Experts agree that the transportation sector needs to be a key target of any effort to decarbonize the global economy. Nicolas Peltier-Thiberge, the Global Director for the Transport Sector in the Infrastructure Practice Group of the World Bank, joins the show to talk about a report the bank recently released that analyses the economics of electric vehicles for passenger travel.
When most people think of EVs these days, they think of aTelsa, a Rivian or perhaps a Ford F-150 Lightning. The truth is, the menu of electric vehicles is expanding rapidly. But most of those EVs zoom around roads and cities in places like the US, Europe and China. This report produced by Nicolas and the rest of the team at the World Bank focuses on the roll an electric vehicle build out can play in low- and middle-income countries -- countries where the majority of miles traveled are traveled on two-wheel vehicles, three-wheel vehicles or buses.
The report offers fascinating insights about the transportation and energy policies that can be leveraged to decarbonize this massive sector of the global economy.
The Report: The Economics of Electric Vehicles for Passenger Transportation
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(Note: This transcript was creating using artificial intelligence. It has not been edited verbatim.)
Sean McMahon 00:00
Hey what's up everyone, and welcome to another episode of the renewable energy smart pod. I'm your host, Sean McMahon. And today, I want to start things off with an apology, an apology for the sound of my voice. You see, I came down with a mean case of the flu about 10 days ago, and I'm still trying to bounce back. My voice isn't 100% but as they say in the business, the show must go on.
Today, we're gonna be doing a deep dive about a report that was recently released by the World Bank that analyzes the economics of electric vehicles for passenger travel, and with experts in agreement that the transportation sector needs to be a key target of any effort to decarbonize the global economy. I promise you, this report is a treasure trove of information.
In a minute, I'll be joined by Nicolas Peltier-Thiberge, the Global Director for the Transport Sector in the Infrastructure Practice Group of the World Bank. Now when most people think of EVs these days, they think of a Tesla, or rivian. Me I think of a Ford f150 lightning. The truth is, the menu of electric vehicles is expanding rapidly. But most of those EVs zoom around roads and cities in places like the US, Europe and China, this report produced by Nicolas and the rest of the team at the World Bank focuses on the role in electric vehicle build out complaint in low and middle income countries. Countries where the majority of miles traveled, are traveled on either two wheeled vehicles, three wheeled vehicles or buses. I'm including a link to the report in today's show notes because I found it fascinating. You can also see the report and other related materials on the web at www.WorldBank.org/MovingToZero.
Nicolas and I have a lot of ground to cover. But before we get started, here's a quick word from the exclusive sponsor of today's episode. EDF Renewables
EDF Renewables is a market leading independent power producer and service provider with over 35 years of expertise in developing onshore and offshore wind, solar, storage and electric vehicle charging systems. EDF Renewables: Energy your way.
Sean McMahon 02:24
Hello, everyone, and thank you for joining me today. My guest is Nicolas Peltier-Thiberge from the World Bank. Nicolas, how you doing today?
Very good. Thank you, Sean. Good to see you.
Yeah, it's great to have you here. We're to talk about a report that the World Bank just issued. It's a deep dive on the economics of electric vehicles for passenger transportation, what can you tell me that report that you and your team put out?
Nicolass Peltier-Thiberge 02:44
So Sean, let me step back a bit and and tell you why this is important. We have 1 billion cars in the world today, according to certain prediction, we should get between two and 3 billion cars by 2050. So that's doubling or tripling of the stock of a vehicle in the world today. And we know that most of these additional cars are going to come from developing countries and emerging economies. motorisation is a natural consequence of development. In fact, we did some research at the World Bank showing that when per capita income doubles, the level of motorisation, increases by 40%. So the number of cars increases by 40%. And that's, obviously is, is good because people become richer, they get opportunity to move which gives them access to jobs to economic opportunities to social services, but it has also some implications. From a climate change perspective. We know that transport emissions today represent about a quarter of global emissions in the world today, they are the fastest source of of emissions, transport related emissions represent eight Giga ton of co2, they will reach 18 Giga ton if the trends of motorisation continues business as usual scenario, while we should reach out to gigaton by 2030. If we want to stay on track with a 1.5 degree scenario under the Paris accord knows, so that's the key to the of the problem we are facing at get on today. 18. If we don't do anything to that we must achieve by 2031 is there on track. Now transport decarbonisation is therefore a very important imperative. This is something that we take very seriously at the World Bank and it's actually one of our top priority today. In the countries we work with. You know, we work with many developing and emerging nations all over the world, the way we frame our transport decarbonisation work is usually by using a common framework that is well known in the in the transport community called the vote shift and improve a framework. So avoid means avoiding unnecessarily traveling, for example, we can achieve that by densifying cities, bringing people closer to their jobs. Shift means shifting to cleaner modes of transportation, this can be public transportation, this can be biking, walking, you know, with COVID, there was a renewed interest of people in, in biking, it can be moving to rail transport, moving to river based transport, and then improve means improve the carbon efficiency of each mode of transport. And that's where electric mobility becomes relevant. So the question we, we asked ourselves before launching this report is that, in many countries all over the world are interested in electric vehicle today or in the the growth is is spectacular. You know, the vehicles represent 9% of the global market today, they are expected to reach 13% By the end of this year, they are on the track, double digit increase for some markets segment. But many of that is currently happening, essentially, in the enrich nation. So And the question we were asking is, is that a relevant solution for the developing world? And we have many countries who are approaching us today, and asked us look, I see all these transition happening. Can you help us assess whether this is relevant? And how we can push this agenda? And for what market segments? I mean, is it for electric cars? Is it for electric motorbikes? Is it for electric versus where should we start? And how can we do that? So that report really started from from that question, and, and we try to answer all those issues through this research.
Sean McMahon 06:51
Okay, so what were the major findings from this report?
Nicolass Peltier-Thiberge 06:54
So let's talk a bit about the methodology that we use now. So so what we did is we selected a sample of of countries or 20 countries that are representative of the diversity of the countries we usually work with. So it goes from very low income countries, fragile countries, to quite advanced emerging economies. And in those countries, we looked at a scenario where they will progressively introduce electric vehicles in all market segments, and also electric cars, electric motorbikes, what we call the two and three wheelers segment, which is very relevant in many developing countries, and electric buses. And we looked at a scenario where those countries would reach 30% Of all the new vehicle that are injected in the in the market would be electric by 2030, then we removed all the fiscal distortions, because what happens is usually, I mean, many countries, gasoline is taxed, electricity subsidized, it's not always true, and there are some variation, but normally, that's what's what's what's happening. And so that creates some distortion in the way you can evaluate the economics of electric vehicle programs. So we removed all that, and then we monetize the the benefits that you can get from, from electric vehicles, for example, greenhouse gas emissions, we use the price of carbon, which is very reasonable is $40 per tonne, to monetize those global GHG Emission benefits, we also monetize air pollution benefits, because that's a really important also consequence of, of electric vehicles is that in many cities, in the developing world, which we have air pollution is a serious issue. They actually 4.5 billion of people that are dying in the world from air pollution today. And so this is a big health challenge, not that beyond the global benefits that you can get, but it's a really a health and development challenge for many of the countries we work with. So, we monetized also those benefits. And then we did our traditional cost benefit analysis and economic evaluation of those programs at the fight finding are quite striking because in the 20 countries that we studied, in fact, in 17 of them, there is a strong economic case for the two and three wheelers, those electric motorbikes, you know, they are moto taxis that are commonly used in many countries. And in 16 of those 20 countries, there is an economic case for electric buses. Now, individual cars is a different issue. They are still very expensive for most people, the charging infrastructure is not developed. So the case is, is not as strong and in fact, in only a few countries, individual cars would be relevant solution today, but it may be in the future. But really, there is a very strong case today for these markets six months four to one, three wheelers on and electric buses. And so that's really a very important conclusion. That tells us that those countries are totally right. When they are asking themselves, Well, should we start thinking about electrifying our fleet? And looking into, into immobility?
Sean McMahon 10:26
Okay, yeah, just to reiterate that most of the findings here were stressed on like two and three wheelers, and also electric buses. We did an episode in the past with horse Luke from Gogoro, and their battery swapping technology for two and three wheeler. So our audience is pretty familiar with that. Now, getting back to the policy side of it. So if you're a policymaker in one of these countries, where the economics as you've laid out makes sense, from a development perspective, it might lead to less inequality, or I should say, better equality, what kind of policies should these leaders be considering or in fact implementing to leverage the power of electric vehicles for passenger transportation.
Nicolass Peltier-Thiberge 10:58
So there are different policies and some are on the transport side, some are on the electricity side, let's start perhaps with the the transport the transport side, the main obstacle to the dissemination of electric vehicles today is well known is the very high upfront price, you know, there is a cost differential of 40 to 60%, for electric versus 60, to 80%, for two and three wheelers, and more than 90% for individual cars. Now, even though during operation, you can recover some of these from cost because the maintenance of electric vehicles is is lower, and you save some money are finding is you save over $5,000 over the lifecycle of a vehicle, you still have an upfront program. So it's not the technical parameter financing problem. And there are different policies that can allow to overcome this challenge. And the first one is all the leasing schemes that we can think about, since the battery is about a third of the cost of electric vehicle, if you can have a swapping, a system for for batteries using battery as a service type of schemes. That's one. So one way to do it, and some countries are successfully embarking in that approach. Another way to do it, is to separate the ownership from the operation. And that's a solution that some cities, like Santiago in Chile, like Bogota, in Colombia, Brazil is looking into it as well. In Rio de Janeiro, for example, they created what they call an asset management company that by and owns the best seats, and then they they rant or they lease them to private operators to provide the transportation services or so that's another way to build a financing scheme that can be attractive to to private operators.
Sean McMahon 13:02
Let me just jump in real quick there. Are there any cities that are doing that with the personal transportation vehicles like tools and thrillers because if you look around certain cities, you see like the city bike programs and things like that, where it's a fleet of bikes, and you just kind of subscribe to it are there any cities that are doing that with the electric bikes,
Nicolass Peltier-Thiberge 13:17
still full 23 wheelers, what a country like India is doing, which is a very innovative financing solution is to work with the financing sectors and the banks. Because what happens today, in a country like India, if you want to buy an electric bike or motorbike, the financing terms that you will get are much less favorable than for a conventional bike or motorbikes, I want to give you a very concrete example, I mean, normally, if you go to see a bank in India, and with the project to buy an electric motorbike, probably you will get an interest rate of something like 21% of maturity. So repayment period of 24 months, while if you buy a conventional the equivalents. Electric internal conversion, vi call, you will probably get financing terms of 16% and 36 months and also a big difference that reflects the risk perception that financial institution have of this market or so because they don't know it. It's new, they don't. So, what India has been doing is well can we design some risk sharing mechanism that can lower that risk per share perception for financial institutions. So they built what they call first and second loss guarantee mechanisms and we've been working with them to try to optimize those solutions that will reduce that the that risk and then hopefully, lower the terms and get on par with the traditional A vehicle. So that's an another way to do it that is very relevant for 23 wheelers, we are watching with a lot a lot of interest with how India will will implement that because if that works, that's a solution that can be replicated in many other countries, you know, in including in Africa, some right now, in countries like Rwanda, you know, 80% of passenger, the iCall kilometer that are done in this country are done with two or three meters, no, so there is a lot of demand for that's how people move basically, you know, so if the India solution works, the next one will be Ronda Kenya, all those African nations where 23 wheelers are so such a relevant solution that will be ready to replicate it. And finally, another way to address this upfront financing challenge is, again, what India has been doing, but also some other countries to try to generate economies of scale and want to pull the demand by launching larger tendering. For example, one problem is if one single city wants to start an electric bus program, at most, they are going to procure a few 100. buses. So that's not enough to lower the cost no, because just the the number is so small, but what a country like India has been doing is then they instead of letting each city do their own tendering, the pooled several cities and several states, and they were able to launch tendering processes of 5000 besties, they have these, what they call the big challenge now where they want to reach a 50,000 besties, which would be a total game changer in the electric buses industry. And that will generate enormous economies of scale. And based on the what has already been achieved in India, but also in Chile, we observe usually a cost reduction of something like 30%, sometimes up to 50%. So that's really a way to drive costs down and, and address this upfront cost. Problem. No. So that's a few ideas that are out there right now that are being tested by countries that look very, very promising. And so the World Bank, you know, we're trying to help those countries in on both the advisory but also, we are a bank. So we try also to to help on the financing side to implement those solutions.
We'll be right back.
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Sean McMahon 18:20
Yeah, it sounds like there's some very innovative ideas coming out of the finance side and the policy side of it in terms of transportation. What about on the energy side? It seems like if we electrify more and more vehicles, then the grids got to keep up. So So what did you report find on that? What kind of questions have to tackle? And what kind of answers did they find?
Nicolass Peltier-Thiberge 18:36
So on the energy side, one of the common question that comes is should we stop now? Or should we wait until the grid is clean now, especially in those countries where there are many of them? where electricity is predominantly produced from from fossil fuels? Does it make sense to electrify the fleet if electricity is produced by coal? So we looked into that, and and our findings were very consistent with many other research that were done in this area. And the conclusion was that it does make sense. Even in a country like Kazakhstan that we studied, where most of the electricity comes from fossil fuels, we found a reduction in GHG emissions per passenger kilometre. And the reason for that is very simple. It's relates to the relative energy efficiency of electric vehicles. These are the internal combustion engine Oh, and the way it works is that an electric engine will convert the quantum of energy into movement by 87 to 91%, while an internal combustion engine will probably be below 20%. And in the countries where we work with, we have the feat is very obsolete, so many old cars used cars, that efficiency is actually even even lower. And so So that's what's happening now. Even if the electricity is not clean, you gain so much from this efficiency gain of transitioning into electric mobility that at the end, you get some, some GHG. Sitting. So that's one really important conclusion. And that from the policy implication there is that we shouldn't wait, no, we shouldn't be sequential, no, first you clean the grid, and then you move into electric vehicles, you can do that in parallel. The second conclusion on the which is totally different on the power side is the importance of charging infrastructure, you know, the different type of, of way to introduce some incentives to push for the adoption of electric vehicles, and in many countries, most of the rich nations because it's very costly getting some premiums, some grants to households to buy an electric car, in some country, you can get $12,000, if you buy an electric car. So what we did is we compare the, what would happen if you take the same amount of money, and instead of putting it to incentivize the acquisition of vehicle, you put that in charging infrastructure, and the result was at the impact to accelerate, the acquisition of electric vehicles would be six times higher.
Sean McMahon 21:17
So that's just real quick, let me stop you there. So you're saying the $12,000 incentive places like the US, you know, we've gotten new tax incentives for electric vehicles, you're saying it's actually six times more effective if it's, rather than go in an individual person's pocket, it goes towards the charging infrastructure for the wider grid?
Nicolass Peltier-Thiberge 21:33
That's what we found. That's what we found. So six times, wow, okay, more effective in giving an incentive? And it's not that surprising in a way. I don't if you have an electric car, I do. And I'm always worried about Will I be able to find a charger when I travel? No. And so in the decision in the individual decision to transition into electric vehicles, the availability, the density of the charging infrastructure plays an enormous role. And what that research shows us is that it is even more important than getting bonus knowing inside an incentive subsidy when you buy when you buy an electric car now. So that's, you know, that's that's a conclusion that is perhaps a bit less relevant for developing countries, because there are only a few of them will look into individual cars, but Eber sees and, and 23 wheelers, the charging is a bit different. Now you can find ways during to charge during the during the night of the car, but it is still quite important to have a look at whether the energy supply can follow. So our conclusion in the 20 countries that we studied is that in general, the impact on the energy demand is going to be relatively limited. Also from the fact that remember, we looked at a scenario where it's 30% of new cars now. So before the entire stock of vehicles becomes electricity, it will take some time in 2030, that impact on the energy supply is going to be relatively limited. We found 1%, around 1%, in most of the countries we looked at, however, there are some countries and I'm thinking about some of the poorest countries, we work with countries in the Sahel like Burkina Faso, for them, it can be an issue, if you accelerate too quickly, the spreading of 23 wheelers, at some point, you're gonna hit the wall on the issue of energy supply and your energy supply will not be able to follow. So that's something to keep in mind for those countries. And basically, it means that what what can be done now to, to in parallel, increase access to electricity and develop and develop a energy supply. Yeah, so I think on the on the power side, I mean, these are some of the some of the conclusion perhaps one additional conclusion from the that work that we did was, is are the fiscal implications, because you remember I mentioned that we, in our study, we removed all the fiscal distortions, the subsidies to electricity, the taxis to gasolina. So we looked into what are the implications if you transition aggressively into electric mobility? What are going to be the impact on your fiscal revenues, though, and the conclusion there is that as long as you're in the early phase of that transition is relatively limited. Couple of percent at most in the countries that we studied, but at some point, it's going to be an issue. So So you have to anticipate that and think about a world of fiscal reforms that we need to do in order to keep our budget balance. No one our fiscal stunning, sustainable.
Sean McMahon 24:51
Okay, and what is the interaction look like between the public and private sector a lot of episodes we do kind of talks about where the governments and policymakers kind of lay the groundwork For the private sector to kind of really grow something. So where does that handoff take place? Well, what do you see as more important, getting rid of the upfront costs for the two wheelers and thrills and buses or getting the grid ready? Or is there any tipping point there where the handoff goes from public to private?
Nicolass Peltier-Thiberge 25:16
So many of those solutions are going to come from the private sector. So it's the role of government is to find the right incentives, some of them are on the regulatory side, some of them are on the ecosystem. So you know, this issue of the charging infrastructure is very much something that the governments have to look at. And then there are the the what are the the fiscal incentives that you that you can introduce the one that's where this issue, what do you subsidize the acquisition of Vi coal, or what the of the charging infrastructure working with if for a country like India, which has a car manufacturing industry, and what they did also is to work through their industrial policy with their current manufacturing industry to prepare them for that transition also, so that's also another way to accompany working with the financing sector, looking into those financing schemes that we were discussing before, the leasing innovations, the batteries as a service model, to other player, how you diversify, how you increase competition, how you go to scale. All these are are things that governments have to think about now.
Sean McMahon 26:26
Yeah, speaking of government's thinking about and policymakers, you know, cop 27, just wrapped up a couple weeks ago in Egypt, were you there in Egypt?
Nicolass Peltier-Thiberge 26:34
Yes, I was. I was there and it was really interesting, because during the past cups, transport sector has been a bit on the on the backburner and as as not gaining as as much attention as and there are some reasons for that, you know, the the energy is front stage, and there are some good reason for for that the transport is is a part of the problem and therefore can be part of the solutions. And I think that, you know, cups 26 in Glasgow was a bit of a turning point for for us, for those of us who work in the transportation sector, because the put back transport on the on the radar on or under the UK leadership, there was this zero emission vehicle Transition Council that was created for us, you know, we launched an initiative and the creation of a new financing instrument called Global facility to decarbonize transport, which and we received significant contributions of 26 from the UK, from the Netherlands, from Luxembourg from Germany, and we are using these funds now, to help those developing countries and emerging economies want to engage on a on an E mobility strategy, this fund is already active, we are supporting all this work that I was mentioning in India is is partially financed from this new facility. We are helping a country like Ghana, for example, to look into the economics of of introducing electric buses in their public transportation system, we have a portfolio of about 44 activities today, you know, in to push the immobility agenda in the with the countries we work with. So what is interesting is that I think Glasgow started really a momentum that continued in at COP 27. In Shamal, checkout, there was a lot of discussion on new mobility not only beyond that on transport, decarbonisation the UK, for example, launched a new initiative following their zero emission vehicle Council program that they call the rapid response mechanism. And the idea is to put a system that is a bit of a one stop shop, know where you can, for countries who are interested in embarking on a new mobility program to help them identify and get access to the multiple resources that are out there to help them know that we are part of that mechanism. India was the first country in Sharm el Sheikh to sign an agreement to get support from this rapid response mechanism. And I think that looks very promising. And now I think that future cops are we're already starting conversation for cop 28 with the UAE and I, I'm confident that this is going to remain high on the agenda in the in the future.
Sean McMahon 29:20
Okay, so, just stepping back for a second. So looking at all the information gleaned from this report put out by the World Bank, and you know, information for your conversations at COP 26 It sounds like in Glasgow and cop 27 In Egypt, one of the things I'd like to ask guests to do on the show is give me their bold predictions. So, if you wanted to take a shot at what the role electric vehicles would play in passenger transportation and say five years, you know, what does that look like around the world?
Nicolass Peltier-Thiberge 29:45
So, I think we are going to see diversification of the market many new players are are entering all the segments, you know, cars, batteries, two and three wheelers, buses, This is going to lower costs down and we are going to see a very rapid spreading of 23 wheelers in the developing world. We're going to see Eber sees almost systematically looked as possibility each time there is a public transportation program, individual cars will take more time. And I think the there will be more conversation between transport and energy on the issue of charging infrastructure and you know, transport and the energy sector some time is at different ministries. Sometimes they don't talk one to another. But now there is an alliance that is being to be forged on this. And I think he's going to continue and it's going to lead to some very promising results.
Sean McMahon 30:46
Well, hey, Nicolas, I really appreciate your insights. This is a wonderful report from you and your team. I'll make sure we include a link to it in the show notes. And I've enjoyed our conversation today. So thank you very much.
Nicolass Peltier-Thiberge 30:56
Thank you very much. I enjoyed it.
Sean McMahon 31:01
Well, that's our show for today. But before we get out here, I want to say one final thank you to the exclusive sponsor of today's episode, EDF Renewables.
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