Scottish Government

6. Setting targets

To achieve the economic growth potential of the green transport industry and meet our challenging aim to decarbonise transport by 2050, we need to plan ahead and agree a forward strategy.

In line with the Scottish Government's climate change and energy commitments, we believe we should identify ambitious targets and milestones to help stimulate and encourage investment in LCVs and alternative fuels, whilst helping to provide the stability required to make the right choices now.

This chapter discusses both the appropriate use of targets and a range of potential target types. The development and significant uptake of LCVs and alternative fuels will need strong drivers and a number of relevant elements to come together. A partnership approach by industry and public sector stakeholders is likely to be required.

When setting targets for LCVs we need to consider a range of factors. These include:

• levels of ambition;
• timescales and milestones;
• the practicalities and costs of achievement;
• associated legislation and/or infrastructure requirements;
• external threats and opportunities;
• unintended impacts; and
• indicators of success.

We do not want to set arbitrary targets that cannot be met. Nor can we set targets over which we have no significant influence. This means that ambitious targets for public sector vehicles should be our first consideration. In addition, as part of this consultation we seek your views on whether we should extend targets beyond the public sector and what these targets might be. We must also consider the innovation chain, and where interventions might be necessary to overcome barriers to uptake.

6.1 Potential areas for intervention

Most innovations pass along a chain from R&D to commercialisation. For low carbon technologies in this chain, there may be less market pull than for other technologies because demand for such products is limited (especially if the positive externality of reduced emissions is not properly reflected in the price to consumers). As a result, innovation systems for low carbon technologies have often included a higher degree of intervention from governments than in other technologies, either in technology push, or in market pull, or both. This is illustrated in Figure 7 below, which shows the stages of the innovation chain for such technologies.

Figure 7: Stages of the innovation chain for low carbon technologies

A report by E4tech for the DfT ³⁷ identified a number of generic barriers to innovation that currently apply to the low carbon transport technologies. These may be key areas for intervention, and include the following:

• Uncertainty as to the likely strength of long-term policy for CO ₂ reduction in the transport sector means automotive and fuel companies are uncertain as to the priority to attach to carbon reduction/fuel efficiency goals relative to other objectives.
• Lack of a firm and long-term regulatory requirement for carbon emissions reductions from all vehicles.
• Lack of an inherent consumer demand for lower carbon vehicles and fuels.
• Increased costs of lower carbon options compared with existing technologies in most cases.
• Creation of early markets is important for vehicles delivering appropriate levels of benefit.
• Uncertainty over environmental and resource-based benefits or leads to policy, consumer and investor uncertainty and the risk of negative public perceptions.
• There is insufficient coordination for R&D in all technology areas considered. The R&D spending on and direction from vehicle manufacturers, energy companies and other industrial players alone, is not sufficient to maintain international competitiveness of technology developers.
• The low profitability of many automotive sector companies discourages bold innovation and encourages defensiveness against regulations.
• The large number of diverse and inter-related technologies in the low carbon transport innovation system makes it difficult to coordinate policy support and drive innovation in this sector.
• Some commercial vehicle buyers may not attach strong enough importance to fuel efficiency to encourage low carbon innovation in all sectors of commercial vehicle industry. However, commercial vehicle CO ₂ regulation is complex to achieve and the sector has varying capacity to innovate.

The scale of this challenge may be further exacerbated given the impact of the current economic climate on the car manufacturing industry. Such uncertainty in the market means it is likely to affect all elements of the supply chain, including suppressing both the demand and supply side of the car manufacturing market.

Overcoming these barriers requires a measured approach based on stakeholder partnership, clear targets and financial instruments. The following sections examine the roles and responsibilities of both the public sector and industry in developing and facilitating the uptake of LCVs and alternative fuels.

6.2 Role of the public sector

The actions of the public sector have a major impact on society, the economy and the environment, and in no area is this more obvious than in how we choose to spend public money.

The public sector has two major roles in moving to a LCV fleet. The first is at a national level, the strategic role of Government. The second is the public sector as a fleet owner and operator.

6.2.1 Policy role of Scottish Government

The Scottish Government is responsible for setting out the policy on LCV in Scotland, in the wider context of reserved and EU policy and legislation. This document is our first consultation on what targets might be appropriate for Scotland. We recognise that this is just the start of a long process as there are many factors that will need to be taken into account.

Future interventions could include, for example, grants and funding packages, development of financial instruments and business models, pilot and demonstration projects, consideration of common standards, development of guidance and other tools, information campaigns, supporting skill development, and working with Whitehall and the EU. In undertaking these roles we need to ensure that we achieve value for money in our investments, and identify and address any unintended consequences of our policies.

The Concordat with Local Government
In November 2007 the Scottish Government signed a Concordat with local government, which committed both to delivering Sustainable Economic Growth for Scotland. As part of this all 32 of Scotland's councils, with their Community Planning Partners, have developed Single Outcome Agreements ( SOAs), setting out how they will help to deliver on the Government's National Outcomes, in a way that reflects local circumstances and priorities.
The first round of Council SOAs were signed off by Scottish Ministers on 30 June 2008, and Councils will produce the first annual report on progress against these by September 2009. In the meantime, the Partnerships ( CPPs) have developed revised Agreements for 2009-10 and 2010-11, which were agreed by Ministers on 1 June 2009.
National Outcome 14 commits all partners to reducing the local and global environmental impact of our consumption and production, and national indicators and targets are being developed to support this aim. All 32 CPPs are encouraged to consider the impacts of transport as part of the development of their SOA.
The Concordat, and associated SOAs, thus define the relationship between the Scottish Government and LAs. Any targets for LA fleets need to be set in accordance with this framework.

6.2.2 Public sector as fleet manager

The public sector has large vehicle fleets. In addition to local government (including Regional Transport Partnerships), the Scottish public sector fleet managers include NHS Scotland, SEPA, SNH, Historic Scotland and Scottish Water

As transport is a major contributor to climate change, there is a strong case, both economically and environmentally, for the public sector to encourage positive market pull through decisive intervention in favour of LCV procurement. The public sector can take the lead by specifying sustainable products and services which recognise best lifetime value.

Public sector demand for cleaner vehicles could establish a virtuous circle by stimulating a viable market for such vehicles. The certainty of a minimum level of demand for LCVs, and resulting economies of scale in production, should lead over time to lower production costs. These may push down the price to consumers and, consequently, lead to further increases in demand.

We recognise that most LCVs will initially carry a premium over the cost of traditional, fossil-fuelled vehicles, as new technologies are developed. However, this cost threshold could be used through the use of creative business models. Battery leasing, for example, would reduce the up front cost of the vehicle. LCVs should incur lower fuel costs, thereby reducing the differential in 'lifetime' costs between the LCVs and more traditional vehicles. As discussed in the Chapter 4, costs vary by type of technology and vehicle type.

6.2.3 Public sector and infrastructure

As discussed earlier, encouraging market demand and successfully integrating LCVs and alternative fuels into Scotland's transport system is dependent upon a comprehensive charging and supply infrastructures being in place. There will be an important role for the public sector in ensuring that the development of this infrastructure is coordinated, and that appropriate safety and technology standards are met. Additionally, there may be a case for a modest direct intervention in order to:

• provide additional incentives for LCV use in areas of greatest early potential;
• trial a range of different infrastructure provision options, including understanding behavioural impacts when there is a concentration of charging points;
• help to broaden the base of potential LCV owners beyond those with existing re-charging options; and
• provide a signal of government commitment to decarbonisation of road transport.

It is likely that the private sector will also have a key role in infrastructure provision as it currently does in the provision of fossil fuels. Indeed, it is possible that early adopters of LCVs will incentivise wider private sector roll-out of infrastructure through their behavioural and purchasing decisions - i.e. they shop, visit and stay at places which offer LCV re-charging points preferentially. This will create incentives for supermarkets, shopping centres, car parks, leisure destinations and hotels, amongst others, to offer them.

6.3 Potential targets for the public sector fleet

There are a number of ways in which we could set objectives and targets for public sector fleets over different time scales. These could include, for example:

• public sector bodies to purchase best in class vehicles through existing procurement timetables from 2010;
• public sector bodies to take the lead in trialling new LCVs pre general production;
• public sector fleets to 'meet their emissions share' of the Climate Change (Scotland) Bill interim target by 2020;
• public sector fleets to meet, on average, one of the CCC uptake scenarios (see Table 3); and
• public sector to have X vehicles or Y percentage of fleet in LCV by Z date.

There are costs and benefits associated with these types of commitments and targets. Costs to the public sector, and thus the tax payer, would initially be higher with more stringent targets, although lifetime costs could be lower as annual running costs of fleets decrease. Again, however, this is dependent on business models and financial instruments.

Ambitious targets should result in faster reductions in emissions and may help stimulate further research and development. Less ambitious targets will result in slower emission reductions, and also the likelihood of less market stimulation and lower upfront public costs. The scale of these upfront costs, whilst still extremely uncertain, may be significant. For example, for vans, which make up the majority of the LA fleet, the cost difference could be as high as £35k per vehicle depending on the certainty of the technology, the level of demand, the business model used, and the timeframe vehicles are purchased in.

The difference for a car is around £1-10k, depending on the technology. For HGVs and buses, the costs could be as high as £100k (for hybrid) and several hundred thousand per (hydrogen) vehicle. We will, of course, need to explore the scope for business models with industry to reduce these upfront costs, including both battery leasing and other financial instruments.

Similarly, we appreciate that there may be classes of vehicles where, due to specific performance requirements or vehicle lifecycles, it is not practical to aspire to significant emission reductions.

Our purpose here is to open discussions and to gather evidence as to the most appropriate level of ambition for Scotland. This document is not setting the targets.

As a starting point we seek your views on whether it would be appropriate for the Scottish public sector fleet being comprised of LCVs by 2020.

Detailed questions on this starting point are over the page.

6.4 The Scottish fleet

The above discussion focuses on targets for the public sector fleet. However, the public sector, and particularly the Scottish Government, can influence the take up of LCVs in the general Scottish fleet. Availability and uptake at this scale will, of course, be heavily influenced by UK and EU policy and legislation.

Given this, we are considering setting targets for LCVs for the general Scottish fleet. This fleet includes vehicles owned by businesses and private individuals. Uptake could be encouraged, for example, through the provision and/or funding of charging/fuelling infrastructure, grants for purchase, information campaigns, parking cost incentives, etc.

As a starting point, we are seeking your views on targets for the uptake of new vehicles based upon the Committee on Climate Change's 'Stretch Ambition' scenario (see Table 3). This implies a target of 95%³⁸of all new vehicles purchased in 2020 to be LCV.

Note, this discussion target differs from the type used as a starting point for the public sector, as it concerns new vehicle uptake in 2020, as opposed to all vehicles in the 2020 fleet. The discussion targets must also be viewed in parallel to the transport target in the RED (see page 5), which states that 10% of transport fuel must comprise renewable energy by 2020. It has previously been estimated that, assuming biofuels contribute to half of that 10% target ( i.e. a 5% saving in line with the latest RTFO recommendation for 2013/14), the equivalent of 27% of total car travel would need to be electric powered in order to meet this directive ³⁹. Clearly, if a higher percentage was achieved through biofuels, then the electricity component would be less.

To give an idea of scale, the achievement of a 95% LCV target for all new vehicles purchased in 2020 (in combination with complementary assumptions regarding savings from biofuels and non-powertrain improvements, but excluding any savings from non-technology measures) could lead to a 1.75MtCO _2e decrease in Scotland in 2020 against projected 'business as usual' road transport emissions. This is equivalent to a 17% emissions reduction in road transport for that year. However, it is equally important to consider a 2020 purchase target as a milestone necessary to drive more significant emission reductions in the medium-to long-term as the turnover in the fleet increases the proportion of such vehicles in the total vehicle stock.

Questions
11. Do you think that having a twin approach for the public sector and other users is appropriate? If so, why? If not, why not?
12. If so, should targets relate to the uptake of LCVs (either as a percentage of the fleet or an absolute number), or a reduction in total emissions across the fleets or another format of target? Why?
13. If we follow a target relating to the public sector uptake of LCVs, what percentage of the fleet should be LCVs by 2020? Please give reasons for your answer.
14. If we follow a target relating to the uptake of LCVs across all road users, what percentage of all new vehicles should be LCVs by 2020? Please give reasons for your answer.
15. Are there any vehicle categories that should be excluded from the public sector target? If so, what are they and why should they be excluded? If not, why not?
16. As LCVs may have higher upfront costs than traditional vehicles (albeit with a smaller discrepancy between lifecycle costs) do you consider it to be an efficient use of public resources to devote a greater short-term budget towards the purchase of LCVs? If so, why? If not, why not?
17. Are there any opportunities or barriers to public sector procurement of LCVs that are not mentioned in this document? If so, what are they?
18. What are the individual roles of different groups and organisations in ensuring the provision of any infrastructure required for LCVs?

6.5 Role of Industry

Industry has vital roles to play in R&D and supplying the market with LCVs. Industry success also creates increased jobs and wealth.

Our understanding from our discussions with stakeholders to date, and from studies investigating transport technology capabilities in Scotland, is that there are two primary areas of opportunity:

• LCVs and their associated supply chains; and
• Intelligent transport systems ( ITS)

This consultation seeks to explore the potential of a sustainable transport industry ⁴⁰ in Scotland, the barriers to its achievement and how these might be overcome.

The automotive production industry, like other sectors, has been affected by the global economic downturn. While Scotland does not have a traditional car manufacturing industry, it does have a relatively strong industrial and academic base in the underpinning technologies to produce LCVs. It follows that our need to reduce emissions should present significant opportunities to build on our known strengths, and to exploit the global markets that are expected to develop over the next few years. There are expected to be significant growth opportunities over the next few years for Scottish companies in, for example, battery and electric motor production for electric and hybrid vehicles.

There are already over 100 companies in Scotland developing new technologies and products for the sustainable transport market. Companies like Alexander Dennis Ltd, Allied Vehicles, and Allied Sweepers are producing LCVs for applications including passenger transport, light goods transport and municipal street cleaning. Scotland is also home to a growing number of companies that are key to the supply chain of LCVs. Axeon and Xipower, for example, are involved in the design and production of power cells and battery technology that lie at the heart of both HEVs and PHEVs.

In addition, global organisations like Mott McDonald, IBI Group and Atkins are using their operations in Scotland to create new software and ICT solutions to meet the demand for better traffic flow management and congestion reduction. Electronics companies in Scotland are using their expertise in sensors, communications and control systems to gather, analyse and transmit to passengers and drivers real-time travel information to ensure that future journeys are as enjoyable and environmentally friendly as possible.

A number of industrial stakeholders have created a Sustainable Transport Group. Its aim is to facilitate collaborative working within the niche Scottish supply chain companies and other stakeholders with a commitment to low carbon transport. It comprises:

• companies that are developing low carbon transport products and services;
• research and technology organisations seeking to apply their knowledge and technologies;
• university centres in low carbon technologies;
• utilities and service companies with an interest in infrastructure to support low carbon vehicles; and
• public sector policy makers and fleet operators.

A significant uptake of LCVs requires supporting infrastructure of battery charging and alternative fuel distribution. A partnership approach between industry, research and development centres, academia and the public sector is seen as a key requirement.

Questions
19. Are there other supply side/capacity constraints impacting on LCV development and uptake? If so, what are they?
20. Are there barriers to the development of an indigenous LCV industry in Scotland? If so, what are they and how might they be overcome?
21. Should Scotland's industry focus on particular vehicle types? If so, what are they and why? If not, why not?
22. Are there gaps in the supply chain? If so, what are they and how might these be overcome?
23. Do we have the required skills base for the development of this market? If not, where are the gaps?
24. How could the various stakeholders collaborate to stimulate the development and uptake of LCVs?