By Stephane Petti and Birgitte Keulen

Transport is an essential part of our everyday life. Every day, reliable transit affects our ability to obtain or keep a job, meet close relatives and friends, or access crucial public services. Transport is also the backbone of the modern economy, allowing for the movement of goods, services, capital, and workers across countries. The freedom of movement of people and goods is impossible without transport infrastructure.

But transport is the largest contributor to greenhouse gas emissions in the European Union. It accounts for around 31% of total emissions in the EU and 24% worldwide in 2019. It is also the only economic sector in which emissions have continued to rise up until the pandemic. With the number of people and goods demanding transport is expected to grow after the recovery, governments and businesses are trying to change this. That means innovating and delivering new mobility solutions that will be not only affordable, but also, safe, accessible, efficient, and green.

Globally, transport infrastructure will require $50 trillion of investment by 2040, and the investment gap is estimated at $10 trillion, according to Global Infrastructure Outlook. It’s an intimidating number, but, in fact, it creates a window of opportunity to support research and development of cutting-edge technologies, such as alternative fuel and green batteries, and new infrastructure solutions like electrical charging and hydrogen networks.

As a big transport lender, the European Investment Bank is trying to mobilise investments in green and innovative transport. By financing a vast array of projects and initiatives all over the world, the Bank shows we can strike a balance between greater demand of mobility and sustainability. Here is how financing innovation and energy transition could help transform the transport sector in a truly sustainable way.

The energy transition towards a cleaner transport

The transport sector faces major issues in its goal to become sustainable. On the one hand, it continues to rely almost entirely on fossil fuels, with almost 95% of the fuel being from fossil sources in 2019. On the other hand, around the world, countries are stuck with ageing transport networks that not only need repairs but also can no longer adequately serve road users. The changing climate and the resulting extremer weather conditions also present direct threats to the outdated infrastructures.

That is why we need to redesign, modernise, and change transport to meet future social, economic, and environmental demands- always, in line with climate ambitions. Luckily, mobility can be more sustainable. Greener alternatives to vehicles and fuels, such as electric vehicles, are slowly gaining more and more ground. But, energy transition and modernisation of the transport sector require significant and long-term investments and careful planning.

In 2016, the European Investment Bank and the European Commission launched the Cleaner Transport Facility, which aims to promote cleaner transport vehicles and create crucial infrastructure like charging and refuelling facilities. Under the facility, the Bank financed, for instance, 15 000 electric and hybrid vehicles in several European countries, cleaner buses in France and the Netherlands, and funded the construction of thousands of charging stations for electric vehicles in Italy, Spain and Slovakia

The European Investment Bank also finances individual projects pushing for greener, safer, and more accessible transport around the world. The Bank has supported the integration and decarbonisation of transport in Africa, Asia, and Latin America.

Financing smarter and sustainable innovation

Investments in innovation will help make transport smarter (more digital), cleaner (through cleaner modes like public transport and electric vehicles), and safer (automated transport and support systems like traffic monitoring systems can make travel safer). However, funding has remained highly uneven, with climate tech start-ups and smaller companies often facing huge financing difficulties to enter the market. These constraints are high competition from larger companies, high upfront capital costs, and weak momentum for climate mitigation investment in the sector.

That is why European Investment Bank financing has broadened in recent years beyond larger infrastructure projects to smaller one

Through the EU bank’s new financing vehicles, such as intermediated loans, guarantees, and venture debt, the companies can access affordable financing, achieve competitive pricing, and attract more investors. For example, in 2018, the European Investment Bank signed a €30 million loan to support a French company developing and producing autonomous electric shuttles and taxis.

The Bank enables entrepreneurs to bring their ideas to market and compete on the global stage through initiatives such as Future Mobility, InnovFin, and InvestEU that are supported by the European Commission. For instance, in 2018, the European Investment Bank signed a $350 million loan agreement with Northvolt supporting the construction of Europe’s first giga-factory of lithium batteries. The loan was part of the InnovFin Energy Demonstration Program and a crucial step for the advancement of electric vehicles in Europe. In late 2021, Northvolt’s first production line went into operation. In 2020, the EIB supported a shared mobility platform with a €15 million loan under Future Mobility.

The Bank also offers technical assistance and advisory to help smaller transport companies in securing and accessing crucial financing. Last year, the Bank signed an agreement with Hydrogen Europe that will provide financing advisory support for hydrogen projects and help spur more funding for green hydrogen across Europe.

Closing the gap between the public and private sector 

Infrastructure usually requires large investments in assets designed to operate over the long term.

Traditionally, the public sector has played a key role in financing transport projects. But, as the projects are becoming more complex and expensive, it will be necessary to optimise the use of scarce public resources and mobilise private investment at a larger pace and scale.

The good news is that private investors have an appetite for sustainable investing. The global cash flows in terms of environment, social, and governance assets tripled over eight years, to $40.5 trillion in 2020. But, private investors continue to still face immense obstacles to entering the market.

Bridging the gap between public and private investors will be crucial for the future of transport infrastructure. To attract additional private financing, the European Investment Bank participates in funds like Quaero European Infrastructure Fund II. This way the Bank can participate in projects, which would otherwise struggle to find the required financing.

Public-private partnerships (PPPs) are an important tool to facilitate cooperation between the public and private sector. A European Investment Bank report found that such arrangements allow efficient delivery and a higher quality of infrastructure, as they offer mutual benefits to both sides. While PPPs help access funding, technology, and expertise and reduce the cost and risks of large projects, they simultaneously enable private companies to work on major and lucrative infrastructure projects. For these reasons, the Bank backed eight transport PPPs between 2020 and 2021.

With so many changes underway in transport, the European Investment Bank is revising its Transport Lending Policy, so it can support this green transition towards a truly sustainable transport system- one that is both accessible and efficient, but also green and safe. Many stakeholders contributed to new Transport Lending policy through public consultation.

Down the road

Transport is connected to the most critical issues of our time. It contributes to people’s well-being. It allows access to goods and services necessary for a better quality of life. At the same time, the negative externalities of transport, notably CO₂ emissions, are a growing concern. 

Levelling up mobility and achieving climate ambitions are not exclusive. Investing in greener transport meets growing transport demand and development goals. It also means financing new innovative mobility solutions and technologies that will make transport smarter, greener, safer, and more efficient. It’s time to clean up and modernise our transport!