Chapter 1 aims to make the 2040 climate neutrality target of the Hamburg Chamber of Commerce operational. This chapter starts with laying out what climate neutrality means for Hamburg businesses, providing the national and regional context of climate targets and drawing on international best practice recommendations. The chapter examines available data on greenhouse gas emissions, energy use and the sectoral composition of Hamburg’s economy. Net-zero targets and action plans of other industrial port cities – Rotterdam, Stockholm and Seattle – with similar decarbonisation challenges offer valuable insights for identifying obstacles and opportunities in the transition to climate neutrality. Finally, the chapter highlights the potential co-benefits of local climate action for well-being and competitiveness, which can exceed the transition costs. It showcases how rapid progress in the decarbonisation of urban passenger transport can deliver such benefits.
Reaching Climate Neutrality for the Hamburg Economy by 2040
1. Making climate neutrality operational
Abstract
The Hamburg Chamber of Commerce (HCC, Box 1.1) has set the target to reach climate neutrality by 2040 for its member businesses. This report aims to identify key actions the businesses in Hamburg need to undertake as well as key challenges they need to face to develop business models consistent with this climate neutrality objective. As the report highlights, building the transformations on the specific regional economic context is key to addressing challenges and opportunities and requires businesses to work together. This report will argue that businesses should anticipate policy action to be better prepared for the major transformations, to save unnecessary costs and be in a better position to address challenges and seize opportunities. While it is not directed at policymakers, some references will be made to how policy can support the Hamburg business community to best face their challenges and take advantage of opportunities.
This chapter will start off with making the target operational for the business community. The first section discusses how businesses should interpret the target. It needs to be coherent with the national and international targets that will in due course bind Hamburg businesses, notably climate neutrality targets in the EU, Germany and Hamburg.
The second section provides an overview of available data on Hamburg’s greenhouse gas (GHG) emissions and economic activity as well as their sectoral composition, laying out how the city’s economic sectors will be concerned.
The third section provides an overview of the climate targets and action plans in three selected, comparable cities in Europe and North America, Rotterdam, Stockholm and Seattle. These cities have similar climate targets and face similar challenges. Businesses in Hamburg can learn from climate actions undertaken in these cities. Their business communities can cooperate with Hamburg’s to reach their climate objectives. These cities are also competitors: Businesses in Hamburg need to make sure they do not fall behind in identifying opportunities and challenges.
Climate action can generate important wellbeing co-benefits, such as reduced air pollution or traffic congestion. Co-benefits materialise more quickly than climate benefits. They often exceed the local costs of climate action. Since many of these co-benefits arise locally and require local action, they can contribute to making regions more attractive and competitive and be a powerful motivator of local climate action. This issue is picked up in the final section of this chapter and illustrated with the example of urban passenger transport.
For the purposes of this report, the objectives of reaching climate neutrality and reaching net-zero GHG emissions will generally be used interchangeably. Most global warming is caused by long-lived GHG emissions, notably CO2. These will need to be brought to net zero to halt global warming, as it is their cumulation in the atmosphere that determines global warming. Short-lived emissions, notably methane, may not need to reach net zero but still need to be halved by 2050 worldwide to be able to limit global warming to 1.5 degrees (Intergovernmental Panel on Climate Change, 2018[1]). The Hamburg territory emits little methane emissions. Still, methane plays an important role in the value chains of some Hamburg businesses.
The resource cost of reaching net zero GHG emissions by 2050 in high-income countries with modest fossil-fuel extraction and processing may amount to up to 1-2% of GDP (UK Committee on Climate Change, 2019[2]) Costs are concentrated on the last 10 - 20% of emissions abatement. The resource cost refers to the net resources that need to be devoted to the transition, including investment (European Commission, 2018[3]; OECD, 2017[4]). The impact of resource costs on the competitiveness of sectors subject to international competition depends on who bears them. Such sectoral competitiveness impacts may be particularly relevant if climate policies proceed at unequal speed across countries or regions. For example, if taxpayers assume resource costs, competitiveness in sectors subject to international competition may be largely preserved, and resources would not need to be reallocated to other sectors or geographies. When such reallocation occurs, it could further impact the distribution of economic activity across regions.
Early action is important for the climate but also to avoid unnecessary economic costs of delayed action. They can be large. The costs of delaying action to reduce GHG to meet the target of 1.5°C may be USD 5 trillion per year worldwide or 7% of the annual world GDP (Sanderson and O’Neill, 2020[5]). For Germany, net mitigation costs have been estimated to increase by an average of 40% for each decade of delay (Council of Economic Advisers, 2014[6]). A major source of additional costs from delayed action are investment decisions, especially for long-lived capital goods, that are inconsistent with climate objectives and which therefore need to be written off before their economic end of life (“stranded assets”) These risks are particularly large in capital-intensive and energy-intensive activities, such as manufacturing activities (OECD, 2017[4]; OECD, 2023[7]). Further costs from delayed action arise from higher adjustment and coordination costs. Higher costs result because later reductions will require faster expansion of new technologies, raising susceptibility to errors (Chapman, 2019[8]).
Box 1.1. The Hamburg Chamber of Commerce
The Hamburg Chamber of Commerce (HCC) has approximately 170,000 business members registered in the federal state of Hamburg. It is among Germany’s biggest. It is the representative organisation of Hamburg’s firms and acts as political lobbyist, mediator and advocate for the local business community. In Germany all companies are required by law to be a member of a local chamber of commerce. The HCC is based on the participation and engagement of entrepreneurs in the region and acts autonomously, with its own individual responsibility as an organisation. The rationale for the mandatory membership of firms in the HCC is grounded in the need and wish of governments, parliaments and administrations to have a single point of contact with the local business and economic sectors.
As a lobbyist, the HCC is a strong advocate for a market-based legal and regulatory environment that is conducive to the business of small and medium-sized enterprises. Chambers of commerce are steered by elected entrepreneurs and managers and supported by their own employed staff. The aim of such joint teams of elected business representatives and chamber management is to provide policy advice in the “common interest” of the local economy.
As an independent mediator, the HCC supports fair business practices by offering a range of dispute resolution and prevention services. The HCC also acts as a service provider to the business community by providing non-market services to new and established firms.
The HCC business community covers a wide range of service sectors, such as retail, information and communication, real estate and housing, financial services, and transport. It also includes significant industrial businesses. Hamburg is the third largest civil aircraft construction city in the world and has a highly diverse industrial sector – there are few places in Europe with such a concentration of manufacturing industry. Some activities, in the crafts and in professional services, are covered by sector-specific chambers and are therefore not included in the chamber of commerce.
In 2020, the HCC launched the “Hamburg 2040” target vision and with it, the target to make Hamburg’s business sector climate-neutral by 2040. The HCC has initiated a far-reaching dialogue on the question “In what world do we want to live in the future?” (Wie wollen wir künftig leben – und wovon?)
Figure 1.1. Hamburg 2040 target vision
Climate neutrality for Hamburg businesses in national and international context
The Hamburg economy will need to contribute to reaching net zero GHG emission targets in the European Union (EU), Germany and in the region (Land) of Hamburg. All three jurisdictions have set targets with legal force. The legal force of climate policy commitments is increasingly taken into account in court decisions in Germany and elsewhere. Meeting the HCC’s climate neutrality objective should therefore serve Hamburg businesses to meet these legally enshrined emission targets, in terms of ambition and scope. It should also take into account the strong integration of Hamburg into the global economy.
The HCC’s climate neutrality target is somewhat more ambitious in timing than the region’s, Germany’s and the European Union’s (EU). Intermediate objectives are important to ensure early action and thereby give credibility to the climate neutrality objectives. Germany and the EU share a mid-term target with Hamburg’s regional government: to reduce GHG emissions by at least 60% compared to 1990 levels by 2030. The Hamburg government aims to reduce CO2 emissions by 70% below 1990 levels by 2030. The HCC has not set an intermediate target for its businesses, on aggregate or sectorally. Hamburg and Germany have sectoral decarbonisation targets with corresponding action plans to achieve them, though they have different categories of sectors. Power supply and buildings are expected to decarbonise the most quickly by 2030, relative to 1990 (Table 1.1). Hamburg businesses will need to lead the transformations required to reach climate neutrality – knowing that climate action is, currently, still far behind. They should be implementing transformations more quickly than other sectors, such as private households in Hamburg, as well as more quickly than other businesses in Germany and the EU. The Hamburg Port Authority has already set the target of climate neutrality for 2040 in port operations.
Table 1.1. Legally binding climate neutrality targets in the Region of Hamburg, Germany and the European Union
Source: (Hamburger Senat, 2022[10]); (Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection of Germany, 2016[11]); European Climate Law (Article 2(1); Article 4(1)); (European Commission, 2022[12])
The scope of reaching climate neutrality in the Hamburg business community
The emissions coverage of the EU and German targets provides critical information on what emissions the climate neutrality objective should cover for the Hamburg business community. Both the EU and Germany define the emission objectives in terms of Scope 1 emissions (Box 1.2). These include all direct GHG emissions generated within their geographical boundary. The Hamburg region’s target includes emissions from energy end use, including both Scope 1 and Scope 2 emissions. It does not include emissions on Hamburg territory from energy transformation, notably from the generation of electricity and oil refining. Consistent with this approach, local emissions from heat and electricity generation are attributed to end-users, even where electricity and heat are generated outside city borders.
Table 1.2. Emissions coverage in Hamburg, Germany, and EU net-zero emissions targets
Source: (Hamburger Senat, 2022[10]); First revision of the Hamburg Climate Plan (p.28; Annex 4, p.5; Annex 4, p.7); German Climate Action Plan 2050 (p.50; 14 & 83; 67); (IEA, 2022[13]); German Federal Climate Change Act (Section 3, Clause 2);
Box 1.2. Three scopes of greenhouse gas (GHG) emissions
GHG emissions of subnational geographic levels, such as cities and regions can be defined according to three different scopes (World Resource Institute, C40 Cities Climate Leadership Group and ICLEI – Local Governments for Sustainability USA, 2021[14]). The same holds for businesses and institutions. For a city, the three scopes of emissions refer to:
Scope 1 emissions are direct GHG emissions occurring within the city boundaries.
Scope 2 emissions are indirect emissions occurring as a consequence of local consumption of electricity, heat, steam and/or cooling. The City of Hamburg also includes emissions from oil refining in Scope 2, attributing them to the consumers of oil refining production. Scope 2 emissions are commonly estimated by a location-based method, multiplying the amount of electricity, heat or steam purchased by the power supply’s average emissions factor. Alternatively, a market-based method calculates Scope 2 emissions based on specific electricity purchase contracts with producers.
Scope 3 emissions are all other indirect emissions because of activities taking place within city boundaries. Hence, it includes all the upstream and downstream emissions in the value chains of local activities occurring outside the boundary of the city.
Consumption-based emissions are a way to capture indirect emissions of local activities which include only upstream emissions. Consumption-based emissions of a city refer to GHG emissions from the consumption of all goods and services finally consumed by city residents, irrespective of their origin”. Consumption-based emissions are strongly related to consumption spending and income levels.
Consumption-based emissions are of particular interest in high-income cities, where they are often much higher than Scope 1 or Scope 2 emissions. Identifying consumption-based emissions allows high-income cities to reduce emissions from the demand side, often at low cost, for example in the consumption of food, drink and other consumption goods even if they are not produced locally (OECD, 2021[15]).
At the level of an individual geographic or institutional unit, the three scopes of emissions are mutually exclusive. However, if emissions of several scopes are added up across geographies or institutions, double counting arises, as emissions of one scope may be emissions of another scope in another unit.
The EU requires the net-zero GHG emissions objective to be reached on domestic emissions. The purchase of emission reductions outside the EU does not count towards this target. The EU will contribute to financing emission reductions outside its borders but doing so will be additional to its net zero objective. German legislation does not exclude contributions from international offsets to reach its targets, but the government’s political intention appears to keep its role small.
The EU and Germany also limit the role of carbon dioxide removal (CDR) to contribute to emission reductions. CDR can contribute to emission reduction by absorbing emissions durably elsewhere than in the atmosphere. Two main avenues are through land use and land use change as well as through carbon capture, use and storage (CCUS). Worldwide, the share of emissions that could be offset with CDR may be less than 20% and should therefore be limited to offsetting residual emissions in hard-to-decarbonise activities (Buck et al., 2023[18]).
The International Maritime Organisation (IMO) has adopted an objective to net zero GHG emissions in international shipping by 2050, although the role of offsets is unclear (Chapter 3). They account for 3% of the total GHG emissions worldwide (International Maritime Organization, 2020[19]). With regards to international aviation, emissions of extra-EU flights departing from EU territory are included in the EU’s climate objectives based on fuel purchased domestically (German Presidency of the Council of the European Union, 2020[20]). International flights within EU territory are included in the European Emissions Trading System (EU ETS) (European Commission, 2021[21]). However, Germany and Hamburg do not include international aviation in emissions reductions in order to better reflect the local climate policy impact.
Hamburg is a highly internationally connected economy. Hence, the 2040 climate neutrality objective of the HCC needs to be placed in the broader context of worldwide climate objectives. Most OECD countries have adopted net-zero emission targets by 2050, although some have limited net-zero targets to CO2 emissions and have given international offsets and CDR a bigger role. China aims to achieve net zero GHG emissions before 2060. India aims to reach net zero by 2070.
Businesses will trade with partner countries that will also need to reach climate neutrality, albeit possibly later. Businesses will need to transform purchases of intermediate goods and services from trading partners to take into account progress towards climate neutrality which is necessary also in other countries. Moreover, policy action is likely to require that imported goods and services meet increasingly stringent requirements on the emissions generated in production. The European Union has taken the first steps in this direction with its carbon border adjustments and the regulation of deforestation-free imported products (Chapter 2). Since Hamburg is a major trading hub with a major international port, understanding the GHG emissions embedded in the goods and services involved in this trade is particularly important for businesses in Hamburg. This international context is essential to understand business opportunities and challenges they face in the transition to climate neutrality.
This discussion of emission targets has the following implications for making the HCC climate neutrality target operational:
The climate neutrality objective set by the HCC should include reaching net zero GHG emissions for all direct (Scope 1) and indirect emissions from the use of electricity and heat (Scope 2 emissions) of businesses at least on the territory of Hamburg by 2040. Scope 1 emissions of Hamburg businesses generated elsewhere in Germany or on EU territory should reach net zero by 2045 and 2050 respectively. With power supply largely determined by German or EU production, which will largely be decarbonized by 2040, and district heat supply in Hamburg, Hamburg businesses should purchase all electricity and heat from zero-emission sources by 2040.
The HCC and its businesses should not rely on major international offsets to reach climate neutrality objectives. International emission offsets may be reasonable between 2040 and 2050 for those business Scope 1 emissions on Hamburg territory that Hamburg businesses may only bring to net zero by 2050 but not by 2040. This could be particularly relevant for difficult‑to‑decarbonise sectors, including emission-intensive manufacturing. Scope 1 emissions should reach net zero without any international offsets by 2050 at the latest.
Emission reductions through carbon sinks should play a minor role. The use of CCS should be limited to process emissions in industry. Offsetting Scope 1 emissions on a small scale could also include financing LULUCF carbon sinks in other EU countries, but these should broadly be limited to the EU LULUCF target contribution share.
Hamburg businesses should include indirect emissions in climate neutrality targets. Taking into account scope 3 emissions at the individual business level will allow to fully integrate opportunities and challenges from reaching climate neutrality in business models. but on different time scales for scope 3 emissions.
Some scope 3 emissions of Hamburg businesses could reach climate neutrality after 2040. Scope 3 emissions targets could be set in a differentiated way, depending on goods and services and whether value chains originate in Germany, the EU and other OECD countries. Value chains originating in the EU should reach net zero GHG emissions by 2050 without offsets at the latest. Elsewhere, they should broadly follow science-based worldwide emission reduction scenarios consistent with limiting global warming to 1.5 degrees with at least 50% probability. This would require reaching net zero CO2 emissions in value chains while halving methane emissions by 2050.
The HCC could set intermediate emission reduction targets for 2030 for scope 1 and scope 2 emissions and provide guidance on intermediate scope 3 emissions targets for businesses.
The HCC may prepare investment guidance to avoid costs from delayed action. It could indicate the latest point of time when purchases of new fossil-fuel-using equipment should be avoided. For example, with an average useful life of cars of 15 years, purchases of new cars with internal combustion engines, if used in Hamburg for their entire useful life, should be avoided from 2025.
Meeting these recommendations would align climate action by the HCC and its members with recommendations from the High-level Expert Group of the United Nations (UN) on net-zero commitments of non-state entities (Box 1.3). The expert group provides ten science-based best practices recommendations for non-state entities' net-zero claims which Hamburg businesses should follow (United Nations' High-Level Expert Group, 2022[22]).
Box 1.3. Ten recommendations for net-zero pledges by non-state actors by the High-level expert group of the United Nations (UN)
The ten recommendations are the following. They are directed at subnational governments and businesses.
1. Announce a public net-zero pledge which contains intermediary targets (2025, 2030, 2035) and is in line with the IPCC scenarios to limit warming to 1.5°C. Any actor with the capacity to move faster should do so.
2. Set net-zero targets within a year of making the pledge. Targets should be short, medium and long-term absolute and relative emission reduction targets across the value chain. Targets must include scope 1, 2, and 3 emissions. Emissions embedded within fossil fuel reserves and land-use-related emissions should be accounted for separately.
3. Use high-integrity voluntary carbon credits for beyond value chain mitigation but not counted towards intermediate reduction targets. Non-state actors who choose to purchase voluntary carbon credits for permanent removals for residual emissions or annual unabated emissions beyond their net zero pathways must use high-quality carbon credits. A high-quality carbon credit should at minimum fit the criteria of additionality and permanence. Additionality means the mitigation activity would not have happened without the incentive created by the carbon credit revenues. Permanence means that any carbon sequestered or avoided will remain out of the atmosphere. Any credit transaction must be transparently reported, and associated claims must be understandable, consistent and verified.
4. Create and publicly disclose a transition plan, which is comprehensive and which sets out actions that will be undertaken to meet all targets. It should describe how governance and incentive structures, capital expenditure, research and development, skills and human resources will be aligned for a just transition. Transition plans should be updated every year and progress should be reported annually.
5. Phase out fossil fuels and scale up renewable energy. The transition away from fossil fuels must be just for all the affected communities, workers and consumers. The transition away from fossil fuels must be matched by a fully funded transition toward renewable energy.
6. Align external policy and engagement efforts to the goal of reaching net zero by 2050. This means lobbying for positive climate action and not against it. Businesses should publicly disclose their affiliations.
7. Include people and nature in the just transition efforts. Achieve operations and supply chains that avoid the conversion of natural ecosystems. Eliminate deforestation and peatland loss by 2025, and the conversion of other remaining natural ecosystems by 2030 from operations and supply chains.
8. Increase transparency and accountability by reporting GHG data, net-zero targets, plans and progress in a standardised, open format and via a public platform. Disclosures should be accurate and reliable. Businesses should seek independent evaluation of their annual progress reporting and disclosures.
9. Invest in just transition efforts, for example, all businesses with operations in developing countries should demonstrate how their net zero transition plans contribute to the economic development of the regions they are operating in.
10. Regulators should develop and accelerate regulation and standards in areas including net‑zero pledges, transition plans and disclosure.
The sectoral structure of GHG emissions in Hamburg
Understanding the sectoral composition of Hamburg's GHG emissions is essential to reach the climate neutrality objective. The Hamburg Statistics Office produces statistics for Scope 1 and Scope 2 energy‑related CO2 emissions. Emissions in this section refer to 2019 to avoid the COVID-19 lockdown effects on emissions in 2020. Data on Scope 3 emissions are not available.
According to the Hamburg Statistics Office, total Scope 1 CO2 emissions decreased from 12.7 million tonnes in 1990 to 10.4 million tonnes in 2021 (Figure 1.2). Energy transformation and transport are the sectors generating the most emissions. Coal-fired electricity generation rose from 2013 to 2019, but fell with the closure of one of two remaining coal-fired heat and power plants in 2021. Emissions in energy transformation include close to 1 million tons of CO2 emissions from oil refining.
Figure 1.2. The energy transformation sector is the largest CO2 emitter in Hamburg
Energy-related CO2 production-based emissions, Scope 1 in 1990 and 2021
Note: Emissions that result from the use of primary energy sources (“Quellenbilanz”). Energy transformation includes electricity generation as well as oil refining. The transport sector includes domestic rail and road as well as air transport, and coastal and inland shipping. Other consumers include public facilities, small crafting businesses excluded from the industry sector, construction companies, and agriculture and forestry.
Hard coal accounted for approximately half of the energy transformation sector’s Scope 1 emissions in 2021 (Figure 1.3). Emissions from energy transformation therefore fall more in 2022. Even so, natural gas contributed around a third to electricity generation (Figure 1.3). Natural gas also is a major emissions source in the industrial sector, in the other business sectors, and in households, where it is mostly used for heating and cooling of buildings. Heating oil also contributes to emissions in these sectors. The relatively small reductions in emissions between 1990 and 2021 indicate that action to reduce emissions needs to accelerate sharply to reach climate neutrality by 2040. Natural gas use and mineral oil use will need to be phased out by 2040. A conceivable exception is process emissions in manufacturing from gas or oil use, which could be abated with CCS although hydrogen use could avoid CCS, as discussed in chapter 3. Mineral oil use in energy transformation mostly reflects oil refining. Lignite and mineral oil in energy use will also need to be phased out by 2040.
Figure 1.3. Natural gas is the largest source of emissions in the business services sector
Scope 1 emissions by sectors and energy carriers, 2021
Around three-quarters of transport emissions come from road transport, followed by air transport and inland shipping. International shipping emissions are not included. Scope 1 transport emissions matter for businesses on account of road freight and passenger transport. Private households may account for most scope 1 emissions in passenger transport. To the extent travel from and to work generates these emissions, they also contribute to businesses’ scope 3 emissions.
Greenhouse gas emissions in manufacturing
Manufacturing activities account for most industrial scope 1 emissions, as mining activity is minor. Emissions-intensive manufacturing of basic materials is among the most difficult to decarbonise (OECD, 2023[7]). Using EU ETS data allows for a sectoral breakdown, albeit with the limitation that small emitting installations may not be included (OECD, 2023[7]). Most manufacturing emissions in Hamburg arise in oil refining, followed by the production of iron and steel, and then the manufacturing of aluminium (Figure 1.4, Box 1.4) (OECD, 2023[7]) Industrial emissions presented by Hamburg Statistics in Figure 1.2 are lower, because they include oil refining in energy transformation rather than in industry.
Figure 1.4. Production of refined oil products, steel and aluminium are significant emitters
Emissions of Hamburg installations (2019)
Note: EU ETS provides emissions data gathered from each factory and region. Combined with the firm-level installations data of the Orbis dataset, ETS data can provide emissions from the manufacturing sector of Hamburg.
Source: ETS-ORBIS matched dataset
Box 1.4. Basic material manufacturing activities in Hamburg
Oil refining – the biggest company in this sector is Holborn, which produces mainly transport fuels. For climate neutrality, the company is focusing on a transition to e-fuels. They are synthetic fuels produced from renewable electricity, suitable for all modes of transport.
Steel – the biggest actor in Hamburg is ArcelorMittal, one the world’s leading steel and mining companies. In Hamburg, they produce billet and high-quality wire rode, mainly for automotive and engineering customers. In Hamburg, the company is collaborating with Hamburg’s H2 project and is testing a carbon-free production of basic iron and steel.
Aluminium – one of the companies producing primary aluminium in Hamburg is Trimet. Trimet aims to produce climate-neutral aluminium by 2045.
Copper – Aurubis is the main copper producer and copper recycler in Hamburg. At the Hamburg site, the use of hydrogen was tested for the first time on an industrial scale in 2021. The plant in Hamburg has also been awarded the copper mark, the seal of quality for sustainability in the copper industry.
Adding indirect emissions from energy use raises industrial and service sector emissions
The Hamburg Statistics Office provides statistics that attribute emissions in energy transformation to energy end-use sectors by adding Scope 2 emissions to the Scope 1 emissions (“Verursacherbilanz”). Energy end-use sectors exclude activities engaged in energy transformation, notably the production of electricity and heat and oil refining. Indirect emissions from electricity generation are attributed following the average emissions in Germany. In 2021, Hamburg recorded 14.45 million tonnes of Scope 1 and 2 emissions in energy end-use sectors, 6.6 million tCO2 less than in 1990. Scope 2 emissions add substantially to emissions in industry and other business activities as well as in households (Figure 1.5). This reflects the high share of electricity and heat in the energy mix of these sectors (Figure 1.6) and the relatively high share of emission-intensive coal in German electricity and heat generation. By contrast, Scope 2 adds only marginally to transport emissions.
Figure 1.5. Industrial activities are the second largest emitter when energy production emissions are counted
Scope 1 and 2 CO2 emissions (Verursacherbilanz) by the energy end-use sector in 1990 and 2021
Note: The industry sector includes mining, quarrying, and manufacturing of materials and products. It does not include oil refining.
Figure 1.6. More than half of the Scope 2 emissions of the industry sector come from electricity generation
Share of Scope 2 emissions by energy sources in 2021
Germany-wide decarbonisation of electricity generation will reduce Scope 2 emissions, measured in this way, in Hamburg. As long as the energy mix is not fully decarbonised, Hamburg businesses can reduce their Scope 2 emissions by reducing energy use or by purchasing it from renewable sources. Businesses will not generally be able to choose a district heating provider. Climate-neutral district heating will require that heat generation from coal-fired power inside and outside Hamburg by the regional energy utility is phased out. The regional government, which owns the district heating provider, is committed to doing so by 2030.
A key challenge to reaching climate neutrality is the need to electrify most energy use while moving almost all electricity generation to renewables. According to the IEA, to reach net zero GHG emissions worldwide in 2050, electricity will need to represent 52% of the final energy consumption, a significant increase from the 20% in 2021. 88% of electricity generation will be from renewables (International Energy Agency, 2022[24]). In Europe, renewable generation is expected to increase by more than 380% to reach climate neutrality in 2050, compared to 2021 (International Energy Agency, 2022[24]). Germany aims to reach a share of renewables of 80% already in 2030. Without efforts to lower energy consumption, the needed expansion of renewable electricity production risks being at a scale that is difficult to manage. In a climate‑neutral world, energy is therefore likely to be scarce. The energy intensity of GDP may need to fall by about two-thirds by 2050 worldwide (OECD, 2021[15]). In the EU, the RePowerEU plan sets an energy efficiency target of a 13% reduction in primary energy consumption (European Commission, 2023[25]). In addition to reducing costs, lowering energy demand also raises business resilience to energy supply shocks.
Some energy needs can be met from sustainable, zero-carbon sources without electrification. Biofuels can replace fossil fuels with relatively limited changes in equipment, such as in motor engines. Biofuels only eliminate emissions if sourced from the sustainable growth of biomass. However, the calls on bioenergy for industrial production alone are likely to exceed sustainable bioenergy supply (Material Economics, 2019[26]). Biomass growth also competes with essential land uses, notably for food production and biodiversity protection. Moreover, biomass supply is vulnerable to shocks, including from extreme climate events such as fires or drought.
“Green hydrogen”, produced from renewable electricity and hydrogen-derived products, such as synthetic fuels, may also serve decarbonisation instead of electricity. This applies especially when electrification of energy use is difficult, for example, because temperatures in production processes are very high. However, transforming renewable electricity into hydrogen implies substantial energy loss. Green hydrogen production may be concentrated in regions across the globe with the highest renewables potential and will be internationally tradable and therefore subject to shocks that can be transmitted internationally.
Hence, the limitations of bioenergy and hydrogen, including hydrogen-derived fuels, argue to prioritise them for uses in which electricity or other energy sources are not suitable or insufficient. Priority use is notably in heavy-duty transport (air as well as heavy-duty road freight and ship) as well as in manufacturing sectors which are difficult to decarbonise. In the longer term, biomass firing is a key source of net negative emissions if combined with carbon capture and storage (CCS) (Intergovernmental Panel on Climate Change, 2019[27]). Relying on hydrogen and biomass when not necessary may also weaken resilience, as these energy sources may be susceptible to shocks and high prices.
Further renewable energy sources beyond electricity include solar and geothermal energy to produce heat. Their contribution to meeting final energy demand is expected to be limited. Globally, to meet projected energy consumption for net zero emissions by 2050, hydrogen may represent 6%, biofuels 4%, and heat, including from geothermal sources, 2% of the total energy supply (International Energy Agency, 2022[28]).
Transport uses the most energy across sectors in Hamburg (Figure 1.7), with road transport accounting for the largest share (Figure 1.8). Energy-saving transport modes are therefore particularly important. Transport is also the sector that is least advanced in the electrification of energy use (Figure 1.9). In industry and other business sectors electricity accounts for approximately half of energy use.
Figure 1.7. The transport sector consumes the most energy
Final energy consumption by emitting sectors in 2021, Hamburg
Figure 1.8. Road traffic is the biggest consumer of energy in the transport sector
Final Energy Consumption of the Transport Sector in 1990 and 2021 Hamburg
Figure 1.9. Fossil fuels account for at least 40% of energy end use in all sectors
Energy consumption share by sources in 2021 Hamburg
The metals industry, including steel, copper and aluminium production, is the largest energy user in the manufacturing sector, followed by food production (Figure 1.10.). Most energy use has not been electrified in the production of metals, which adds to transformation challenges. Natural gas is the largest source of energy for producing metal and metal products. It is used in basic iron and steel production. It needs to be phased out to reach climate neutrality by 2040. Electricity is dominant in most of the other subsectors (Figure 1.11).
Lignite and mineral oils are still used in a few activities, especially in motor vehicle production and the manufacturing of chemical products. Its use is marginal, contributing little to energy use and emissions. Oil refining is not included in Hamburg’s industrial energy use statistics. However, it is the most energy‑intensive manufacturing sector in manufacturing (OECD, 2023[7]). It also faces particular challenges because its output consists of fossil fuels which need to be phased out.
Figure 1.10. Final energy consumption of the manufacturing sector in 2021
Source: Excludes oil refining. (Hamburg Statistics Office, 2022[23]).
Figure 1.11. Natural gas is a substantial source of emissions in metal production
Composition of final energy consumption in manufacturing by energy source, 2021
The sectoral structure of the Hamburg economy
Hamburg is an economically successful, prosperous region by European and OECD standards. Its GDP per capita is the highest of the German regions, although growth has been weaker than in the most dynamic metropolitan areas in Germany as described in the OECD Hamburg Territorial Review (OECD, 2019[29]), Acting as soon as possible on the transition to climate neutrality can help position the Hamburg economy, making investment future-proof, avoiding unnecessary future costs, prepare for the challenges and benefit from the opportunities.
The Hamburg economy is broadly diversified with business services and manufacturing as major contributors to the generation of value-added (Figure 1.12). Transport and logistics, trade, and real estate sectors account for the largest service shares. Setting aside services dominated by the public sector, information and communication services and scientific and technical activities are also the most notable for their contribution to economic growth in 2021, as well as the manufacturing sector (Figure 1.13). By contrast, wholesale and retail trade, transport and logistics as well as financial services have shrunk or grown little. Manufacturing is also particularly energy and emission-intensive, as the industry share in energy consumption and Scope 1 and 2 emissions (mostly accounted for by manufacturing) exceeds the manufacturing share in value-added.
Figure 1.12. Business services and manufacturing contribute most to private sector value-added
Shares of economy-wide value added by sector in 2021 Hamburg (basic prices)
Source: Statistics Office Hamburg (2023).
Figure 1.13. Information and communication services, industry and business services have been growth drivers
Real value-added growth, Hamburg, 2015-2021
Source: Statistics Office Hamburg (2023).
While transport and logistics have declined in the past, the region continues to strongly rely on logistics and trade, with the Hamburg port one of the major economic pillars (Box 1.5). The port is closely intertwined with manufacturing industries in Hamburg and beyond, notably those producing basic materials (including aluminium, copper and steel). For example, basic metals make up about a quarter of the general cargo import and export business of the port, while transport vehicles contribute 40%. Manufacturing and port activity irrigate other sectors. This can include activity through both links in supply chains, such as trading, technical or financial services, as well as demand effects from the income they generate. This is reinforced by high labour productivity in manufacturing.
As discussed in chapter 3, the city’s economy is well-placed to play a leading role in the decarbonisation of freight transport, which is difficult to decarbonise on a global scale, building on its strong rail infrastructure and its status as one of the 4 biggest ports in Europe. Moreover, shipping and rail freight are among the least energy-intensive freight modes. As this chapter has shown, transport is energy-intensive and cutting back on energy use is a key challenge in the transition to climate neutrality. Successful decarbonisation could therefore further add economic dynamism to the city. It is also well-placed in the decarbonisation of heavy-duty road transport as well as in the decarbonisation of key manufacturing industries. As discussed in Chapter 3, it can further play a major role as a hydrogen hub. It can draw on a broad range of forward-looking research and development and infrastructure deployment projects in these activities.
Box 1.5. Hamburg port and related transport services
Hamburg has the third biggest port in Europe, after Rotterdam and Antwerp. It is closely related to land-based transport from and to the Hamburg hinterland, notably Germany, central-eastern Europe and the Baltic region (Figure 1.14). 70% of Hamburg businesses in transport and logistics work in the land-based transport of goods. Container shipment carries a wide diversity of manufactured products and dominates port activity but has been declining of cargo shipments. China is by far the most important origin and destination country. General cargo provides higher value-added activity to the port and has been growing and is more closely linked to local manufacturing than container shipment. About a quarter of goods shipped in Hamburg are reloaded to or from further maritime transport. Close to half of land-based transport is handled by rail, the remainder by road freight, with land-based trade connections mostly serving EU countries in central and eastern Europe, including over long distances (Figure 1.14). Rail prevails for the more distant locations and the port development plan foresees steps to further expand the rail share. This is analysed in more detail in Chapter 3.
Figure 1.14. Container train connections with Hamburg’s port
In many other service sectors, heating and cooling of buildings, electrifying equipment, and efforts to reduce energy use will dominate scope 1 emissions reductions. However, challenges to reduce Scope 3 emissions will differ. Some sectors process large volumes of emission-intensive goods and services. This applies to wholesale or retail trade or manufacturing. For example, Scope 3 emissions in the Hamburg‑based copper production group Aurubis dwarf Scope 1 emissions (Chapter 2).
Construction activity will need to take on the task of making all buildings consistent with climate neutrality, which will bring a very large expansion of labour-intensive activity as well as new skill requirements. Business services as well as information and communication services will face opportunities, for example, from the use of digital technologies for the flexible use of intermittent renewables (Chapter 2) or the circular economy (Chapter 4).
OECD general equilibrium modelling suggests that sectoral value-added and employment shifts resulting from the transformation to reach climate neutrality are small in most sectors, across European Union countries, although there may be some loss of activity in some basic materials manufacturing industries. Impacts may be bigger in individual regions depending on their sectoral specialisation, but also their preparedness (OECD, 2021[15]).
Employment data allow a more detailed sectoral analysis than value-added data. Most sectors have expanded employment over the past 10 years. The wholesale and retail trade sector is the largest employer (Figure 1.15). Retail trade accounts for nearly 60% of the sector’s employment (Figure 1.16). The contribution of manufacturing to employment is relatively small, reflecting its high productivity.
Figure 1.15. Wholesale and retail trade is the largest employer in the Hamburg economy
2011 and 2021 Hamburg Employment by Sector in Absolute Number (Thousands)
Note: Employment based on the domestic concept, counting workers according to the location of the workplace.
Source: Hamburg Statistics Office (2023).
Figure 1.16. Retail dominates employment in the trade sector
Note: Employment based on the domestic concept, counting workers according to the location of the workplace.
Source: Eurostat Structural Business Statistics (SBS) database (2022).
Transport equipment manufacture, repair and installation of machinery and equipment, and manufacture of machinery and equipment are the three most important employers in manufacturing (Figure 1.17). Transport equipment mostly includes airplane production. Airplane production does not stand out in terms of local Scope 1 emissions and energy use, as shown above. It however faces major challenges to climate neutrality which result from emissions in flights. These are downstream Scope 3 emissions. Technologies for emission-free airplane fuels are not yet available. Beyond fuels, vapour trails and cloud formation of planes also contribute substantially to global warming. A near-term emission reduction option is the use of biofuels. In the longer-term substitution of air travel, especially short and medium-haul, may reduce demand.
Among the manufacturing sectors with relatively high Scope 1 emissions and high energy use, basic metals, oil refining and food production, each employ between 3 000 and 8 000 workers. However, only part of the food industry generates substantial Scope 1 emissions. These activities also face substantial challenges from Scope 3 emissions. These include the extraction of raw materials and downstream emissions from product use.
Figure 1.17. Airplane producers employ the most workers in the manufacturing sector
Note: Employment data for Other transport equipment, Food products, Basic metals, and Wearing apparel are not available in 2009. Airplane production accounts for most employment in Other transport equipment. Employment based on the domestic concept, counting workers according to the location of the workplace.
Source: Eurostat Structural Business Statistics (SBS) database (2022).
Warehousing and support activities account for about 50% of employment in transport and logistics (Figure 1.18). Businesses in support activities provide logistics services, services in loading and unloading of freight, support services for shipping and transport services across transport modes. These activities are strongly concerned by the transformations to climate neutrality and can benefit from ambitious action to make transport ready for climate neutrality (Chapter 3).
Figure 1.18. Warehousing and support activities dominate employment in transport services
Note: Employment based on the domestic concept, counting workers according to the location of the workplace.
Source: Eurostat Structural Business Statistics (SBS) database (2022).
Climate neutrality action in comparison cities
This section draws lessons from climate action in comparison cities, from their targets and action plans for the decarbonisation of the Hamburg economy. The three selected cities are Rotterdam, Seattle, and Stockholm (Table 1.3). Each provides features to be analysed for the benefit of the Hamburg economy.
Table 1.3. Comparison cities table
Rotterdam has a similar economy to Hamburg, as Europe’s biggest port and transport hub, hosting industrial activity, notably in oil refining. It therefore may face comparable challenges in the transition. Seattle also hosts an international port and provides a very detailed decarbonisation plan for it. It also hosts industrial activity, notably in airplane construction. Rotterdam and Seattle propose climate neutrality objectives for 2050, and Stockholm is more ambitious with a climate neutrality objective for 2040. All three climate action plans cover Scope 1 emissions of buildings and transport, Seattle and Rotterdam also focus on the emissions of the port and industry. All three cities also include Scope 2 emissions from energy use, targeting emission-free energy provision. Rotterdam and Stockholm also target Scope 3 emissions from the consumption of goods and services. Seattle focuses mainly on Scope 3 emissions from the port.
To understand the emission composition of the selected cities, the emissions estimates (Box 1.6) of the Functional Urban Areas (FUAs) are compared to those of the Hamburg FUA. The FUA is composed of the city and its surrounding local units that are part of the city’s labour market (commuting zone) (Dijkstra, Poelman and Veneri, 2019[35]). FUAs are the most granular geographical breakdown available for which city GHG emission estimates are available.
Box 1.6. Estimating regional GHG emissions
Regional emissions are estimated based on the Emissions Database for Global Atmospheric Research (EDGAR) of the European Commission’s Joint Research Centre (ECJRC). It allocates national Scope 1 GHG emissions from all sectors except emissions from land use, land use change and forestry, to locations according to about 300 proxies for 26 main sectors, further subdivided into subsectors, depending on the type of technology and International Energy Agency (IEA) fuel types, following IPCC reporting guidelines. Locations of emissions are identified with various sources of spatial research. The proxies capture a substantial part, but not all, of the local emission determinants.
Emissions are attributed as follows:
Manufacturing includes emissions which are allocated to the plant location coordinates on point source grid maps. Government pollution and emission registers are the main sources for point locations. A specific proxy captures cement emissions for the world-leading producers of cement based on the plant locations and annual material and energy carrier flows.
Buildings includes the energy use for buildings. Emissions are attributed spatially using high-resolution criteria on population and built-up density. The dataset classifies six categories of human settlements (mostly uninhabited rural, dispersed rural areas, villages, towns, suburbs, and urban centres) using satellite imagery. The data are combined with population density from updated population censuses. Emissions from fossil fuel combustion in the household and commercial sectors are attributed over total population density maps. The estimated spatial distribution of the emissions hence cannot consider subnational spatial differences in energy efficiency standards of building or fuel types.
Energy production contains all combustion of fuels for electricity generation by power plants. Emissions are distributed according to the point source distribution data sets including intensity parameters, differentiated between fuel types (coal, gas and oil).
Energy extraction includes process emissions and fugitive emissions during extraction and transport of fossil fuels. Gas flaring activities are distributed on night-time light data for areas with strong gas flaring activities, such as the North Sea region. The coordinates of coalmines help locate related emissions and distinguish between hard and brown coal.
Transport encompasses freight and passenger ground, sea, and air transport. Transport route information is used for the spatial attribution of transport emissions. Proxy data for three road types worldwide (highways, primary and secondary, residential, and commercial roads) obtained from OpenStreetMap is combined with national weighting factors to distribute emissions for each road type. The distribution depends on the type of vehicles circulating on each road type, with data on traffic flows by road type to the extent available from regional sources, or imputation of traffic flow data based on population density. Similar data is used for railways and inland waterways. For maritime traffic, traffic identification and tracking data are used. For air traffic, data from the International Civil Aviation Organization, flight information, and flight patterns (landing/take-off cycle) are used and allocated according to the routes.
Agriculture includes all agricultural and fishing activity, notably emissions from agricultural soils, agricultural waste burning, enteric fermentation, and manure management. Sources are attributed spatially according to agricultural land use, soil type, local livestock density, and crop type datasets and maps from the Food and Agriculture Organization (FAO). Fuel combustion emissions in the agricultural sector are distributed over “rural” areas (mostly uninhabited and dispersed rural areas) for all fuels, except for natural gas, which is assumed to be used mainly in villages. Emissions from fuel combustion in agricultural activity, while minor, are also estimated, for example, using maps of fishing activity.
Waste includes emissions from waste incineration without energy recovery.
Other contains NOx and NH3 emissions from nitrogen deposition, using geospatial information, cropland and grassland maps and arable land. It also contains emissions from fossil fuel fires which are estimated using data on oil production and coal fires.
Note: Population-based gap-filling techniques are used for residual emissions that cannot be located, especially in the industrial and power sector.
Source: EDGAR v6 (2018), (European Commission, 2022[36])
Rotterdam and Hamburg have comparable estimated Scope 1 emissions, in amount and sectoral contributions (Figure 1.19), with similar reduction challenges. Seattle has lower emissions on account of power and heat generation. Stockholm’s estimated emissions are significantly lower, which may also be why their carbon neutrality goal is more ambitious. Stockholm has decarbonised power generation as well as heating in buildings, in large part owing to large-scale biomass firing. Biofuels also reduce emissions in road transport.
Figure 1.19. Scope 1 estimated emissions in the functional urban areas of Hamburg and Rotterdam are similar
Source: EDGAR v6, (European Commission, 2022[36])
Hamburg's emissions per capita seem to be between Rotterdam’s and Seattle’s (Figure 1.20). Sectoral emissions per capita illustrate in which sectors bigger challenges remain. For example, the decarbonisation challenges of manufacturing in Rotterdam are bigger than in Hamburg. The transport sector of Hamburg has similar emissions per capita to those of Seattle, but they are lower in Stockholm and higher in Rotterdam. The emissions per capita arising from waste are similar across all four cities.
Figure 1.20. Estimated Scope 1 emissions per capita in the Rotterdam and Hamburg functional urban areas are higher than in Seattle or Stockholm, 2018
Source: EDGAR v6, (European Commission, 2022[36])
Transport
To decarbonise transport the three cities propose similar actions. They are:
Mobility hubs - the main aim is to aggregate connections between different transport modes, to improve their interoperability, with a focus on public transport, shared and e-mobility. The idea is to aggregate transport connections, so that mobility options carpools, electric cars, shared bicycles, and public transport are all connected to each other. Expected benefits are better transport and mobility access in low-income neighbourhoods as well as a reduction in car use.
Electrification of transport – which includes building charging points and rolling out shared electric mobility throughout the city. Seattle is mapping the optimal distribution of charging infrastructure to ensure equal distribution throughout the city. Stockholm has the goal of at least 4,000 public charging points. Stockholm also plans to introduce electric trucks for optimised inter-city deliveries. They will at the same time collect waste, thereby reducing traffic.
There are also actions which are particular to each city. For example, Rotterdam is placing a focus on creating a business leaders’ roundtable, including businesses with 110,000 employees altogether, to discuss how to improve mobility and share best practices. The city approached businesses to reach targeted agreements about sustainable commuting and business traffic with a minimum of 50% CO2 reduction by 2030.
Rotterdam and Stockholm are also focusing on finding emission-free solutions for the supply of building materials and making more efficient use of vehicles for delivery and collection. For Stockholm, this means developing an underground network and using sewage tunnels to transport building materials by boat instead of truck. To reduce the number of light trucks, Stockholm is also working with e-commerce distributors to create optimal routes to drop-off points, to reduce the number of trips. Rotterdam instead is consulting with a transport service provider to transition to emission-free inner-city heavy-duty transport. Optimised cargo logistics processes include decoupling points, where delivery trucks swap bodies moving containers to light vehicles or the use of plug-in hybrid trucks (City of Rotterdam, 2020[37]). Rotterdam is also working to reduce the number of transport movements of commercial waste vehicles.
Buildings
To reduce building emissions the cities focus on fossil-fuel-free buildings, energy efficiency and public participation.
Fossil-fuel-free buildings - Rotterdam is working with neighbourhoods, property investors and housing associations for tailored plans to make all buildings natural gas free. Most neighbourhoods aim to be natural gas free by 2030. This includes connecting buildings to a district heating network as well as investing in the insulation of buildings, in climate adaptation and in opportunities for circularity. Seattle is also attempting to move buildings away from heating oil by supporting the conversion of oil-heated homes to electricity. Currently, there are recommendations to convert 18,000 homes from heating oil to electric heat pumps and help finance homes that are unable to switch on their own. Stockholm aims to fully phase out fossil oil and coal by connecting to heating plants with district heating and using biofuels. The city of Stockholm provides energy advice to property owners.
Energy efficiency in buildings - Rotterdam has a lot of programs to optimise performance such as the installation of green roofs, measures against heat stress, to start pilot energy cooperatives, insulate homes, and make installations and lighting more sustainable. There are plans for 1000 homes to be equipped with solar panels and expand electric cooking. Seattle aims to provide property owners with advice on energy efficiency. The Seattle City Lights program aims at energy savings through Energy Efficiency as a Service (EEaS). EEaS helps overcome split incentive barriers in commercial buildings, where there is little motivation for owners or investors to finance retrofits which benefit the tenants. Tenants pay for the provision of energy-saving investments. EEaS lets investors finance projects with predictable returns, owners generate a new revenue stream, and tenants occupy energy-efficient spaces.
Public participation - Rotterdam has set up a Climate Roundtable for the Built Environment and is setting up a digital platform to exchange knowledge and advice on the decarbonisation of buildings. Rotterdam is also designing a toolbox for real estate agents to educate and inform customers about opportunities for going natural gas-free and promoting sustainability. The city of Seattle intends to work with building owners through incentives and technical assistance to help them become voluntary early adopters and phase in performance requirements.
Consumption-based emissions
All three cities have some focus on consumption emissions, with specific focuses on food and waste. Stockholm also mentions actions to tackle aviation emissions.
Food - All three cities are looking for opportunities to reduce emissions from food consumption, mainly through the reduction of food waste. Rotterdam has made agreements with producers and other parties to avoid waste by providing meals to social restaurants. Rotterdam is also piloting a study to understand how the city can shift consumer preferences towards plant-based nutrition.
Circular economy and waste prevention – Rotterdam is focusing on the reduction of textile waste, hence has opened a clothes exchange, where 2nd hand clothes are traded. Rotterdam is also looking into developing a circular department store, allowing consumers to find sustainable brands in one place. Rotterdam is also researching opportunities for more and better recycling of textiles and developing a chemical recycling facility for local upgrading of discarded textiles. Seattle is focusing on building deconstruction while saving building materials. Stockholm is developing a digital system to make recycling operations more accessible to the public.
Aviation – Stockholm is running a city-wide communication campaign on the impact and alternatives of air travel. The city is also researching the most effective carbon offsets to mitigate the emissions from air travel.
Clean Energy
The cities of Rotterdam and Stockholm also have separate climate actions to accelerate the uptake of clean energy (wind and sun) in the city and reduce reliance on fossil fuels.
Wind – The city of Rotterdam is working on accelerating four-wind energy projects and there is a consultation ongoing for the North Sea Program (2022-2026) with the goal of an additional 10GW of wind at sea by 2030. The important part is to connect wind electricity to the national platform. It could serve to meet regionally concentrated electricity demand for industrial purposes, including hydrogen production (see below). Stockholm plans on buying electricity from wind turbines through long-term contracts.
Solar – The city of Rotterdam has a pilot project to install photovoltaic panels on residential roofs through energy cooperatives, with the goal of 90 solar roofs by 2025. This includes knowledge sharing, networking, development and management of projects. For residential areas, the city plans to research and develop links between the generation, storage, and distribution of solar electricity. The project also aims to put solar panels on all suitable company and parking roofs. A subsidy scheme started in mid-2021 to enable entrepreneurs to benefit from a roof capacity assessment for solar panels. In Stockholm, estimates indicate that potential electricity produced with photovoltaic panels could cover more than 10% of the city’s needs. The aim is to increase solar production by 100% relative to 2018.
CCS – The city of Stockholm aims to introduce bioenergy use combined with carbon capture and storage (BECCS) to reach net negative emissions. In Stockholm, the combined heat and power plant used for district heating would be suitable for CCS. A trial is planned to be built at the plant.
The port and industry
Rotterdam
The Port of Rotterdam is among the top 15 worldwide in terms of cargo throughput and containers shipped. The economic and cultural roots of the city are closely connected to the port (OECD, 2016[38]). In 2018. the port of Rotterdam contributed 6.2% of value added to the economy of the Netherlands (Port of Rotterdam, 2018[39]). The port and industry cluster provide direct and indirect employment for almost 400,000 people (Energieswitch, 2019[32]). The goal of the city of Rotterdam is to become the most sustainable port in the world. The Climate Roundtable of Port and Industry includes the authority of the Port of Rotterdam, energy companies, the municipality and provinces of Zuid-Holland, the nature and environmental federation of Zuid-Holland, companies that form the Port of Rotterdam industrial complex, and other government and knowledge institutions.
The Climate Roundtable of Port and Industry established phases and objectives in the decarbonisation of the port and industry. They concern efficiency measures, transitioning from fossil fuels to sustainable energy sources and creating economic and employment opportunities, putting Rotterdam in a strong competitive position.
The Climate Roundtable of Port and Industry have developed an investment agenda, which includes two main projects:
The Cluster Energy System (CES) identifies key infrastructure necessary for the transition, including hydrogen infrastructure, wind farms, and CCS infrastructure with multiple pipelines (Box 1.7).
The Data Safehouse is an exchange of information between major industrial companies and electricity distribution network operators to prepare for the electrification of industrial energy needs. The aim is to allow network operators to understand how much extra electricity is required to plan investment efficiently and meet the needs of companies in the switch to renewables.
The projects are also linked to an acceleration platform which aims to provide support in finding funding and removing barriers in legislation and regulations. The platform aims to accelerate the implementation of hydrogen, industrial electrification, industrial residual heating and circular processes projects.
Box 1.7. The six projects identified by the Cluster Energy Strategy (CES) in Rotterdam
The pipeline corridor (Delta corridor), which will host pipelines for hydrogen, CO2, liquefied petroleum gases (LPG) and possibly circular raw materials. The project is focused on strengthening the infrastructure of Rotterdam via Moerdijk/Geertruidenberg to Geleen and the connection to North Rhine-Westphalia.
Infrastructure for transport and storage of CO2 (The Porthos projects) in depleted gas fields under the North Sea. This would connect the port via pipeline to a compressor station, and then into an empty offshore gas field. Once operational, it would store 2.5m tonnes of CO2 annually, for 15 years, equivalent to nearly 2% of Dutch emissions.
Construction of a hydrogen main backbone pipeline (HyTransPort.RTM pipeline) through the port area. Local production, imports of huge hydrogen volumes and transit to the hinterland will be integrated. This project was developed by Gasunie and the Port of Rotterdam Authority.
Infrastructure for low-carbon hydrogen production and transport (H-vision) to be used as fuel in industry. Three product pipelines are planned for the supply of hydrogen, for the discharge of CO2, and for the transport of low-carbon hydrogen to industrial consumers. H‑vision also aims for two hydrogen production plants (plant 1 in 2027 and plant 2 in 2032). The project aims to reduce emissions by 2.7 million tonnes annually by 2032. 90% of low-carbon hydrogen will be produced with residual methane for example from refineries, supplemented by a small share of natural gas (H-vision, 2017[40]).
Pipeline for the transport of heat (Warmtelin Q) generated by the port and industry to Rotterdam to homes, offices, and greenhouse horticulture in the region.
Extra landing power from offshore wind farms combined with plans by grid operators to create higher capacity. This should bring the needed green power for green hydrogen production and electrification in industry.
Source: (Port of Rotterdam, 2021[41])
The port also aims to produce renewable energy. According to The Climate Roundtable of Port and Industry, the additional sun potential is 130-150 MWp. The port has committed to installing solar panels on commercial roofs within the port area. The port also aims to build a floating solar park but this is currently postponed due to financial barriers.
The industrial processes in Rotterdam are to be electrified to replace natural gas. The Field Lab Industrial Electrification allows the industry to gain knowledge about potential electrification, test new technologies and make it ready for implementation. Furthermore, the heating from residual heat in industry, heat from geothermal energy, and other local heat sources are expected to provide heat to businesses in the region, Zuid-Holland.
The port of Rotterdam also has circular economy plans. The port aims to utilise residual flows, biomass, and captured CO2 in industrial processes. The industry in the port of Rotterdam will eventually be based on circular and renewable carbon materials, notably from biomass sustainable biomass and hydrogen. New factories and value chains organised in clusters will support the raw materials transition.
Labour market shortages are one of the biggest challenges faced by the port and industry, notably a shortage of technical personnel. Rotterdam aims to implement a training agenda to increase the required skills supply for the energy transition, coordinated by the Rotterdam Apprenticeship Agreement.
Seattle
The port of Seattle has its own climate targets and plan. The port aims to:
By 2030, reduce Scope 1 and 2 emissions by 50% below 2005 and by 2050 to be carbon neutral or carbon negative.
By 2030, reduce Scope 3 emissions by 50% below 2007 and by 2050 to 80% below 2007 levels.
The action scenario identifies strategies to reduce emissions that are directly and indirectly controlled by the port.
Reduction of Scope 1 emissions
To achieve immediate emission reduction in the boat fleet of the port, the initial plan is to switch to nonpetroleum-based fuels such as waste cooking oil and grease or other renewable feedstock. The current focus of the port is renewable diesel since it is more readily available than renewable gasoline. The goal is to shift to electric vehicles focusing first on light-duty vehicles while tracking developments in heavy-duty electric vehicles. The port will prepare for this transition by installing the required charging stations. At the same time, the port is eliminating under-utilised vehicles from the fleet and maximising use per vehicle.
To reduce waste the port aims to maximise the separation of common recyclables and organics, minimise solid waste generation and expand specialised recycling. The port will run waste audits, every three years, to assess proper waste disposal and develop site-specific reduction plants. The aim is also to identify items that are potentially recyclable but that are not accepted by the City’s recycling program, such as scrap metals, building materials, electronics and furniture and add customised recycled programs when feasible.
Reduction of Scope 2 and 3 emissions
The port recognises that it has influence but no direct control of the emissions in maritime transport. This includes emissions from ships, harbour vessels, trains and other equipment, which account for 94% of the port’s Scope 2 and 3 emissions. The port is envisioning what the sector will look like in a carbon-neutral economy and preparing the necessary infrastructure to be ready when the transition occurs. The port is encouraging the stakeholders, the community, industry and government, to shift towards the carbon‑neutral vision. The goal is to provide these stakeholders with guidance and influence decisions through partnerships, programs, and port facility lease terms. The port is willing to play a leadership role by advocating for new technologies and fuels by supporting pilot projects and adopting small-scale zero‑emission technologies in Port-owned workboats and cargo-handling equipment. The Hamburg port also has developed a vision for climate neutrality, setting a target for reaching it in port operations by 2040, with a planned monitoring of emission reductions towards the target.
The port also encourages start-ups in port-related industries to partner with the port’s maritime innovation centre to achieve emission reduction in the maritime sector. It will also support workforce development and training to operate and maintain zero-emission maritime equipment.
The port is aiming to provide the infrastructure necessary for zero-emission vessels by 2030. This infrastructure includes new capacity for emission-free port manoeuvre boats, charging infrastructure, fuelling needs, and infrastructure for zero-emissions trucks. Until zero-emission vessels are developed there needs to be continuous improvement in vessel efficiency. The efficiency gains may occur through improved ship design and operational practices. The port will also support the adoption of zero-emissions cargo handling equipment by 2050, which involves replacing diesel-powered units. The port will also coordinate with cruise lines to evaluate carbon offset programs.
Other Scope 3 emissions the port is tackling are emissions commutes from port workers. 53% of port employees commute individually by car. To reduce the emissions generated, the port will encourage flexible work arrangements to reduce commuting days. It will also promote alternative modes of transport through subsidised vanpooling, bike sharing or organised carpooling.
Summing up: Lessons from comparison cities
Insights from the comparison cities yield recommendations for coordinating and facilitating climate actions in Hamburg. They are:
Business and public participation in decision-making. This can come in the form of roundtables for specific sectors. Experts in the sectors and topics are also part of the decision‑making process. It may also take the form of online platforms, information campaigns and welcoming feedback from citizens. The involvement of citizens, business owners and local stakeholders lowers resistance to the transition. Such participation needs to be organised as quickly as possible, as it may lengthen the time to prepare decisions.
Long-term vision is essential. This ensures that long-term investments that businesses will undertake are in line with the climate neutrality targets. Rotterdam has done this through the development of an investment agenda for the port and industry. Seattle demonstrates their long‑term vision with the emission-free infrastructure investments of the port.
Continuous tracking and evaluation of actions. Seattle is running multiple audits for the different climate actions the cities and ports are undertaking. This allows for a continuous reassessment and improvement of the ambition and climate action.
Reduction of Scope 2 and 3 emissions by major actors.
Avoid increasing inequalities within the city. Seattle is mapping the optimal distribution of electrical charging points to ensure that lower-income neighbourhoods are not left behind. Rotterdam is providing a subsidy scheme for the installation of solar panels which allows most citizens to participate.
Making the most of co-benefits from climate action
Local climate policies not only contribute to achieving global, national and regional climate goals but can also enhance the well-being of residents, workers and firms, substantially, especially in cities, in a broad range of dimensions (Box 1.8). From the local business perspective, well-being gains, such as from reduced traffic congestion or cleaner air, influence worker and firm location decisions and therefore have the potential to make Hamburg more attractive and competitive to businesses and workers. Economic outcomes also improve with health – for example lower air pollution boosts productivity (Dechezleprêtre, Rivers and Stadler, 2019[42]). Air pollution reduces performance in tasks requiring high skill levels, such as the performance of investors on the New York Stock Exchange (Heyes, Neidell and Saberian, 2016[43]). Good accessibility of jobs and key facilities from homes, for example with on-demand mobility services, save travel time and make commutes less exhausting. A more convenient neighbourhood with such features would further attract skilled workers. Local climate policy can deliver these co-benefits.
These well-being benefits typically exceed the cost of local climate action. Several studies find that air quality co-benefits alone offset a large proportion of climate policy costs (Karlsson, Alfredsson and Westling, 2020[44]). For the East-Asia region, the co-benefits of climate change mitigation in terms of human health have been estimated to reach 6% of GDP, when also including the impact on climate adaptation. This exceeds the estimated cost of mitigation of 2% of GDP (Xie et al., 2018[45]). Many of the well-being benefits accrue locally and, unlike the climate benefits, immediately. They can therefore substantially improve the political economy of climate action, escaping the prisoner’s dilemma perspective, and be a powerful motivator for local and regional action, including by the business community.
Passenger transport is strongly related to congestion, air and noise pollution, and car accidents, especially in urban areas. The social cost of private car use in cities is estimated to be about 6-7 times higher than the cost borne by individual car owners and drivers. (van Dender, 2019[46]). The high share of external costs due to congestion further highlights the major benefits from reducing the volume of car use (Table 1.4). Compared to conventional vehicles, lightweight electric vehicles emit only 18-19% less PM2.5 from non-exhaust sources (OECD, 2020[47]), which means electrification alone cannot eliminate air pollution, in part reflecting pollution from wheel friction. Thus, decarbonisation of passenger transport by reducing individual car use has a high potential for creating co-benefits. It can be done making public transport more attractive; and by designing pedestrian- and cycle-friendly public spaces. As argued below, ride-sharing can also make a major contribution. Ride-sharing goes well beyond car-sharing: it refers to the use of cars by several passengers with different trip origins and destinations. As argued below, ride‑sharing should replace individual car use, resulting in the abolition of day-to-day individual car use, as discussed further below.
Table 1.4. Marginal external cost estimates of car use
Low and high estimates of marginal external cost of car use in Europe (prices of 2010, gasoline car)
Source: (van Dender, 2019[46])
Further benefits from reducing car use come from lower energy use, especially in the context of the likely more regional determination of electricity prices in the future, and lower indirect emissions. The transport sector, including transport and freight within Hamburg, is the largest energy consumer in Hamburg (Figure 1.7 above), and car use is likely to represent the largest share. Electric vehicles (EVs) are increasing demand for green electricity. Life-cycle emissions of EVs are also important. Therefore, decreasing the number of cars on the road is a robust approach to fundamentally decarbonise the transport sector. Lower energy demand is a key priority on the way to net-zero emissions.
Box 1.8. Co-benefits of local climate policies
Reducing air pollution
Inhalable small particulate matter (PM2.5) causes about 422 000 premature deaths in OECD countries annually and welfare loss of around 3% of GDP. Major disease effects include cardiovascular and respiratory diseases, such as stroke and COVID-19. It affects children’s health the most (WHO, 2018) and also causes old-age dementia (Bishop, Ketcham and Kuminoff, 2018[48]). Education outcomes for children exposed to higher air pollution are substantially and lastingly lower (Heissel, Persico and Simon, 2019[49]). Moreover, air pollution reduces worker productivity, reflecting illness, but perhaps also cognitive performance (Dechezleprêtre, Rivers and Stadler, 2019[42]). Increasing active mobility reduces diseases and emissions, with an approximately 11:1 benefit-cost ratio (Chapman et al., 2018[50]).
Reducing noise pollution
Chronic exposure to noise levels above the WHO standard causes 12 000 premature deaths per year worldwide. 6.5 million people suffer from chronic sleep disturbance and 22 million people from prolonged high levels of annoyance due to noise pollution from transport or industry (EEA, 2020[51]). Noise exposure also affects patient outcomes and staff performance in hospitals as well as impairs cognitive performance in schoolchildren (Basner et al., 2014[52]). Electrifying vehicles and encouraging walking and cycling would significantly decrease noise pollution.
Reducing congestion
The cost of traffic congestion includes time loss as well as productivity losses from higher costs in the exchange of goods and services, especially within highly productive functional urban areas. Congestion hinders the region’s socioeconomic development and raises the cost of doing business. Costs in high‑income economies are estimated at 1% in Europe and between 0.7% and 0.9% in the USA. Cities in middle-income countries are substantially more congested due to less-developed public transport.
Healthier life from active mobility, road safety and better insulated buildings
It is estimated that if all Londoners walked or cycled for 20 minutes a day, the savings from public health spending could be up to approximately 496.4 million British Pounds. On average 11.5 kilometres of provisional pop-up bike lanes have been built per city in 106 European cities and each kilometre may have increased cycling by 0.6%. Every kilometre of cycle land produces annual health benefits of about USD 2 million, so investment may often pay off in less than a year. Active mobility policies also increase road safety. Health benefits of building energy efficiency investment subsidies in New Zealand have been estimated to pay off the costs (Grimes et al., 2012[53]). In the presence of energy poverty, the health benefits multiply the costs of loft insulation and are almost equal to the cost of wall insulation (Frontier Economics, 2017[54]).
Source: (OECD, 2021[15])
Harnessing co-benefits from reduced individual car use with ride-sharing
Expanding public transport is a good way to reduce car dependency. Access of residents in the Hamburg metropolitan area to other residents in the area is less good than in some other cities (Figure 1.21). This may not reflect differences in public transport service quality, but, instead, the extent to which low-density rural areas are part of metropolitan travel to work areas. The Hamburg metropolitan region includes such low-density areas extensively. Low-density areas are typically less well served by public transport. Indeed, adding fixed-route buses and metro services at large enough volumes can be costly, especially in areas of lower population density, such as in the suburbs. Thus, harnessing the co-benefits from reduced individual car use requires a comprehensive policy package including housing policy, urban planning and a transport system that increases accessibility.
Figure 1.21. Public transport performance is weaker than in other metropolitan areas
Public transport performance of metropolitan areas, 2018
Note: Public transport performance is an index which reaches one when all residents within a radius of 8 km can be reached within 30 minutes from any point within the Hamburg metropolitan area. The metropolitan area is defined as the area where most people commute to the city of Hamburg. For GDP per capita (PPP) is indicated in USD per head, with constant prices from 2015. more detailed explanation, please refer to the 2019 ITF report ‘Benchmarking Accessibility in Cities – Measuring the Impact of Proximity and Transport Performance’.
Source: OECD statistics and ITF.
Metropolitan governance will allow the residents to benefit from public transport and housing that are coordinated throughout municipalities in the same travel-to work area, while improving accessibility of jobs and services, reducing air pollution and congestion as well as eliminating GHG emissions. A denser and more contiguous residential development would help reduce emissions and increase the satisfaction of residents with public transport. The experience of OECD countries offers lessons for metropolitan governance reforms (OECD, 2015[55]). Recommendations include establishing a regional planning association, adopting digital mobility solutions and integrating housing and transport planning, as argued in the OECD Territorial Review for the Hamburg Metropolitan Region (OECD, 2019[29]). They are complex processes, requiring political support, effective coordination, and reliable funding. The benefits may also take time to materialise. For example, the densification of neighbourhoods well-connected to jobs, services or public transport may take many years and may therefore not be sufficient to reach climate neutrality by 2040.
As an innovative option, on-demand shared mobility services supported by digital technology could also help meet urban mobility needs in a way that eliminates emissions while reducing energy use and harnessing the co-benefits discussed above. Ride-sharing services can be operated on a single integrated platform, where users submit requests and a digital dispatcher matches vehicles to demands on a real‑time basis. Considering users’ demands and traffic conditions, the system assigns vehicles and generates the optimal routes to destination adhering to pre-set time constraints for all users.
On-demand ride-sharing services available at the doorstep or the next street corner would improve the connectivity of residents with each other and accessibility of jobs or services, especially for low-income households and households in low-density suburban areas, who are often less well connected to public transport. Ideally, all individual car rides in an entire metropolitan area are replaced by shared modes to decrease CO2 and other negative externalities such as car accidents, air pollution and noise pollution. The advantages of ride-sharing can be maximised when the vehicles are electrified because electric vehicles (EVs) emit less air and noise pollution from engines. Also, the operating cost of electric vehicles is lower than of conventional vehicles, reflecting less repair and higher energy efficiency, a key benefit with intensive use. Users may also benefit more from the development of technology (e.g., battery improvement) as shared vehicles are replaced more often than individual vehicles.
Digital-based ride-sharing can lower CO2 emissions sharply. In the full replacement scenario where buses and private cars are fully displaced, as modelled for Dublin for example (Box 1.9), vehicle kilometres and CO2 emissions are substantially reduced, even if internal combustion engines were kept, although the amount of change depends on the size and density of an area, infrastructure and land use (Tennøy and Hagen, 2020[56]). In Ireland’s Greater Dublin Area, for example, CO2 emission can decrease by 42% to baseline if shared modes replace all individual fleets (ITF, 2018[57]). Of course, electrification does away with Scope 1 emissions. However, the estimated emission reductions are still informative on the substantial reduction of energy use. In the case of the Lisbon Metropolitan Area, the estimated impact was more dramatic at 62% (ITF, 2015[58]).
The major co-benefit of mobility-sharing services is decreased road congestion and air pollution. In the Lyon metropolitan area, the lack of public transport and road capacity from the outer part towards the centre to host private car flows are the major sources of traffic jams. Ride-sharing would relieve this issue and increase user satisfaction by decreasing the total number of vehicles on the road. Shared mobility services including car ride-sharing are expected to reduce congestion by 48% according to the Lyon study. In Dublin, the adoption of shared modes in addition to the existing rail and light-rail transit (LRT) can meet local mobility needs with 98% fewer private vehicles in that area. The introduction of ride-sharing services such as Shared Taxis and Taxi-Buses to Dublin is also expected to reduce the total local travel by 38% and traffic jams by 37% (ITF, 2018[57]).
The adoption of ride-sharing services also has the potential to significantly open up public spaces currently occupied by privately owned cars, which tend to remain parked for extended periods. In a simulated scenario for Lisbon, the ITF projected that Shared Taxi and minibus services could lead to a remarkable 95% reduction in the total area allocated for parking (ITF, 2015[58]).
Survey results suggest that 20% of car drivers would be willing to switch to shared rides in Dublin. This share is substantially higher if public awareness is increased with information on how cheaper ride‑sharing compares to current private car use. Survey results for Lyon suggest that most citizens are willing to use shared modes.
From the perspective of operators, ride-sharing is also low-cost. For Dublin, the cost of shared minibus services would be less than the price of a public transport ticket, yet would not need to be subsidised. On‑demand ride-sharing could be provided at about half the price of public transport offered today. If implemented at a large scale to reduce waiting times, shared mobility would be more desirable for citizens (ITF, 2018[57]). Shared rides could substitute inefficient bus lines, in addition to private car use, and provide feeder service to rail.
Box 1.9. Modelling ride-sharing for Dublin
In the ITF simulation study for Dublin, Shared Taxi and Taxi-Bus replace individual cars and buses while keeping rail and Light-Rail-Transit services. This replacement is modelled on the daily mobility patterns of the Dublin metropolitan area. Shared Taxi is a convenient on-demand service where a maximum of six passengers share a minivan for door-to-door transport. Reservations can be made in real time, and vehicles are assigned to each user adhering to the principle of minimising distance, not only for the requesting user but also for those in the same vehicle. In cases where a Shared Taxi vehicle is unoccupied and not assigned to a new trip, it relocates to the closest depot designated for idle vehicles. Within the model, the fare for a Shared Taxi is estimated to be 75% of the present car cost, ensuring it never falls below EUR 3.
Taxi-Bus service is also on-demand but operates between street corners, using a mini-bus that can accommodate between 8 and 16 passengers. Reservations for Taxi-Bus need to be made 30 minutes in advance. As a shared taxi, Taxi-Bus also follows dynamically optimized routes, ensuring efficient travel between designated stops for all users. The model operates on the assumption that Taxi-Bus fares are set at 50% of the current car cost, with a minimum threshold of EUR 1.5. This calculation is based on a car cost of EUR 10, divided by three trips per day, and added to the fuel cost per kilometre.
Shared Taxi and Taxi-Bus can generate the largest positive impact on reducing congestion and CO2 emissions when integrated with large-capacity public transport such as light rail services. Both services, operated by professional drivers, offer the option of either a direct, non-stop trip or transport to a rail station if the destination can be reached without transfers (ITF, 2018[57]).
Electric mobility makes road use charging more important
Road use charges will be necessary to replace fossil fuel taxes when fossil-fuel vehicles are phased out, both to replace revenue streams as well as to price negative externalities related to vehicle use such as congestion, accidents, and noise. Road use charges that are time and place-contingent can price externalities more efficiently, especially in urban areas, where external costs are much higher than typical fuel tax rates today (OECD/ITF, 2019[59]).
Since electric vehicles have low operating costs, the diffusion of EVs could intensify car use in cities, aggravating congestion. Automated driving adds to these risks, as it will reduce the opportunity cost of the time spent in the car. Such improvements would lower the cost of private mobility, raising the demand for it, including by encouraging urban sprawl. Large-scale introduction of ride-sharing would also bring efficiency gains and would therefore also need to be accompanied by road charging. Without road use charges, the more efficient mobility services provided by ride-sharing could result in residents increasing mobility demand, for example, by living further away from their workplace, offsetting the effects of ride‑sharing on congestion and air pollution.
Road-use charging can include congestion charging (Box 1.10). Policy makers need to decide which roads should be covered. Stockholm has been operating the congestion tax since 2007 to improve transport in central Stockholm. A vehicle is charged every time it passes the charging points, between 6:00 am and 6:29 pm during weekdays. The price depends on the time of day and season, ranging from SEK 11 to SEK 45 each time, with a maximum of SEK 135 per day and vehicle (Transport Styrelsen, 2022[60]). Although public acceptance was less than 40% in 2005, it rose to more than 50% after a trial period in 2006 and to 65% in 2007 after the official adoption. The level of public support further increased to approximately 70% in 2011. Thanks to the charges, traffic fell by 16% in the inner city and by more than 5% outside the cordon, accompanied by a substantial decrease in travel time. In terms of environmental effects, a 10 to 15% reduction in carbon dioxide (CO2) emissions, a 10 to 14% reduction in air pollutants, and an 8.5% reduction in nitrogen oxides (NOx) were observed in the inner city. CO2 emissions in the region of Stockholm decreased by 2 to 3% (Transport Styrelsen, 2022[60]).
Other metropolitan areas of the OECD countries, such as London, Milan and Singapore, have also adopted congestion charges and successfully reduced congestion, travel time, and air pollution (OECD, 2010[61]). In the case of Milan and Singapore, this drop has been linked to vehicle emissions (OECD, 2019[62]). Lessons from the London Congestion Charge show that attitudes change in favour of policies to reduce car demand after their successful introduction as the benefits of less car use materialise (Downing and Ballantyne, 2007[63]).
There are several limitations attached to the development of user charges including the legal ability of subnational governments to create and determine the level of such fees, as well as the capacity and willingness to pay of users (OECD, 2019[62]). Those who can afford all the costs would continue using private vehicles anyway. In other words, such a policy can have negative distributional effects when individuals being taxed do not have alternative means of transport to turn to. Therefore, they need to be accompanied by policies that allow substituting for private car use. public and shared transport systems need to be sufficiently accessible to offset rising inequality as a consequence of a price-based instrument. High-quality ride-sharing could contribute to making more shared transport available.
Box 1.10. Schemes of road-use charging
The most common road-use charging method is the cordon-based system. It charges drivers when they pass charging points, either per day or by the number of crossings. In London, a passenger car that enters the Congestion Charge area at least once a day must pay £15. Auto Pay system bills a driver for the number of charging days the vehicle travels within the Congestion Charge zone, the Low Emission Zone (LEZ) and the Ultra Low Emission Zone (ULEZ) according to vehicle emission standards. There are many other cases of discounts and exemptions. For example, residents of the zone get a 90% discount. Vehicles with nine or more seats that are not registered as buses get a 100% discount. To further reduce cars on the road, electric or hydrogen fuel cell fleets will no longer be eligible for discounts from 2025. In 2023, commemorating the 20th anniversary of this policy, Transport for London reported that the Congestion Charge reduced traffic jams by 30% and promoted walking and cycling by 10%. The office expects that the expansion of the ULEZ to the entire London in August 2023 will bring an additional cutback of 23,000 tCO2 in outer London, more than the reduction observed in central London. The receipts from the congestion charge are used to finance urban public transport in London (Transport for London, 2023[64]).
An area-based system is another type of road-use charging. It is done by allowing only licence holders to use the roads in charged areas for a certain period covered by the permit. While the cordon-based system can only charge those entering a congestion zone, the area-based system can also cover the trips made within the area. In Singapore, the Area Licensing Scheme (ALS) was introduced in 1975, and drivers had to show a pre-purchased daily pass when entering the downtown priced zone in the morning and evening peak. Cars in shared use and taxis were also subject to the rule, while buses and motorcycles got an exemption. The introduction of ALS reduced 44% of vehicles entering the restricted zone and increased carpooling (8% to 19%) and bus share (33% to 46%). Although both car population and employment in the restricted zone had increased by 1983, the overall auto share for commuters decreased from 56% to 23%. The public transport share in the morning peak time also increased from 33% to 69%. In 1998, the Electronic Road Pricing (ERP) program replaced the ALS. The charges are automatically calculated and collected according to location, time, and vehicle type, using a transponder attached to a vehicle with a pre-paid “smart card” inserted. ERP further reduced 24% of weekday traffic in the restricted zone (U.S. Department of Transportation, 2021[65]).
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