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Cutting ties, forging alliances: how transport electrification and renewable electricity can reshape Europe’s economic landscape

Along with the existing environmental and economic rationale for ending reliance on fossil fuels, the war in Ukraine has motivated many in the European Union to increase energy sovereignty. One of the larger fossil fuel consuming sectors is transportation, for which electrification is the alternative, accelerating the pace worldwide with Europe being the biggest market. Reducing direct transport emissions through electrification requires further rollout of renewable electricity production for the full climate impact mitigation and air quality impact. Transport electrification not only reduces the need for fossil fuels but also provides economic opportunities for Europe and European consumers.

By 2030, the continued increase in electrifying transport can cut spending on oil imports from outside the EU by at least 49 billion euros. Instead, this money could re-circulate within the EU and consumers will notice by saving money when switching to an electric car. A rapid electrification (for example, by European CO2 targets and energy savings obligations) of high-mileage vehicles, such as taxis, buses, delivery vehicles and fleets can accelerate this change – and feed the second-hand market over the years to come. The time is now to spotlight the wider economic opportunities in the electric vehicle (EV) lifecycle, as well as the need to accelerate both transport electrification and renewable energy buildout.

Vital to the whole lifecycle of these vehicles — from manufacturing to usage and recycling — is its alliance with renewable energy. There’s a strong synergy between transport electrification and power system decarbonisation: sector integration boosting the flexibility in charging that can match the variance in renewable production and zero tailpipe emissions matched by zero-emission energy.

Society and economy benefit from electrifying transport

Saving energy is amongst the top recommendations to reduce energy import dependency. Electric vehicles provide a significant two-thirds of energy savings over their diesel and petrol counterparts. Speeding up vehicle electrification and developing the regulatory and market ecosystem for charging flexibility is an important further contribution. Flexibility in charging will make the renewables-based energy system transition easier, cheaper and faster. Although electrified transport means additional electric demand, it can also help make the switch in the power system from gas and coal to renewables easier. Charging can be better managed and match available generation and network capacity.

By charging at the right time EVs can help integrate renewable energy and prevent additional draw on fossil fuel power plants while reducing costs for their owners. By shifting and shaping demand and, with bidirectional charging, feeding power back into the grid, EVs can reduce the need for additional generation capacities and help the electrical grid run more efficiently. These benefits of EV charging require a regulatory framework that recognises the contribution that demand-side flexibility can bring to the power system, such as what’s shaping up in Poland. Next to that, new flexibility services are needed to align EV owners with these system benefits.

The planning, rollout and operation of renewable energy, grid and EV charging infrastructure is made easier, more timely and more profitable with a data-driven approach. There’s a new industry emerging at the intersection of data and energy. This digital energy industry needs new skills for the new jobs, connecting academic, energy and policy perspectives. It’s not just grids and flexible loads that need to interact, but also sectors and organisations. Vice versa, new alliances create mutual benefits for the joint EV and renewables transition.

Decarbonising as the competitive edge in manufacturing

There’s another field where sectors – manufacturing and energy industries – should build strong ties to seize economic opportunities.

In the past, vital elements of electric vehicles, such as the battery, have been sourced from outside Europe. Increasingly, vehicle manufacturers looking to secure supply chains, as well as reduce the lifecycle greenhouse gas emissions of their vehicles, brings crucial manufacturing closer to the European market and its renewable energy. The renewable energy to power these manufacturing plants will provide lower long-term predictable costs, with power purchasing agreements providing the investment certainty helping the further expansion of renewable energy production.

In the same week that Tesla’s first European plant opened in eastern Germany, battery producer Northvolt announced a new production facility in northern Germany – close to offshore wind and grid interconnections. Germany’s federal minister for Economic Affairs, Robert Habeck, stressed the locational advantage of Germany with its Energiewende, the multi-decade plan to decarbonise the energy system. Investors recognise the clear path laid out towards a renewables-based power system. Other European regions can learn from this: having a strategy for the decarbonisation of the energy system and industry and making significant steps towards full decarbonisation within the next two decades, will send the right signals to investors in new battery capacity or other crucial manufacturing plants, as well as provide long-term viability for existing ones. An industrial policy fit for the European market requires a decarbonisation strategy.

The upcoming European battery regulation (as well as consumer demand) will require decreasing the carbon footprint of the materials mined, processed and manufactured into EV batteries. Recycling and material recovery targets will require growth in the industrial scale circular industry around the battery. Related industries in the EV ecosystem — such as EV charge points manufacturing, charger and car parts production and vehicle assembly — will also need to address the energy sources in their production process. For some heavy industries, amongst them steel, it’s not as easy as adding rooftop solar or signing a long-term power purchasing agreement, but there’s an accelerated movement in Europe to reduce carbon emissions in steel production. Now is the time to think and plan to end the dependency on fossil energies for all these sectors to secure their role in Europe’s economy of the future. The EV ecosystem will need to forge an alliance with renewable energy and accelerate its rollout to remain competitive and economic policies require a focus on decarbonisation.

The electrification of transport in all aspects of its lifecycle shows the importance of building new ties to double down on decarbonisation. Reducing dependency on fossil fuel imports provides an opportunity for those Member States that accelerate the transition to renewable energy and electric vehicles. Cutting ties with fossil fuels might give the needed push to accelerate electrification of transport now, but it is new alliances for renewable energy that will deliver the economic benefits. It’s time to forge them.

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