Future of Transport Policy Brief

V O L UM E I I

La Jol la Conference 30 th Anni versary | P O L I C Y B R I E F

FUTURE OF TRANSPORT

FUTURE OF TRANSPORT | La Jolla Conference 30 th Anniversary Policy Brief

The process of creative destruction is a driving force of progress that is present across all industries, whereby novel methods and technologies supplant incumbents. Rarely do these sea changes occur overnight or in totality, as exemplified by the various transformations that have occurred throughout the history of transport; the current evolution that the world is witnessing in land, sea, and air transport is no exception. Advancements in Artificial Intelligence, energy storage, and fuel technology, alongside a shifting climate in global demand by businesses and individuals, have been the prime movers in the push towards improved safety, comfort, and sustainability in the ways in which the world moves people and products. This Policy Brief is based upon discussions as part of the Institute of the Americas 30 th La Jolla Energy Conference and a Virtual Roundtable held under Chatham House Rules. The goal is to summarize and add context to those discussions wherein industry leaders and experts posited their thoughts and

opinions on the future of transport and the electric vehicle, air, maritime, and autonomous mobility segments.

Electric Vehicles

Why are electric vehicles the way of the future?

Sustainability: Traditional non-electric vehicles are powered by internal combustion (“IC”) engines, which convert the chemical energy in fossil fuels, such as gasoline and diesel, into mechanical work that can physically move vehicles. Although IC engines have become much more efficient over the years, they still produce unwanted byproducts such as pollutants, greenhouse gasses, and noise. Electric vehicles (“EVs”), on the other hand, convert electricity – stored in battery systems – into mechanical work through a variety of complex processes, such as induction. Proponents of EV’s also note the potential to charge these battery systems using electricity that is generated through renewable processes, like wind and solar. In that case, EVs create fewer negative externalities than those powered by fossil fuels. Greater adoption of EVs powered by renewable energy would also result in lower CO 2 emissions, create less noise pollution, and provide immense benefits to public health through reductions in the concentration of harmful pollutants.

FUTURE OF TRANSPORT | INSTITUTE OF THE AMERICAS

FUTURE OF TRANSPORT | La Jolla Conference 30 th Anniversary Policy Brief

EVs per 100,000 population

0 100 200 300 400 500 600 700 800 900 1,000

Denmark

>10 EVs per connector

Germany

Austria

Belgium

U.K.

Switzerland

U.S.

France

Canada

Portugal

Finland

<10 EVs per connector

Japan

China

Spain

Ireland

Italy

New Zealand

0

20

40

60

80

100

120

140

Public charge connectors per 100,000 population

Source: BNEF, U.S. DOE, China Electric Vehicle Promotion Alliance, various government and private sources

Comfort: Households that own electric vehicles would be able to charge batteries at home, in contrast with making frequent trips to fueling stations. In addition, the network of EV charging stations is growing quickly, allowing owners to charge their vehicles while shopping or dining at restaurants. Efficiency: Proponents of EV’s note that roughly only 30% of crude petroleum products ends up in fuel tanks of vehicles with internal combustion engines. The other 70% ends up being used for extraction, transport, and refinement. As demand for fuels to power IC engines is replaced by demand for renewable energy to power EVs, resources can be reallocated toward more efficient processes. Estimates suggest that by 2050, EVs will account for a displacement of 21 million barrels of oil per day. 1

1 https://about.bnef.com/electric-vehicle-outlook/

FUTURE OF TRANSPORT | INSTITUTE OF THE AMERICAS

FUTURE OF TRANSPORT | La Jolla Conference 30 th Anniversary Policy Brief

Cost: According to a recent report by Bloomberg New Energy Finance (BNEF), EVs will reach price parity with vehicles powered by IC engines by 2026. Although some EVs are priced at the same level as their IC engine counterparts, without government subsidies this pricing would not be economically viable. As such, estimates indicate that vehicle manufacturers will be able to retain the same profit margins in their EV models – without the help from subsidies – in around five years due to falling costs of manufacturing, as well as availability of more affordable inputs such as batteries. 2 • Battery prices have already fallen 89% from 2010 to 2020. 3 • Current trends suggest that battery prices will continue to fall more than 50% in less than 10 years from $137/kWh in 2020 to $60/kWh in 2029.

2 https://www.bloomberg.com/news/newsletters/2021-05-25/hyperdrive-daily-the-ev-price-gap-narrows 3 https://about.bnef.com/electric-vehicle-outlook/

FUTURE OF TRANSPORT | INSTITUTE OF THE AMERICAS

FUTURE OF TRANSPORT | La Jolla Conference 30 th Anniversary Policy Brief

FUTURE OF TRANSPORT | INSTITUTE OF THE AMERICAS

FUTURE OF TRANSPORT | La Jolla Conference 30 th Anniversary Policy Brief

Autonomous Vehicles

Is autonomous mobility the way of the future?

Safety: A core problem exists in personal transport today: driving is not as safe as it could be given the level of technology available today. 50 million injuries and 1.35 million deaths occur each year, with 94% of vehicle accidents resulting from human error. Removing the human element from personal vehicle transport is a promising solution. Comfort : In addition to paving the way to fewer driving-related accidents and deaths, fully autonomous mobility would allow passengers to engage in other activities without fear of catastrophe. Independent systems: Focusing on designing autonomous mobility systems to operate in any setting, independent of technology-specific infrastructure built into cities, adds to the safety and security of driverless vehicles. On top of this, fewer public resources would need to be allocated to building and maintaining such infrastructure. Complementarity: Autonomous mobility systems are not likely to replace other modes of transportation operated by human drivers, such as public transportation or ride-hailing apps, but instead would add to the choices that individuals have in how they navigate the roads. Maritime Transport

What does the future hold for maritime transport?

Long-term decarbonization of maritime vehicles: Sea-based transport needs to be smarter and greener, with many international financial institutions adopting the Poseidon Principles 4 . Since many issues related to maritime transport are international in nature, global collaboration is key, especially with respect to transfers of green technology. Efficiency: Since 2013, efficiency in ship design and operation has been a central focus. Improvements in hull-form optimization is estimated to reduce drag and resistance by 10- 15%, and can be complemented by hull lubrication, maintenance, and paint technology. However, these improvements are costly and must be economically viable to be adopted on a wide scale.

4 The Poseidon Principles are a framework for assessing and disclosing the climate alignment of ship finance portfolios.

FUTURE OF TRANSPORT | INSTITUTE OF THE AMERICAS

FUTURE OF TRANSPORT | La Jolla Conference 30 th Anniversary Policy Brief

Case-by-case solutions: There is no panacea for addressing the diverse set of challenges that the future of maritime transport faces, and solutions must be catered to the needs of individual ships and industries. Maritime fuels: Currently the fuel of choice for many operators is heavy fuel, as it is readily available, reliable, and cheap. Liquified natural gas is cleaner than these heavy fuels, but lack of infrastructure, pricing, and safety issues suggest that it is most likely to be a transitional fuel. Hydrogen and ammonia, among others, are poised to be the fuels of the future; however, there is currently the need for the development of infrastructure around which to produce and transport these fuels. Air Transport

What does the future of air transport look like?

Safety: The main objective of the future of air transport is to ensure the safety and security of human lives. Geopolitical instability, terrorism, emissions, and noise pollution are the main factors that are driving change in the industry today. Technology: Improvements in engine efficiency and hull design could result in an estimated 40% efficiency gain, as 30% of the cost of air transport is fuel-based. Unmanned aerial vehicles, zero-emissions planes, and a move toward electrification could further improve safety and efficiency. Challenges: Electrification of air travel has not progressed as much as land- and sea-based transport, as the aviation industry has struggled with the most appropriate technology to make the shift seen in maritime and land transport. The COVID pandemic and heightened focus on reducing emissions might quicken the pace of development and adoption of new technology.

FUTURE OF TRANSPORT | INSTITUTE OF THE AMERICAS

FUTURE OF TRANSPORT | La Jolla Conference 30 th Anniversary Policy Brief

Conclusion

Just exactly what the future of land, sea, and air transport looks like is far from certain. Nevertheless, these segments of the transport sector and industry are clearly undergoing massive transformations that will shape how people and businesses traverse the world. There are two drivers that are forcing change in this sector. 1. The challenges of climate change are providing the impetus for designing systems around sustainable fuel sources, such as renewable electricity, hydrogen, and ammonia. 2. Protecting the safety and security of human life is paramount for the future of transport, regardless of industry segment. As such, the incorporation of artificial intelligence and autonomous mobility in the transport sector provides a widely applicable solution to many of the avoidable and preventable accidents stemming from error in human judgment. Achieving the goals set forth by leaders in their respective industries will not be an easy feat. Many of the decisions in land, sea, and air transport are made by profit-maximizing actors that must factor in the concentrated costs of adopting new technology. Thus, progress toward a safe and sustainable future in transport hinges on aligning economic incentives through market-based approaches and global cooperation. The Institute of the Americas would like to recognize Leonardo Beltran , our Non-Resident Fellow, for chairing the Virtual Panel and the participation of expert presenters: Nazareth Black , CEO, Zacua; Ellie Casson , City Policy & Government Affairs, Waymo; Aykut I. Ölçer , Director of Research, Nippon Foundation Professorial Chair in Marine Technology and Innovation, World Maritime University; Rodrigo Perez-Alonso , Consultant & Former Executive Director of the National Air Transportation Chamber in Mexico. We would also like to recognize the efforts by Jesse Nasland , a graduate student at UCSD’s School of Global Policy and Strategy (GPS), who served as the rapporteur and principal drafter of this Policy Brief.

FUTURE OF TRANSPORT | INSTITUTE OF THE AMERICAS

FUTURE OF TRANSPORT | La Jolla Conference 30 th Anniversary Policy Brief

About the Institute of the Americas Established in 1981, the Institute of the Americas is an independent, inter-American institution devoted to encouraging economic and social reform in the Americas, enhancing private sector collaboration and communication and strengthening political and economic relations between Latin America and the Caribbean, the United States and Canada. Located on the University of California, San Diego campus in La Jolla, 30 miles from the border with Mexico, the Institute provides a unique hemispheric perspective on the opportunities opened by economic and social reforms in Latin America and the region’s relationship with the United States and Canada. Since 1992, the Institute’s Energy & Sustainability program has played a crucial thought-leadership role in shaping policy discourse and informing policymakers and investors on the most important trends in the energy sector. The Institute continues to serve as an honest broker between the public and private sectors across the hemisphere to help forge a constructive dialogue on the issue of clean energy transitions and emerging economic opportunities derived from renewable energy deployment.

FUTURE OF TRANSPORT | INSTITUTE OF THE AMERICAS

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