Member Article

COP28: Urgent action needed to electrify UK’s most polluting vehicles, says new report from industry led by the Green Finance Institute

Urgent action is needed to electrify half a million heavy-polluting HGVs in the UK, in order to meet net zero targets for transport - a new report from the Green Finance Institute (GFI) ahead of COP28 says today.

As world leaders prepare to gather at COP28 in the UAE for a Global Stocktake on progress against net zero targets, the GFI, with the support of transport and finance organisations, is calling on government, industry and private investors to work together to unlock a £100 billion investment opportunity to decarbonise the sector.

The report, Delivering net zero: unlocking public and private capital for zero emission trucks, focuses on unlocking the barriers to financing decarbonisation of the HGV sector and highlights perceived technology risk, higher costs, and lack of charging infrastructure as some of the key barriers to decarbonising HGVs. It outlines 10 financial mechanisms that will support the decarbonisation of the freight sector and help the UK meet its net zero targets.

These mechanisms were developed with input from global finance, freight and logistics, and energy experts, along with leading thinkers from academia and non-profit organisations, as well as local and central government.

The UK’s HGV fleet accounts for just 1% of all vehicles on the road but almost 20% of total transport emissions – roughly equivalent to the carbon footprint of domestic and international air travel, buses and domestic shipping combined.

By installing infrastructure across the UK, including chargepoints in depots and also across the strategic road network, the country’s entire HGV fleet could be decarbonised – which is the equivalent of removing 12 million cars from the road (18.6 million tonnes of CO2).

The GFI report says that to make the transition, operators and landowners need to be provided with finance to acquire ZETs and install infrastructure. Greener electric trucks are already available, which means access to finance would allow more than half of lighter HGVs in the UK - 280,000 - to be replaced now - the equivalent of taking over 3.5 million cars off the road today.

The GFI’s 10 financial solutions to support the freight sector include:

• Utilisation Linked Financing (ULF): ULF is a financial solution that can de-risk investment in charging infrastructure either through a loan or asset finance. ULF can be structured so that payments are linked to the usage of the chargepoint, with payments only commencing once the asset is revenue generating. • Shared charging infrastructure agreements: These agreements could allow HGV fleet operators to pool resources so they can buy or invest in electric charging infrastructure at depots together, reducing the capital investment required by each party and sharing the infrastructure maintenance. This could be done through joint ventures or a Special Purpose Vehicle, which provides financial protection for riskier projects by ensuring its operations are kept separate from the main company, or through a contractual agreement that protects all parties. • Residual Value (RV) Guarantee: RV is the estimated value of a truck at the end of its lease term. An RV Guarantee could improve the RVs of electric trucks as set by financiers, which would reduce finance costs for operators and enable more of them to make a business case for adopting ZETs. Provided by government or a third party, it could be a more effective way to encourage adoption than the existing grant schemes for ZETs. Freight decarbonisation offers a significant investment opportunity, but a lack of demand for ZETs heightens risks for investors which reduces the incentive to provide finance. Currently, only 500 HGVs in the UK are ZETs – accounting for less than 0.1% of all HGVs on the road – and early adopters have mostly been large companies or local authorities.

The organisations bucking the trend and taking advantage of electric HGVs in their fleet includes Westminster City Council who are electrifying their refuse collection trucks; supermarket Tesco who are deploying the UK’s first electric articulated HGVs – trucks with a tractor and trailer – as part of their heavy duty haulage fleet; Amazon who launched electric HGVs in their delivery fleet for the first time last year; and Cambridge based SME Welch Transport.

Around half of the trucks in the UK are owned by small businesses, many of which lack access to the additional finance needed to transition to more expensive Zero Emission Trucks (ZETs) or install the necessary infrastructure – like chargepoints.

Lauren Pamma, Programme Director, Green Finance Institute, said: “Heavy Goods Vehicles make up a significant proportion of the UK’s total carbon emissions, despite accounting for only 1% of vehicles on UK roads. There is a £100 billion investment opportunity that we can unlock through innovative finance products, providing a massive opportunity to decarbonise the HGV sector before the government’s target of phasing out diesel trucks by 2040.

“Our report today sets out some of the financing mechanisms that will help us roll out electric charging points and get more electric lorries on our roads to decarbonise the HGV sector. These include utilisation linked finance and shared charging infrastructure agreements that will particularly help SMEs, which own half the UK’s HGV fleet but struggle to secure green financing and need additional support.”

Dr Chris Jones, Ecosystem Director - Integrated Infrastructure at innovation accelerator Connected Places Catapult, said: “Heavy goods vehicles are a big part of the puzzle when it comes to driving down transport emissions. At Connected Places Catapult, we’re proud to be working with the Department for Transport and Innovate UK to help bring forward the Zero-Emission HGVs and Infrastructure Demonstration programme. But technology must go hand in hand with policy and investment as we seek to scale solutions. This report proposes mechanisms for driving widescale adoption of zero emission HGVs. It is essential reading for every policymaker in this space.”

Chris Ashley, Head of Policy – Environment and Vehicles, Road Haulage Association said: “This report from the Green Finance Institute is a timely and welcome contribution to address how the UK finances the decarbonisation of its HGV fleet. With its clear illustration of the complexity and costs involved, ensuring the switch away from diesel is seamless whilst supporting our vital small businesses – the lifeblood of logistics - will be essential. The GFI has provided a framework that allows industry to navigate and debate the investment conditions needed to deliver a sustainable Net Zero.”

Toby Poston, Director of Corporate Affairs, British Vehicle Rental & Leasing Association said: “HGVs present one of the biggest challenges in fleet decarbonisation, but the carbon reduction prize is massive. As well as finding and funding suitable vehicles, operators are having to consider energy and infrastructure requirements for the first time. The financial risks and upfront costs are eye-watering and it is no surprise that businesses are crying out for tax incentives and regulatory certainty. Truck operators are being asked to make a huge leap of faith and it is great to see the GFI is encouraging industry and Government to come together to develop innovative solutions.

“The financial barriers are undoubtedly high, but they do not exist in isolation. For a successful HGV transition the Government needs to play its part. HGV operators desperately need a technology roadmap, the longstanding issues with grid connections to be resolved, and an accessible charging network that meets the specific needs of HGV fleets.”

Stuart Clark, Head of Climate Transition for Lombard, the UK’s largest asset finance provider and part of NatWest Group, said: “Accelerating the transition of the UK’s HGV fleet towards zero emission trucks is essential if the UK is to support the freight and logistics industry to reduce its carbon footprint and help businesses unlock the opportunities of a sustainable economy. This report sets out some of the financial solutions that will be required to deploy £100 billion of investment to transition the sector, with a focus on supporting small businesses to access the capital required. Lombard is committed to supporting business with the finance and resources to transition, to keep the industry moving towards a green and prosperous future.”

Cllr Paul Dimoldenberg, Cabinet member for City Management & Air Quality, Westminster City Council said: “Transitioning our waste fleet to zero emissions has been a central priority for Westminster City Council in its ambition to become a net zero city. Adopting electric trucks has enabled us to reduce operating costs without compromising on performance, whilst also avoiding over 3000 tonnes of carbon emission per annum, which is about the same as removing 1,400 cars from busy Westminster streets.”

Chris Welch, Operational and Commercial Director, at Welch Transport said: “We saw a commercial opportunity to adopt one of the first electric HGVs in Cambridgeshire due to the location of our business and needs of our customers. There are considerable benefits to running electric trucks, in addition to the environmental benefit, including lower running costs and reduced maintenance due to fewer moving parts. However, electric trucks are currently three times more expensive. If we are to adopt them across the rest of our fleet, along with the charging infrastructure needed, finance will be critical for us, as I’m sure it will be for many other operators across the country.”

Simon Goldie, Director of Business Finance & Advocacy, Finance and Leasing Association said: “GFI’s report is an important contribution to the ongoing debate on how best to transition to zero emission HGVs in the UK.”

This was posted in Bdaily's Members' News section by Nathan Stenett .