Written by Federico Occi, Romed Kelp, and Marco Ferrero
Federico is a partner in Oliver Wyman’s Transportation practice, Romed is a partner in the Automotive and Manufacturing Industries practice, and Marco is an engagement director in the Energy practice.
When Europe wanted to cut carbon dioxide emissions to meet the goals of the Paris climate agreement, one of its first targets was the transportation industry — specifically trucking. It alone contributes five percent of the continent’s total – with about 50 million metric tons of carbon dioxide expelled each year into the atmosphere. In 2020, the European Commission passed regulations that forced truck manufacturers to reduce their fleet emissions by 15% by 2025 and 30% by 2030. It made non-compliance expensive by imposing tough penalties.
The dilemma facing the European trucking industry is that the technology needed for compliance is not fully developed, especially for long-haul heavy trucks. While electric batteries will be the dominant technology in short- and medium-haul truck propulsion — and the underlying technology for the electrification of most transportation — they have limitations when it comes to long-haul, heavy trucks. Given current battery and charging technology, these larger trucks will require batteries that are so large and heavy that remaining cargo carrying capacity will be severely restricted.
To address this problem, Europe is looking at three potential technologies: hydrogen, electrified roads, and new high-speed charging capacity for larger batteries. Very little of the infrastructure needed for any of these three projects has been built, and all will require significant capital investments to get off the ground.
While there is no consensus on which technology the continent should adopt, meeting the tough deadlines will require extensive collaboration between industry and government, extending across the industrial value chain including energy companies, truck manufacturers, logistics companies, and shipping companies. In addition, public sector commitments in terms of funds and organizational support for one or more of the options will be required to ensure success. As of now, all three options are being pursued, none are expected to be ready in time for the first deadline in 2025, and there is no government support for one over the other.
Here’s how the different options stack up:
Hydrogen solution
Hydrogen could be used in a way closer to the current operating model, where trucks fill up quickly and store hydrogen on board as they now do with diesel fuel. Diesel tanks will be replaced with hydrogen bottles, fuel pumps with hydrogen pumps, and diesel engines with fuel cell electric motors.
Long-range hydrogen trucks are already being tested in several countries, including Sweden, Switzerland and Italy. The possibility of creating a “hydrogen corridor” passing through the Netherlands, Belgium and Germany is also being studied by the Port of Rotterdam and several industry partners. However, getting started and equipping European highways with hydrogen solutions for trucking by 2030 will initially cost between €20 billion and €25 billion to build hydrogen refueling stations, including refueling equipment, storage capacities, land, as well as the analyzer. Electrolysis for on-site hydrogen production, according to our analysis. This assumes adoption of 25 percent of new technology.
The hydrogen solution could become commercial in time for the European Commission’s second round of deadlines. By 2025, there is a possibility that hydrogen-powered trucks will reach early adoption, but it is unlikely that there will be significant volume in sales or infrastructure built to support the new trucks.
But hydrogen trucks may not be the most efficient use of electricity. Only about 35 percent of the electricity needed to create, store, transport and use hydrogen fuel will be directed toward actually moving the trucks. As a result, this technology will require a significant reduction in the price of hydrogen in order for it to be competitive against diesel. Over time, as green hydrogen is produced on a large scale, we expect this to happen.
Pros and cons of electrified roads
Compare that with one of the other technologies competing for acceptance – electrified roads. This option allows trucks to obtain continuous power directly from an electricity source either through rails embedded in the road surface or distributed via overhead wires. Using this series or combined approach, up to 85 percent of the electricity will be used to move the truck, making it more efficient. Truck manufacturers will also build in backup battery power to allow trucks to finish their trips on roads that have not been diverted.
In many respects, the importance of the electrified road approach is underestimated due to its efficiency and simplicity of technology. This is because it is a system that relies on governments to make significant investments in installing technology and transforming roads. We estimate that electrifying a quarter of the European motorway network by 2040 is likely to cost up to €55 billion to €60 billion, and will require significant cooperation between many of the EU’s 27 countries.
In order to decarbonize heavy trucks, many European policymakers favor building electrified roads. Not only is it more efficient, the technology of using electricity transmitted via baskets is already used in trains and is therefore much better understood and developed than hydrogen. If implemented on a large scale, it would be the most cost competitive option. Already, Italy, Germany and Sweden are testing electric road technology. To make this solution effective for large parts of Europe, it will be important for countries to agree on a technology standard for use on all trucks operating in Europe.
The real trade-off will come down to truck operating costs versus investments in infrastructure. Electric roads would reduce daily truck operating costs to the greatest extent: the technology would be 40 percent less expensive to use than using hydrogen. While the capital costs of infrastructure are greater, cheaper operations mean it will only take an additional five years to pay back the higher investment in electrified roads compared to hydrogen.
High-speed chargers
A final option — which may be in commercial production soon — is to build a network of high-speed chargers for larger, battery-powered trucks. The challenges here are to develop the ability to charge large batteries quickly enough so that trucks do not lose too much driving time when recharging and to improve the range of heavy battery-powered vehicles. This will require not only significant infrastructure development, but also advances in battery technology to make them lighter, have greater capacity, and are more capable of charging quickly without any impact on durability.
One advantage of battery technology is the fact that it is already used in trucks and small cars. We expect that battery-powered long-haul heavy-duty trucks will not be available in large quantities until later this decade, although we could start to see a shift to short-haul vehicles around 2025.
We estimate that the initial investment in infrastructure to build sufficient capacity to support 25% adoption by 2035 will cost between €10 billion and €15 billion, making it the cheapest option in terms of initial investment. This capital expenditure will include construction of high-speed charging stations, charging equipment and land.
More renewable capacity is needed
The only common problem that the three technologies share is the need for more European renewable energy capacity to produce enough green electricity to produce green hydrogen or power electrified roads and high-speed charging capacity. According to the International Energy Agency in its World Energy Outlook 2020, renewable capacity in Europe will generate 58% of the continent’s electricity by 2030 under current policies. Under the best sustainable energy plan, this percentage would still be only 65 percent.
Given the scope of the financial commitment in just one industry, the most effective way forward is to create public-private partnerships – ideally in the form of new business ecosystems – that connect the industry value chain. This would allow corporate and government partners to share the cost as well as align on common standards and business cases that suit both Europe and the industry. These collaborative efforts will also support the development of broad solutions with assurances that regulation and public spending will reflect the same priorities.
