By Rakesh Mohan & Janak Raj, President Emeritus and distinguished fellow & senior fellow, Centre for Social and Economic Progress
The world has experienced a complete change in lifestyle, and the living space has never been the same ever since Carl Benz made the first commercially-produced motor vehicle in 1886. Internal combustion engines (ICEs) have enabled the kind of mobility that we are now used to but never seen prior to the 20th century. While providing this boon of mobility, the climate-changing emissions from the vast spread of personal and transport vehicles has now posed a challenge for the future. The transport sector contributes about 23% of all global energy-related CO2 emissions, and road vehicles are responsible for roughly 70%. The mitigation of these emissions is critical for managing climate change.
Road transport in the nine G20 emerging market economies (EMEs) collectively accounts for 21% of global carbon emissions emanating from road transport and 12% of the total emissions in the nine economies. With rising income and continued economic development, EMEs will witness rising demand for passenger vehicles in the years to come. Thus, making the transport sector sustainable is essential.
Our study titled “Climate Finance Needs of Nine G20 EMEs: Well Within Reach” examines the climate finance requirements of the nine G20 EMEs—Argentina, Brazil, China, India, Indonesia, Mexico, the Russian Federation, South Africa, and Türkiye—from 2022 to 2030. The study covers the four highest carbon-emitting sectors—power, road transport, cement, and steel, which cumulatively constitute 49% of carbon emissions in the aforementioned EMEs.
With the introduction of electric vehicles (EVs), it has now become possible to visualise a world free of polluting ICE-powered road transport. The share of EVs in the nine EMEs was already about 44% in 2022, particularly because it had reached 61% in China. Excluding China, the share of EVs in the eight other EMEs was only 5% in 2022, which is expected to rise to 28% in 2030. Meanwhile, in China, this will rise only marginally from 61% in 2022 to 63% in 2030. This is entirely due to a decline in Chinese e-two-wheeler (e2W) sales as people switch to affordable small cars. The sales of EVs in all other categories in China are projected to rise significantly. Hence, overall, the share of EVs in the nine EMEs is expected to rise to 47% in 2030. The two economies with the largest proportionate increases for this number will be India (from 6% to 34%) and Indonesia (from 1% to 30%).
Of all EVs sold in the nine EMEs in 2022, about 97% were in China. This will decline to 73% by 2030, but it will rise to 20% (from 2% in 2022) for India. The share of EVs in most other economies in total EVs sold in the nine EMEs are projected to remain small—1% or lower.
For switching over from internal combustion engine vehicles (ICEVs) to EVs, all the nine economies combined are estimated to save capex of $5 billion for the road transport sector for 2023-2030. This is entirely due to China, as their total vehicle sales are projected to decline in 2030 relative to 2022. Accordingly, capex in China for road transport is estimated to decline by $110 billion. Excluding China, climate finance for the eight other economies for 2023-2030 due to the switchover from ICEVs to EVs is estimated at $105 billion. These expenditures are almost entirely done by households and the private sector.
The successful transition from ICEVs to EVs needs significant investment in a robust charging infrastructure. There were 2.7 million public charging points installed worldwide in 2022. Of these 60% were in China. Costs of developing charging infrastructure consist of setting up charging stations, including charger cost, installation cost, land, and labour costs. The average cost structure of three types of chargers (slow-speed, medium-speed, and fast-speed) and their installation costs vary significantly. China has the highest cost of installing charging infrastructure as it is building mostly fast-speed charging stations, the cost of which is about seven times more than that of slow-speed chargers. The cost of setting up charging infrastructure in Türkiye is also relatively high because of the regulatory requirement that each station should contain minimum 50 charges.
The additional capex for building charging infrastructure in the nine economies is estimated at $465 billion. By saving about $5 billion in the switchover from ICEVs to EVs, aggregate capex for the road transport sector for the nine economies comes to $460 billion ($58 billion, on an annual average) from 2023 to 2030. The large capex requirement for charging infrastructure is mainly on account of China. Excluding China, climate finance for the eight other economies from 2023 to 2030 due to the switchover from ICEVs to EVs and building the charging infrastructure works out to $123 billion or $16 billion annually. The public expenditure expected would essentially involve investing in the charging infrastructure.
China needs the largest amount of climate finance of $336 billion for the road transport sector, followed by Indonesia ($38 billion) and Russia ($27 billion). India’s climate finance requirement for road transport is relatively small at $18 billion vis-à-vis some other countries mainly because the electrification of the road transport fleet here so far has largely involved two-wheelers, and there is not much difference in the capital cost of e2Ws and their ICE counterparts.
In sum, road transport in the nine G20 EMEs is shaping at varying paces, with China by far being the dominant player not only in terms of share of EVs in total vehicles, but also in building fast-speed charging infrastructure. In all the eight other EMEs, the share of EVs in total vehicles is small, though it will rise significantly in India and Indonesia by 2030. In the other six EMEs, the share will remain small even in 2030. The overall cost of switching over to EVs during the rest of the decade is clearly achievable and affordable. Governments must focus on the provision of widespread charging infrastructure, much in the same vein as gas stations.
