Just Transition: draft plan for transport in Scotland

Annex F: Fleet Transition Economic Costs and Opportunities

In the just transition to net zero, we know that transport businesses and those operators who provide transport services (including public bodies) will face costs as they transition their fleets. At the same time, some Scottish businesses will have opportunities to meet the demand for the goods and services needed for the transition.

We aim to:

a) ensure that costs to transport operators are apportioned as fairly as possible, acknowledging the high proportion of SMEs in the sector;

b) help stimulate demand for businesses in net zero transport supply chains, maximising the economic opportunities associated with operators’ investments, and;

c) identify areas of specific support for key elements of supply chain activity.

As set out in the main body of this draft plan, we’re addressing the impact of the transition on businesses with a particular focus on road transport and Heavy Duty Vehicles (HDVs). This Annex sets out more detail on the rationale for the focus on the HDV sector. This is a sector which needs short term support to achieve a sustainable financial transition but which also presents economic opportunities for Scotland.

There are a number of reasons to make the HDV sector a priority for intervention in the short term:

The transition of the HDV sector is a short term challenge

As of 2021 around 75% of Scotland’s transport emissions were related to road transport and in 2024 only 0.1% of Scotland’s fleet of almost 50,000 heavy goods vehicles (HGVs) and buses and coaches (weighing over 3.5T) were low carbon^[83]. In order to achieve our emissions targets, these vehicles will need to transition by 2045.

One estimate suggests that 5-12% of the HGV, bus and coach fleet could be low carbon (including zero emissions fuels such as battery electric and hydrogen, but also biofuels and other low carbon fuels) by 2026, rising to 17-39% by 2032.^[84]

The technological challenge for HDVs is greater than for cars and more immediate than for aviation and maritime

Net zero technologies are necessary to achieve net zero in this sector, potentially including battery electric or hydrogen fuel cell/combustion vehicles. Infrastructure will be required for any technology to provide fuelling or charging.

This huge transition presents both opportunities and challenges. While all parts of the transport sector require decarbonisation the technology to do that for some vehicles, like cars and vans is much more advanced and expected to happen much sooner than for areas such as maritime and aviation. The HDV sector is expected to need to decarbonise sooner than maritime and aviation but has more technological challenges to overcome than for cars and vans.

The HDV sector faces particular challenges in its transition to net zero

The need to decarbonise Scotland’s HDV fleet is well-recognised by Scottish Government. We have been working with industry for some time to understand what a successful transition will look like for all with our Zero Emission Mobility Industry Advisory Group^[85], Bus Decarbonisation Taskforce^[86], and Zero Emission Truck Taskforce^[87] which resulted in a number of actions for Government and industry.

One of the critical challenges to quicker decarbonisation is the higher capital cost and development time of new vehicles, relative to non-HDVs, and their durability, distance, and payload requirements. In some parts of the sector, such as buses, there are signs of total operating costs reaching parity with diesel and petrol vehicles; however, in other parts uncertainty around technology inhibits operators from investing with confidence in new vehicles and infrastructure. This is particularly the case for SMEs, who make up the majority of fleet operators in Scotland (around 90% of HGV license holders have 10 vehicles or fewer).

That is why SG have been working with industry to develop transition pathways that include actions around building confidence in getting private finance in, to address capital shortages. As set out in these co-designed plans, the main role of the Scottish Government is now in convening potential partners, signalling where we see infrastructure requirements and helping to build confidence in testing out approaches to bring in more private sector investment.

Driving forward fleet decarbonisation in Scotland would also increase demand for these vehicles domestically. This would not only enable faster decarbonisation of Scotland’s road sector, but would also increase the market opportunity presented to Scotland’s HDV manufacturers.

Scotland has strengths in the HDV sector which present an opportunity for economic growth

Scotland has existing niche on-road HDV manufacturing experience, engaged industry stakeholders, good availability of renewable electricity for zero-emissions technology, and strong R&D programmes. Our HDV production sector consists of a small number of companies manufacturing a diverse range of vehicles including buses, emergency vehicles and adaptive vehicles. Scottish HDV manufacturers have already begun to develop low carbon vehicles, taking advantage of current gaps in the market, although the development of these products in the long term will remain challenging.

Despite the uncertainties and limitations imposed by Scotland’s market position and the nascent technologies involved, Scotland could increase its market share of production. Potential steps include technological development, operational change within industry incentivised through measures such as clean air targets and market mechanisms to incentivise decarbonisation, modal shift enabled by investment into public and active transport, and wider behaviour change by producers and consumers.

The Low Carbon Vehicle Partnership (now Zemo) estimate the total turnover of the UK HDV original equipment manufacturers (OEMs) at £8.2bn, split into £4.3bn for construction, £2.3bn for agriculture, and £1.6bn for on-road HDVs, although this analysis suggests Scotland represents a relatively small share of UK market activity.

Current levels of EV HDV production in Scotland are low, but the wider HDV sector will need to transition. As set out in recent analysis carried out via ClimateXChange, economic activity in HDV production in Scotland is generated by a relatively small number of companies, many of which rely on a wider international supply chain for components. Scotland has on-road HDV strengths in Emergency One and Hillend Farid, plus construction represented by Volvo. Alexander Dennis in Falkirk is a leader in the manufacture of low-carbon buses and coaches, and the four major commercial HDV manufacturers based in the UK (Dennis Eagle, London Electric Vehicle Company (LEVC), Leyland Trucks and Vauxhall) also use some Scottish suppliers for components. Scottish Enterprise estimate the current turnover of the nine Scottish HDV OEMs at £820m, with around 1,800 employees^[88].

Scottish low carbon HDV manufacturers are currently operating at a relatively small scale and tend to generate GVA through vehicle production, rather than through their supporting infrastructure (EV chargers, hydrogen refuellers etc). Data for electric and hydrogen buses and HGVs, EV chargers and hydrogen refuellers suggest combined 2022 figures of £25m and £12m for turnover and GVA, respectively^[89]. These figures could increase significantly by 2050 as the industry transitions from the production of internal combustion engine vehicles, in certain scenarios, turnover could reach £1.5bn and GVA up to £690m^[90].

We also see the cross-transport sector benefits of this expertise in Scotland. There are commonalities across the power train technology development and supply chains for all larger zero emission vehicles. For example, the development of aircraft comprising new innovative materials and propulsion systems is a key part of the transition in our aerospace sector. This sector has great strategic importance to our economy and wider manufacturing base, and has a vital contribution to make to the development and delivery of technology to cut aviation emissions.

Expertise in Scotland is at the heart of such innovation. The National Manufacturing Institute Scotland (NMIS) works with a range of expert companies in the aviation industry and other parts of the transport sector, collaborating in the advanced engineering and materials science that will support sustainable travel. It also works to ensure greater efficiency in the manufacturing of components for existing technologies.

NMIS has a mission to make Scotland a global leader in advanced, sustainable manufacturing. As such, it works with industry to unlock productivity gains, develop new products and processes, and promote sustainable practices that will offer a competitive edge.

In addition, the Scottish Manufacturing Advisory Service (SMAS) provides manufacturers with practical support, advice on new manufacturing technology and best practice. SMAS can offer a number of services to business that help manufacturers to take advantage of new technologies, and more businesses are working with SMAS to look at productivity improvements, including plant efficiency, savings, better use of people and automation.