Navigating urban mobility policy in the age of energy transition
Like many energy transition challenges, evolving urban transportation systems is an opportunity for innovative thinkers. A combination of creative policy approaches and technological progress will help cities and transportation organizations balance decarbonization, livability and equity in our urban future.
Shaping the environment that supports this evolution will involve some difficult choices. City governments and transportation authorities must introduce new policies to meet climate-related targets, while simultaneously providing citizens and businesses with access to convenient, efficient and affordable transportation options.
Almost all paths involve trade-offs and many cities face challenging clusters of interrelated policy choices.
Welcome to the transportation decarbonization era
To achieve net zero emissions by 2050, the transportation sector must decrease emissions by more than three percent per year up to 2030. This involves electrification, greener fuels, new infrastructure, new technologies and new mobility policies.
Progress is being made in cities around the world. “Our legislature passed several electric vehicle laws that were new,” says Darran Anderson, Director of Strategy and Innovation at the Texas Department of Transportation in the United States. “This covered directing which department would license and regulate the charging stations, develop the standards and so on. This signifies a shift toward anticipating the growth of electrification and beginning to develop policy around it."
Is there a blueprint for the future of transportation?
In our survey of nearly 850 senior executives across nine industries and 22 countries, 65 percent of respondents told us that their organization is transitioning according to a clear blueprint of how they expect to operate in the future.
Some industries were above average, with renewable energy (79 percent), real estate (72 percent) and electric power (71 percent) all with higher levels of clarity about the ultimate destination of their transition. By contrast, in the transportation industry, 58 percent of agencies or companies were following such a blueprint (a segment that includes civilian and commercial, road, rail and air).
Perhaps this is because reshaping mobility often leads to complexity, dilemmas and compromises. To investigate some of these we asked our survey respondents to make binary choices between sets of mobility policies that city administrations and transportation authorities may face.
Choice #1: emissions taxes or electric subsidies?
Imagine you’re advising your city’s mayor on how to accelerate the electrification of road transportation. You can either suggest that the city (A) enacts subsidies for electric vehicles or, (B) raises taxes on internal combustion engine vehicles. There’s no option to combine both (as you could in reality) because the question is designed to get a sense of which lever would be pulled first and/or harder.
Subsidies will make electric vehicles more affordable for consumers, helping to increase demand. More electric vehicles mean lower greenhouse gas emissions, improved air quality and reduced noise pollution. Depending on your city, it could also lead to increased energy independence and job creation in the electric vehicle industry.
However, subsidies are often too expensive for governments and can lead to market distortions. They may also encourage more private vehicle use, conflicting with policies to encourage use of public transportation.
Taxes on gasoline and diesel vehicles, on the other hand, can make electric vehicles relatively more attractive, leading to the benefits mentioned above. Government bringing in more revenue and higher prices for vehicles overall may encourage the use of public transportation or cycling.
Where those alternative modes of transportation do not exist, however, mobility could become unaffordable for communities. These taxes can also disproportionately impact low-income households.
Nevertheless, respondents lean more toward taxes overall. The roads sector was evenly split, while the rail and air transportation sectors were in favor of taxes over subsidies. This is possibly because electric road transportation is already cost-competitive (over the lifetime of an asset, if not yet at the time of purchase) so may not need subsidies in some markets.
London’s congestion charge in the United Kingdom (U.K.) is an example of a taxation approach. When traveling in the city center during certain hours, petrol/diesel vehicles pay a fee and electric cars are exempt. There are incentive-based schemes in action too. Ride-hailing app Uber offers financial incentives to drivers making the switch to an electric vehicle. Drivers can purchase electric cars and use public charging networks at a discounted rate, as well as benefit from a reduced service fee. Uber reports that green trips increased tenfold in 2022.
As with all mobility policy choices, the best approach will vary depending on the specific circumstances of each country or region. Subsidies can be more effective at increasing demand for electric vehicles in the short term, while taxes are more effective at reducing demand for high-emissions vehicles in the long term.
Choice #2: cut operating costs or raise fares?
Your city’s mayor has again come to you for advice. This time there’s not enough money to press ahead with decarbonizing the public transportation system, but something must be done. Will you find the funds by (A) cutting spending on refurbishment, cleaning and customer services, or (B) increasing fares?
If public transportation services are already struggling, option (A) could lead to further decline in quality and satisfaction. This could discourage people from using it at all, which would be counterproductive to decarbonization.
If passengers are willing to pay higher fares to support decarbonization, this could be a more sustainable approach. However, higher fares may also discourage passengers from using public transportation. Higher fares also tend to increase financial strain on low-income passengers in particular, exacerbating social inequalities and reducing access to jobs, education and other essential services.
What did our respondents choose? Aviation respondents had the clearest tendency toward cutting operating costs. The overall averages were closer to an even split, with slightly more than half (53 percent) opting to spend less and 47 percent opting to increase fares.
Choice #3: cycle lanes on the road or on the sidewalk?
The mayor wants to improve cycle lanes on several major roads throughout the city to encourage more active transportation and decrease the overall environmental impact of transportation. However, none of those roadways can be widened. Should the city (A) decrease road space for private vehicles, or (B) decrease sidewalk space for pedestrians?
Option (A) may increase congestion and upset motorists. Option (B) could lead to crowding, accessibility and safety issues for pedestrians. The best approach will vary depending on the width of streets, the level of pedestrian and cyclist traffic, and the availability of alternative transportation options.
Overall, slightly more of our respondents favored option (B) , but this jumped to a strong majority (61 percent) for road respondents, who would naturally be concerned about congestion issues and the impact on buses and commercial vehicles. It could also be that many transportation agencies are focused on building multi-use sidewalks and trails to accommodate travelers who walk, bike and roll.
Despite the differences we’ve highlighted above, there are many areas where small margins separate those on either side of a decision and much is still up for debate in mobility policy.
The megatrends of decarbonization and digitalization are driving a generational shift in the operation of both public and private transportation. To support this evolution, policymakers need to be open, collaborative and agile.
“A lot of businesses are innovating, finding great solutions, but then needing their government to catch-up and provide them with the policy frameworks they need to invest,” says Simon Virley, Vice Chair and Head of Energy and Natural Resources at KPMG U.K. “We’ve seen a major shift over the last 10 years, from governments driving the decarbonization agenda, to a phase now where business is often demanding more action from government, rather than the other way around.”
Policymakers have an opportunity to join forces with business and communities to co-create the future of mobility, embracing novel ideas to reduce the impact of trade-offs, and creating the conditions for innovative ideas to flourish. While difficult choices may divide opinion, the overall direction is clear in many cities, and all stakeholders should be working to accelerate progress towards the smarter, cleaner and more inclusive mobility system of the future.