report states.
The European Environment Agency projects that, under current policies, transport emissions will fall only slightly by 2030, underscoring the need for urgent action. The report emphasises that “lack of EU-level planning for transport competitiveness is hindering the ability of Europe to capitalise on the possibilities of multimodal transport to lower carbon emissions.”
Infrastructure and Digitalisation: A Widening Gap
The report highlights significant gaps in infrastructure and digitalisation that impede the transition to sustainable mobility. Only 1% of cross-border maritime operations and 5% of rail transport operations in Europe are fully paperless, compared to 42% of air cargo operations globally. This digital divide is a barrier to seamless multimodal transport and supply chain efficiency.
Moreover, the report points out that while there is a precise and binding regulatory framework for carmakers and corporate logistics to increase demand for electric vehicles (EVs) and charging infrastructure, energy providers have no analogous obligation to supply stable and powerful grid access to sufficient capacity.
The Automotive Conundrum
The automotive sector is highlighted as a key example of the EU’s struggle to synchronise climate policy with industrial policy. The report warns that the ambitious target of zero tailpipe emissions by 2035, which will lead to a de facto phasing out of new registrations of vehicles with internal combustion engines, has not been matched with a coordinated push to convert the supply chain.
“The technology neutrality principle has not always been applied in the automotive sector,” the report notes. The European Battery Alliance, launched in 2017 to build a battery value chain in Europe, was a late start compared to China’s strategic focus on the full EV supply chain since 2012. As a result, “China has moved faster and at a larger scale and is now one generation ahead in EV technology in virtually all domains, while also producing at lower cost,” the report states.
The market share of Chinese carmakers for EVs in Europe rose from 5% in 2015 to almost 15% in 2023, while the share of European carmakers in the European EV market fell from 80% to 60%.
Pragmatic Approach to Decarbonisation
The report recommends a pragmatic approach to decarbonising the transport sector, with a focus on providing sufficient financial resources and ensuring a global level playing field. It suggests earmarking a larger share of Emissions Trading System (ETS) revenues to support the decarbonisation of the transport sector and help reach the EU’s milestones for shifting more activity to sustainable modes of transport.
“Decarbonisation funding across the EU should be based on common, competitive and simple instruments, such as Carbon Contracts for Difference (CCfDs) or competitive auctions by the European Hydrogen Bank,” the report suggests.
The report also proposes a basket of additional options to financially support transport decarbonisation, including:
- CCfDs to de-risk investment in low carbon fuels, with a projected market size of €20 billion by 2030.
- Blending EU grants with support from the European Investment Bank and National Promotional Banks, with a proposed €30 billion allocated to transport decarbonisation over the next decade.
- Regulatory Asset Based models for investment in (high speed) railway infrastructure, with an estimated €75 billion needed to complete the Trans-European Transport Network (TEN-T) core network corridors by 2030.
“Hard-to-Abate” Industries: Aviation and Maritime
The report underscores the challenges faced by “hard-to-abate” industries, such as aviation and maritime transport, suffering from high energy prices and lack of public support for decarbonisation. “Despite the massive investment needs facing Energy Intensive Industries (EIIs), and the challenging business case for investment in ‘hard-to-abate’ sectors, there is limited public support for the transition in Europe,” the report notes.
Additionally, whilst the report states that their decarbonisation will be driven by low-carbon fuels – the supply chain for which is currently lacking – it also warns that “there is a risk of carbon leakage and business diversion from transport hubs in the EU to those in the EU’s neighbourhood, unless effective solutions for ensuring a level playing field are found at the international level.”
Call for Unified Planning
The report concludes that the wider EU strategy towards cross-border and modal integration and sustainable transport needs to plan for competitiveness and not only for cohesion. It calls for a new unified approach to planning at the EU and national levels, focused on harmonisation and interoperability as well as cohesion.
“Transport should be based on a new unified approach to planning at the EU and national levels, focused on harmonisation and interoperability as well as cohesion,” the report states. “This approach should be matched by deeper coordination with adjacent network industries (energy and telecoms) and new incentives in the EU budget for Member States to remove barriers to EU integration and ensure interoperability and competition in all transport segments.”
The report also recommends launching industrial innovation projects for decarbonisation challenges, such as an industrial demonstrator for zero-emission flight or an Important Project of Common European Interest (IPCEI) for the zero-emission waterborne transport of the future.
Draghi’s Wake-up Call
The Draghi Report serves as a wake-up call for the EU to address the pressing challenges in its transport sector and capitalise on the opportunities presented by decarbonisation. With a more coordinated and pragmatic approach, the EU can lead the way in sustainable transport and mobility, fostering a greener and more competitive future.
As the report notes, “The EU has the potential to be a global leader in clean transport technologies, but this will require a concerted effort by policymakers, industry, and investors to overcome the significant hurdles that lie ahead.” The stakes are high, but the opportunities are immense, and the EU must act decisively to secure a sustainable and prosperous future for its transport sector.
In the coming months, the European Commission is expected to respond to the report’s findings and recommendations, outlining a roadmap for the future of EU transport.
