To meet new EU regulations on CO2 emissions for trucks, manufacturers will have to ramp up production of battery electric trucks and then hydrogen fuel cell trucks.
Trucks emit between 6-7% of total CO2 emissions globally. The European Union (EU) introduced its first ever CO2 emissions regulations for heavy duty trucks last year. This followed regulations from the US, China and Japan.
The European Commission has said that the targets can be met by adopting existing technologies within the diesel engine architecture, and that the higher manufacturing costs will be compensated for by the fuel savings.
However, we believe that to meet these targets manufacturers will need to develop new powertrains, such as battery electric trucks (E trucks) and then, further out, hydrogen fuel cell (HFC) trucks. Interestingly, manufacturers seem to agree.
What are the new EU regulations?
The new EU regulations call for CO2 emissions from heavy duty trucks to fall by 15% by 2025 from the levels seen in 2019 and then by a further 30% by 2030. This would require CO2 reductions of 2.7% a year compared to the 1% the industry has been delivering of late.
The European compliance mechanism is somewhat complex. Truck manufacturers can earn credits if their fleets emit below the trend line of a CO2 reduction trajectory of 2.5% per year up to 2024 which they can then use for compliance in 2025, but they then expire. From 2025, each excess gram of CO2/t-km will attract a fine of €4,250 multiplied by the number of vehicles sold each year during 2025-2029.
In addition, there is a credit/debit system where over compliance accrues a credit which can be used to offset against future targets. Conversely, non-compliance leads to an accumulation of debt which is capped each year at 5%. All credit and debits will be settled in 2029.
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Is the current diesel engine architecture sufficient to get us to the 2030 targets?
We think the main challenge for truck makers is driving new product launches to accelerate CO2 savings per year from just over 1% currently, to 2.7% in the next 10 years. The European Commission has said that the CO2 targets can be met by using the internal combustion engine (ICE) framework and adopting existing technologies (helped by more automated manual transmissions, regenerative braking, stop/start). The increased manufacturing costs will be compensated for by the fuel savings, theEuropean Commission said.
However, truck makers themselves don’t think they can get there with existing internal combustion engines alone and that the 2025 CO2 targets will not be met. The conclusion seems to be that without new powertrain developments, CO2 fines would wipe out most European profits.
If we need a new powertrain in trucks, what alternative will win?
The two real alternatives are battery electric trucks (E trucks) and hydrogen fuel cell trucks (HFC trucks). Which is better? We think it comes down to range and loads. The much larger batteries needed for trucks have big implications for weight, cost and charging time.
E trucks are still more than twice as expensive as a diesel equivalent, but their far lower maintenance and engine/running costs will be considered attractive by truck operators. The total cost of ownership (TCO) is hugely important for truck operators, with fuel accounting for 40% of costs while drivers account for a further 40%.
E trucks make more sense for shorter haul, and the TCO economics nearly already stack up in certain use cases compared with diesel trucks. Poor storage capacity per kg is more of a problem for E trucks into long haul. The much bigger batteries needed for these longer trucks have big implications for cost and charging time.
HFC trucks have a marginal weight that is far lower per kilowatt hour, even allowing for fuel cell system losses and the weight from reinforced hydrogen tanks on board (usually made of carbon fibre), and therefore seem more likely to win in the long-haul segment, and initially within point to point shipping.
We therefore see both E trucks and HFC trucks both becoming more prevalent in coming years in their respective shorter haul/medium duty and long haul/heavy duty niches.
What about the timing for E trucks and HFC truck adoption?
There remain undoubted short-term obstacles for now in increasing the adoption rate of HFC trucks, which make us believe these are only likely to be a driver of truck decarbonisation after 2025. A lack of refuelling infrastructure, inadequate green hydrogen production capacity and prohibitive costs to buy these trucks are currently the main obstacles.
E trucks can help us get to the 2025 targets quicker, given the strong battery cost deflation we have already seen and expect to see in the coming years. Therefore, to meet these 2025 CO2 targets, E trucks are likely to be key.
In terms of range, when could the balance shift from E trucks in favour of HFC trucks?
Nikola, a start up E truck and HFC truck supplier, estimates that the economic tipping point by range is somewhere near 250-300 miles, above which HFC trucks have lower operating costs. The difference seems to be based on battery development assumptions and routing. We think the crossover point for costs will end up being closer to the 250-mile mark.
What E truck penetration rate is needed to meet the 2025 regulations?
We estimate that the E truck penetration rate in Europe needs to rise from 0.2% in 2019 to 3-4% by 2025 to meet the 2025 CO2 targets, including plug-in hybrids. As a comparison, we think battery electric vehicles (BEV) will account for 3% of new car sales by next year.
This is going to be a very tough ask, but we are encouraged by the progress being made by the truck manufacturers (especially the European ones) on developing batteries and launching E trucks, mainly in the smaller, medium duty and regional truck segment.
We are also pleased that logistics and delivery companies are also beginning to commit to using more E trucks in their fleets. If charging infrastructure bottlenecks can continue to be eased, we think the E truck mix can rise towards the required level by 2025.
What changes could we expect to these truck regulations?
The European Commission will review the 2030 targets in 2022, and we expect post 2030 targets to be introduced to cut CO2 emissions even further and extend the scope of the regulations to more of the heavy duty fleet at a minimum.
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