Three principles for spurring private investment in green mobility
Our CEO Jon Phillips outlines findings from our latest EU Transport report.
EU officials can be forgiven for casting a wary eye across the pond with regard to what the US Inflation Reduction and Buy America Acts could mean for Europe’s clean transport industry, as well as wider continental efforts to cut emissions in the round.
With the sector currently accounting for around a fifth of greenhouse gas emissions across the EU, decarbonising land, air, and sea networks will be integral to making Fitfor55 measures a reality. Done right, this transformation will serve as a significant catalyst for innovation, growth, and job creation.
The European Commission, recognising the vital role of private funds, estimates that €1.5 trillion in investment will be needed to facilitate its vision for a net zero Trans-European Transport Network by 2050.
With COP27 agreements around net zero financing proving underwhelming, the private sector will, it seems, increasingly have to deliver the investment needed to make emissions cuts a reality.
It’s against this backdrop that the US has upped the ante re efforts to attract inward investment.
And whilst EU officials consider which transatlantic incentives to replicate, they would do well to remember that market appeal is built on more than subsidies and tax credits alone.
The fretting is justified. Our latest Pulse study shows the US scoring an average of +2.59 among infrastructure investors when asked to rate markets by attractiveness on a scale of -5 to +5, significantly ahead of other nations across Europe and the Americas.
The Nordics and DACH regions of Europe also recorded scores in excess of +2. France and Iberia, by contrast, did not hit the +2 mark, whilst in Italy and Ireland scores of sub +1 were recorded. In Greece and Eastern Europe, negative readings were posted as war sadly continues to afflict the region.
With the gauntlet well and truly thrown down across the pond, and with the perennial challenge of needing to coordinate activity across different member states as net zero targets close in, the already daunting task of closing the €1.5 trillion transport investment gap can start to look insurmountable.
That’s why, here at GIIA, we’ve been working with expert members in recent months to detail a series of recommendations that speak to that very task. As we did so, three overarching themes emerged.
First, the ever-present investor call for fair, constructive, stable regulatory and policy frameworks that pave the way for inward investment and project delivery. The call is more pertinent than ever in a geopolitical landscape marked by populism and protectionism.
Infrastructure investors currently state that regulatory approaches, tax frameworks and lack of political stability are significantly greater barriers to growth in the EU than in the US.
To give one example of what the impact of uncertainty looks like in practice, consider the fate of Europe’s wind turbine industry over the course of last year.
Whilst policymakers kept investors on tenterhooks as they worked through proposals for energy price caps and the decoupling of gas from electricity prices, sales of turbines plummeted 36% in Q3 2022 (compared to the same period in 2021).
From a transport perspective, that translates into a massive loss of renewable energy capacity to facilitate the green hydrogen, manufacture of clean vehicles, and electric power networks that will be fundamental to achieving FitFor55 targets.
Positive steps to address lack of certainty include widened use of sustainable urban mobility plans, to provide vision to investors, and provision of clarity around the status of EU taxonomy as it relates to waterborne transport beyond 2025.
High inflation, rising borrowing rates, skills shortages and supply chain disruption are all weighing on investor plans – the least the EU can do is provide them with certainty and clarity through a fair approach to legislative and regulatory development.
Second, the need to shore up and streamline EU funding streams.
The Connecting Europe (CEF), Structural and Investment (ESIF), Regional Development (ERDF), Cohesion (CF) and InvestEU funds are all important drivers of infrastructure resilience and net zero investments, serving as important channels for crowding-in additional private investment.
Given the bureaucratic hoops that investors have to jump through to benefit from these funds, however, it can be hard for them to know which way is up when seeking support for decarbonisation initiatives. Navigating the benefits of these funding streams can, as things stand, serve as a significant drain on time and resource.
The EU should move to issuing regular, clear guidance for different instruments and the rules and revenue models relating to them, taking forward such principles when designing the post-2027 multi-annual financial framework (MFF) and next generation of EU funds.
The extraordinary fund-raising model developed as part of the Recovery and Resilience Facility should also be maintained as a permanent mechanism for addressing exceptional circumstances, not least the net zero challenge.
Equally, lessons should be learnt from where a mix of public and private funding is making progress possible, especially in instances where market viability may not yet exist but will do in future.
The Important Projects of Common European Interest (IPCEI) Hy2Use initiative serves as an example of best practice in this regard, with €5bn of EU funding now crowding-in an additional €7bn in private support for hydrogen projects.
Likewise, the €1.6bn provided through the Alternative Fuels Infrastructure Facility (AFIF) for innovative projects which currently lack market viability, but have the potential to attract private funding in future, is a model that should be replicated more widely.
A Sustainable Aviation Fund, to increase research and development around alternative green fuels, could, for example, channel proceeds from ReFuel EU Aviation penalties and emissions allowance auctions to good use.
And third, a clamour for strong project pipelines.
The EU set out plans to accelerate permitting procedures as part of its RePowerEU initiative, but it should strive to be more ambitious in its delivery.
From an investor perspective, the money and appetite are there – dry powder held by global funds is estimated to have quadrupled to just shy of $300bn in the ten years to 2021 – what they need before they deploy it is clear cross-party, long-term maps for delivery.
As the global competition for inward investment hots up, there are a host of green lights investors are looking for in markets before they commit.
By considering these three principles at every stage of policy development, whilst remaining alert to measures being rolled out in other regions, EU officials can accelerate the move to green mobility right across the bloc.
This article originally appeared in Green Mobility Magazine.