DECARBONIZING THE FREIGHT AND LOGISTICS SECTOR

TRANSPORT DECARBONIZATION INVESTMENT

Discussion PaperNovember 2021

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© 2021 World Bank Group Internet: worldbank.org

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Please cite the work as follows: Humphreys, Richard Martin. & Dumitrescu, Anca 2021 Decarbonizing the Freight and Logistics Sector. Washington D.C.: The World Bank Group. License: Creative Commons Attribution CC BY 3.0.

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Table Contents

1. Introduction ................................................................................................................................ 1

2. The Challenge of Freight and Logistics Decarbonization ...................................................5

2.1 The Maritime Subsector ........................................................................................................................................... 5

2.2 The Inter Urban Freight and Logistics Subsector .........................................................................................11

2.3 The Urban Freight and Logistics Subsector .................................................................................................26

3. What Requisite Policy Interventions Assist Freight and Logistics? ................................ 56

3.1 The Maritime Subsector ........................................................................................................................................ 56

3.2 The Interurban Freight and Logistics Subsector ........................................................................................60

3.3 Urban Freight and Logistics Subsector ......................................................................................................... 66

4. The Way Forward ....................................................................................................................74

4.1 The Maritime Subsector .........................................................................................................................................74

4.2 The Interurban Freight and Logistics Subsector ........................................................................................75

4.3 The Urban Freight and Logistics Subsector .................................................................................................76

4.4 Specific Recommendations ................................................................................................................................77

Transport Decarbonization Investment (TDI) Series

The TDI Series is a partnership between the World Bank, the Government of the Netherlands, and the World Resources Institute (WRI) with the goal of sharing recommendations for overcoming investment barriers to decarbonizing transport and spurring joint action by governments, companies, civil society, and international development and financial institutions.

The other reports in the series are:

1. Motorization management and the trade of used vehicles: How collective action and investment can help decarbonize the global transport sector

2. Cleaner Vehicles and Charging Infrastructure: Greening Passenger Fleets for Sustainable Mobility

3. Decarbonizing Cities by Deploying Public Transport and Improving Land Use Policies

4. Investing of Momentum in Active Mobility

5. Decarbonizing the Freight and Logistics Sector

6. Financing Low carbon Transport Solutions in Developing Countries

For more information. Please visit https://www.worldbank.org/en/topic/transport/publication/transport-decarbonization-investment-series.

Acknowledgments

The lead authors would like to offer particular thanks to Professor Alan Mckinnon, Kuehne Logistics University, Professor Jan C. Fransoo, Tilburg University, Camilo A. Mora-Quiñones, Tecnologico de Monterrey, and the MariTeam at the World Bank, comprising Ms. Jennifer Brown, Maximillian Debatin, Dominik Englert, and Rico Salgmann for their substantive contributions to this discussion paper, which represents a synthesis of their submissions.

The lead author would also like to thank Ms. Martha Lawrence, Senior Transport Specialist, The World Bank, and Jeremy Drew and Professor Chis Nash, the University of Leeds, for their contributions on the rail side.

We would like to thank the Team that led the TDI publication series for the Transport Practice, including Binyam Reja, Nancy Vandycke, Yoomin Lee, Emiye Gebre Egziabher Deneke, Josphine Njoki Irungu, and Michael Peter Wilson of the World Bank’s Transport Global Practice. Chitra Arcot was the principal editor and Duina Reyes designed the report.

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1. Introduction

Freight and logistics are essential for economic and social development and are projected to grow significantly, but prevailing practices are unsustainable.

The freight and logistics1 sector is responsible for 10-11 percent of energy-related carbon dioxide emissions worldwide. Approximately 88 - 90 percent of which comes from the movement of the freight, with most of the remainder coming from warehousing and terminals (McKinnon 2018). Globally, freight movement accounts for approximately 40 percent of total carbon dioxide emissions from transport (Smart Freight Centre 2017). The near total reliance of freight movement on fossil fuels and an expectation that globally freight ton–kilometers will more than double over the next 30 years makes the freight and logistics sector very hard-to-abate. Freight ton–kilometers are forecast to increase 2.6 times by 2050 (International Transport Forum 2021). Globally domestic non-urban freight accounts for 38 percent of total transport carbon dioxide emissions (figure 1-1), the vast majority of which come from trucking operations,2 with urban freight accounting for 13 percent, with international freight movements, primarily maritime, accounting for the remainder.

Figure 1-1: Global division of freight CO2 emissions by geographical extent.

Urban freight13%

38%International freight

49%

Domestic non-urban freight

0.0002

0.0003

0.0004

0.0005

0.0006

0.0007

0.0008

2015 2020 2025 2030 2035 2040 2045 2050

North America EU27 Africa India China Middle East Latin America

Source: International Transport Forum, 2019a.

The global demand for freight transport is expected to triple from roughly 112 trillion ton–kilometers in 2015 to 329 trillion in 2050 (International Transport Forum 2017b). Modeling suggests that between 2015 and 2050, 82 percent of the growth in domestic freight movement and related carbon dioxide emissions will be in non-OECD countries (International Transport Forum 2019a). It is important therefore, that the decarbonization of freight transport in these countries gets onto a net zero trajectory as soon as possible.

A significant amount of all global trade originates from, traverses, or is destined for an urban area. The United Nations projects close to seven billion people will live in urban areas by 2050, with urban areas in many LDCs displaying significant growth. This implies an inevitable increase in the demand

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for goods in urban areas, and corresponding growth in urban freight. This growth will require the storage and handling of goods in large distributions centers and small depots, transportation to the cities, and distribution of goods within the city to industrial and office locations, retail outlets, and increasingly, directly to consumers’ residences. In most cities, this growth in logistics activity goes hand in hand with the overall growth in urban mobility, leading to extensive congestion, pollution, accidents, and other negative externalities locally, and a significant impact on global transportation emissions

However, very few cities and countries have developed structured and sustainable freight policies, dedicated programs, or partnerships with the private sector to address the core issues of urban freight. Urban freight traffic accounts for about 10–15 percent of kilometers traveled and emits approximately six percent of all transport-related greenhouse gas (GHG) emissions. It employs between two and five percent of the total workforce in urban areas and it is estimated that between three and five percent of urban land is reserved to logistics activities. Nearly 20–25 percent of freight vehicle kilometers connects goods leaving urban areas, and 40–50 percent is related to incoming goods. In the absence of sustainable freight planning, these statistics are likely to be aggravated further with the rise of e-commerce and increasing customer expectation of ever faster deliveries.

Finally, that increased demand and growth will be reflected in continued demand for and growth in global maritime transport.3 Maritime freight plays a crucial role in facilitating trade between producer and consumer, and in fostering economic development. Carrying an estimated 70 percent of global trade by value and 80 percent by volume, maritime transport is an essential component of the global transport network that underpins the daily functions of the world economy (UNCTAD 2020). In this context, international shipping is often seen as a critical enabler of developing countries’ economic advancement, as approximately 60 percent of goods transported internationally by sea are loaded or unloaded in developing countries.4 Also, 15 of the world's 20 busiest ports, by volume, are located in these countries.4 Furthermore, many small island developing states (SIDS) and least developed countries (LDCs) are heavily dependent on maritime transport to supply basic goods. This includes, but is not limited to, food, fuel, clothing, construction materials, and pharmaceuticals.  

But maritime transport also accounts for an estimated three percent of global GHG emissions and emits around 15 percent of some of the world’s major air pollutants annually. Shipping’s GHG emissions are an estimated 2.89 percent of global anthropogenic GHG emissions—equivalent to the sixth largest GHG emitting country worldwide5—and are expected to rise further without any policy intervention.6 Shipping's air pollution record is equally unsavory; it emits 15 percent and 13 percent of all global sulfur oxides (SOx) and nitrogen oxides (NOx), respectively.7 These emissions, combined with a number of other air pollutants, such as particulate matter, have led shipping responsible for an estimated 15 percent of global premature deaths from air pollution—or 60,000 premature deaths in absolute numbers—in 2015.8

There has been less research and policy focus on the decarbonization of logistics in LDCs than developed ones. The lack is attributable to: (i) greater emphasis on economic development;(ii) fear that carbon mitigation measures may inhibit development; (iii) greater concern for more immediate environmental problems related to air quality, and (iv) safety. There is very little reference to freight in the nationally determined contribution (NDC) submissions to the United Nations Framework Convention on Climate Change (UNFCCC), particularly from LDCs. Most of the research and policy initiatives apply to logistics in Europe and North America. To what extent are these research results, plans, policy initiatives, and good practices transferable to LDCs and SIDS? What will constrain their application there? How can decarbonization practices and policies be adapted to the needs of LDCs and SIDS? Should some of these countries follow a different logistics decarbonization path?

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Are examples of innovative logistics decarbonization initiatives available in some LDCs that could be more widely adopted?

This discussion paper explores the initiatives being adopted, implemented, and proposed in each of the three subsectors in a logistical chain, the maritime subsector, the interurban freight and logistics subsector, and the urban freight and logistics subsector.9 The paper describes the initiatives, and more importantly, how they may need to be adapted and financed to achieve the decarbonization of the freight and logistics sector, while meeting the needs, opportunities, constraints, and the broader climate change-related and development challenges of LDCs and SIDS. The following section provides an overview of the main technical issues, commencing with the maritime subsector, then the interurban subsector, and finally the urban subsector. The third section will highlight some of the interventions needed, and where possible the required policy actions and financial implications, with the final section proposing some final thoughts about the way forward and summarizing key recommendations.

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Notes

1. Defined here as including the terrestrial and maritime modes only. Air freight is excluded reflecting the subsector specific issues, which are worthy of a separate paper.

2. Since trucking is by far the dominant mode of domestic surface transport it receives most of the attention in this paper. Extensive reference is also made to rail freight operations. In most less developed countries waterborne accounts for a small percentage of domestic ton-kilometers and domestic air cargo for a tiny fraction. Accordingly, there is little discussion of these modes.

3. The cruise sector is omitted from the scope of this chapter.

4. United Nations Conference on Trade and Development (UNCTAD). 2019. Review of Maritime Transport. Available at: https://unctad.org/webflyer/review-maritime-transport-2019.

5. International Maritime Organization (IMO). 2020. Fourth IMO GHG Study 2020; World Economic Forum. 2018. Available at: https://www.weforum.org/agenda/2018/04/if-shipping-were-a-country-it-would-be-the- world-s-sixth-biggest-greenhouse-gas-emitter.

6. These GHG emissions are projected to continue to grow from 90 percent of 2008 emissions in 2018 to an estimated range of 90 to 130 percent of 2008 emissions by 2050. International Maritime Organization (IMO). 2020. Fourth IMO GHG Study 2020.

7. International Maritime Organization (IMO). 2014. Third IMO Greenhouse Gas Study 2014.

8. International Council on Clean Transportation (ICCT). 2019. “Silent but deadly: The case of shipping emis-sions. 2019. Available at: https://theicct.org/blog/staff/silent-deadly-case-shipping-emissions.

9. This discussion paper does not consider the aviation sector, which merits a separate paper of this length on its own.

References

ITF. 2021. ITF Transport Outlook 2021 OECD. International Transport Forum. Paris.

McKinnon, A.C. 2018. Decarbonizing Logistics: Distributing Goods in a Low Carbon World. Kogan Page, London.

Smart Freight Centre. 2017. Smart Freight Leadership: a journey to a more efficient and environmentally sustainable global freight sector. Amsterdam.

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2. The Challenge of Freight and Logistics Decarbonization

The significant challenges of decarbonizing the freight and logistics sector appears to be engendering freight blindness among international and national policy makers.

Despite the importance of the freight and logistics sector, only a small proportion of the nationally determined contribution (NDC) statements submitted to the UN’s climate change agency (UNFCCC) makes any reference to freight transport. In the first round of NDCs submitted, only 21 percent of the statements mentioning the mitigation of transport emissions specifically referred to freight (Fransen et al. 2019). This figure increased to just 25 percent in the latest round of submissions for the COP26 conference in November 2021 (GIZ 2021). It reveals a continuing trend of freight blindness1 on the part of national transport policy makers (National Infrastructure Commission 2018). The maritime subsector, by its nature and possibly by the challenge, has been omitted from existing international agreements. Within the subsector itself, the challenge of assuaging stakeholder concerns, meeting industry interests, and reaching consensus has delayed substantive progress to this point.

Carbon emissions from freight and logistics can be reduced in many ways, most of them mutually reinforcing.1 Several attempts have been made to classify these carbon mitigation measures. The most widely applied is the Avoid–Shift–Improve (ASI) typology, distinguishing efforts to avoid unnecessary travel, shift traffic onto lower carbon modes and improve the carbon efficiency of personal and freight movement.2 The ASIF framework3 splits the Improve category between measures which reduce energy intensity and those which cut carbon emissions per unit of energy consumed, such as fuel. The energy intensity variable has subsequently been divided into vessel or vehicle utilization and energy efficiency components to create a five lever framework.4 The framework can be used as a typology to present the different measures and different emphasis in terms of the levers in the maritime, interurban freight and logistics and the urban freight and logistics subsectors.

i. Reduce demand for freight transport or moderate, arrest, or mitigate its growth.

ii. Shift freight to a lower carbon transport mode.

iii. Increase asset utilization - optimize vehicle or vessel loading and use.

iv. Increase vehicle or vessel energy efficiency; and

v. Switch logistics to lower carbon energy sources.

2.1 The Maritime Subsector

Maritime transport is the backbone of globalized trade and the manufacturing supply chain. The maritime sector offers the most economical, energy efficient, and reliable mode of transportation over long distances. Despite a renewed focus on improving resilience of the supply chain, near-shoring, the regionalization of production, and 3D printing, the growth trend of maritime shipping is likely to continue to follow global GDP growth. There are limited opportunities available for modal shift, and the pressure on costs over the last 20 years has led to improved asset utilization

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in the industry, present difficulties excepted. Hence, the primary emphasis in decarbonizing the maritime subsector has been on the levers related to increasing energy efficiency and switching to lower carbon energy sources.

Prevailing policy to tackle emissions from shipping

Maritime transport is almost entirely dependent on fossil fuels, mainly heavy fuel oil (HFO). The dominant shipping or bunker fuel is fuel oil, which includes both HFO, used in combination with exhaust treatment technologies, and a variant generically known as low sulfur heavy fuel oil (LSHFO). HFO is a high carbon, high sulfur, and highly viscous residual fuel that resembles tar until heated, and accounts for more than 79 percent of the sector’s energy mix.5 The remaining 21 percent of the sector’s energy mix is composed of other fossil fuels, such as marine diesel oil and liquefied natural gas (LNG).6

To date, international shipping has not been explicitly included in existing multilateral agreements on climate change mitigation such as the United Nations Framework Convention on Climate Change’s (UNFCCC) Paris Agreement of 2015. Nonetheless, to  counter  the expected growth of GHG emissions  under a business-as-usual scenario,  the  International Maritime Organization (IMO)—a specialized agency of the United Nations responsible for regulating international shipping—adopted the Initial Strategy on the Reduction of GHG Emissions from Ships—known as the Initial IMO GHG Strategy—in April 2018.

The Initial IMO GHG Strategy sent a strong political signal to all maritime stakeholders that GHG emissions need to be curbed immediately and permanently.7 It outlined an ambition to reduce international shipping’s  GHG emissions by at least 50 percent by 2050 compared to 2008 levels, with the aim of fully phasing out GHG emissions, consistent with the Paris Agreement’s temperature goals.8 The IMO also committed to revisit this objective by 2023, with a view to increasing it to 100 percent by 2050. Figure 2-1  illustrates the business-as-usual GHG emissions growth against the shipping sector’s GHG emissions reduction commitments.

Figure 2-1: Historical and projected transport demand, CO2 emissions and emission targets.

Source: United Nations Environmental Programme. 2020. Emissions Gap Report 2020.

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The focus on GHG emission reduction through decarbonization has a secondary benefit in mitigating problematic air quality issues in port cities and coastal areas. International shipping emissions are already regulated to reduce sulfur oxides (SOx) and nitrogen oxides (NOx) emissions in port cities and coastal areas. Sulfur emissions can cause respiratory, cardiovascular and lung disease, and also result in acid rain, impacting crops, forests as well as aquatic species and leading to ocean acidification.9 A cap on the content of sulfur in marine bunker fuels was enforced globally in 2020 to specifically address these impacts. This regulation limits the permissible sulfur content in marine fuels to 0.5 percent—from 3.5 percent previously.9 In certain emissions control areas (ECA), sulfur oxides and nitrogen oxides emission limits are even more strictly enforced.10 With the cost-effective use of existing technology on board, future zero carbon bunker fuels and propulsion technologies can address the challenge of both GHG emissions and air pollutants by a single solution.

The recent Marine Environment Protection Committee (MEPC 76) meeting in the IMO adopted new short-term measures—policies to reduce GHG emissions from shipping in this decade—namely the energy efficiency existing ship index (EEXI) and carbon intensity indicator (CII). But these initiatives have been deemed highly insufficient and keep international shipping on a 3–4 degrees Celsius pathway, and likely mean that the IMO would fail to meet its own strategic targets.11

For the maritime transport sector to decarbonize, zero carbon bunker fuels12 need to be adopted throughout the sector. Zero carbon bunker fuels are estimated to enter the global fleet and scale rapidly  from 2030  to achieve the IMO’s 2050 climate target.  Shipping has to set course on a GHG trajectory, which is consistent with the Initial IMO GHG Strategy and the Paris Agreement’s temperature goals. Zero carbon bunker fuels will need to represent at least five percent of the bunker fuel mix by 2030, or approximately 19.4 million tons of oil equivalent (Mtoe).13 As they are not used for shipping in any significant quantities, zero carbon bunker fuels must be scaled up rapidly to achieve significant GHG emissions reductions. Despite this understanding, the targeted development and deployment of zero carbon bunker fuels has only recently become part of the industry’s discussions. This is particularly worrying given the long asset lifetime of ships, which usually ranges between 20 and 30 years.

However, given the pressure on shipping to reduce GHG emissions in line with the Paris Agreement temperature goals, the maritime transport sector will also need to look at other methods to reduce its emissions, including the adoption of further energy efficiency measures. The efficiency of shipping has improved steadily in recent decades, but market barriers still inhibit the uptake of energy efficiency measures. As a result, several new technologies and operational improvements remain that have not seen any significant investment or use, despite holding some promise. This opportunity if crystallized would significantly reduce the GHG emissions of the fleet (figure 2-2).

Improving vessel efficiency: Energy efficiency

Energy efficiency, defined as energy consumption per transport work, has gradually improved over the past decade, especially during the years following the world financial crisis. While global seaborne trade has increased by 28 percent between 2011 and 2018, total carbon dioxide emissions caused by maritime transport increased marginally by 8 percent during the same period.14 This decoupling of transport work and energy consumption, and by extension carbon dioxide emissions, was achieved largely because of sailing speed reductions, or slow steaming, as well as increasing ship sizes. While the efficiency gains to be enjoyed through slow steaming and the economies of scales of larger ship sizes are finite, a multitude of other energy efficiency measures remain available.

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Figure 2-2: Relevance of energy efficiency gains and zero carbon fuels to achieve emissions targets.

Source: United Nations Environmental Programme. 2020. Emissions Gap Report 2020.

These measures can be categorized as technical measures and operational measures, which could be implemented on both existing and newbuilt ships. Both types reduce fuel consumption, thereby reducing fuel costs and GHG emissions. Technical measures include the installation of technical equipment on board, which can include wind-assistance technologies, air lubrication, modifications to the rudder and propeller, and steam waste heat recovery systems. Operational measures include, among others, speed reductions, trim or draft optimization, hull and propeller maintenance as well as weather routing, and just-in-time-arrival. In contrast to technical measures, operational measures do not require significant capital expenditure to be implemented and are effective immediately.15

Energy efficiency improvement opportunities could lead to carbon intensity improvements of over 50 percent by 2030. The energy efficiency improvements that may occur under business-as-usual are expected to result in an estimated seven or eight percent carbon intensity improvement by 2030.16 However, if efficiency is maximized, this improvement could increase to approximately 20 percent by 2030.16 If the maximum, or close to the maximum improvement is realized, carbon intensity reductions of shipping overall could exceed 50 percent by 2030 compared to 2008 levels.16 This would be a significant improvement on the 40 percent carbon intensity objective that is in the Initial IMO GHG Strategy. If enabled, it has the potential to ensure that shipping’s GHG emissions peak this decade, prior to the introduction of zero carbon fuels in the subsequent decades.

Switching to low carbon energy sources: Bunker fuels

Any serious initiative to decarbonize the maritime sector will require the adoption of zero or low carbon bunker fuels, and a move away from its reliance on HFO (figure 2-3). Accordingly, a range of prospective bunker fuels including biofuels, hydrogen and ammonia, and synthetic carbon-based fuels are being considered. Figure 2-3 provides an overview of the main zero carbon bunker fuels under consideration by displaying their main energy source, illustrating the production pathway, and showing the final zero-carbon bunker fuel as output.

Recent analysis by the World Bank17 has identified ammonia and hydrogen as the most promising zero carbon bunker fuels to date. When ammonia and hydrogen are produced from renewable

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energy, they strike the most advantageous balance of favorable features. These relate to their lifecycle GHG emissions, broader environmental factors, scalability, economics, and technical and safety implications, compared with the other zero carbon bunker fuels. In addition to other favorable features, ammonia and hydrogen allow for flexibility, given their multiple production pathways. They benefit from significantly lower lifecycle GHG emissions than conventional fuels by using either nonbiogenic renewable energy—green ammonia or green hydrogen—or natural gas with the use of carbon capture and storage (CCS)—blue ammonia or blue hydrogen—in their production process. Blue ammonia and blue hydrogen could be produced first to kick-start the shipping sector’s energy transition before sufficient renewable energy becomes available for the large-scale production of their preferred green counterparts.

Overall, ammonia seems to be preferable over hydrogen as a zero carbon bunker fuel. The assessment concluded that ammonia is preferred due to its lower onboard storage space and the cost benefits that arise from its higher energy density, lower flammability, and less demanding cooling requirements of minus 33 degree Celsius). However, ammonia’s toxicity and corrosiveness require design and management measures to maintain an acceptable level of risk. While hydrogen is more explosive, less energy-dense, and requires relatively bulky and expensive cryogenic storage at minus 235 degree Celsius, it is less toxic and corrosive than ammonia. Therefore, appropriate but distinct safety standards, protocols, and equipment will be required before either fuel type can be used on board a vessel. The adoption and implementation of such measures appear more readily achievable for ammonia because it is already among the most widely traded commodities globally, with a century’s worth of experience in its safe handling and use on board ships.

Figure 2-3: Zero carbon bunker fuel options for shipping.

Source: Englert et al.. 2021. Charting a Course for Decarbonizing Maritime Transport : Summary for Policymakers and Industry. World Bank, Washington, DC. © World Bank.

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Electrification of vessels is increasingly possible but expected to remain limited to short-distance shipping. Battery-powered vessels are already being used on short-distance ferry routes, and if powered by renewable energy, could lead to the complete elimination of GHG emissions.18 Many projects are underway to further develop battery technology. However, due to technological limitations, especially large batteries using up precious cargo space, these are not expected to see adoption in long-distance shipping but can be very viable options for ferries and other coastal shipping.19

A limited role for LNG

Interest in LNG as a bunker fuel for shipping initially stemmed from the fuel’s inherent air quality benefits relative to oil-derived bunker fuels. Before the adoption of the Initial IMO GHG Strategy, LNG had been explored as a promising bunker fuel option due to its significantly lower quantities of sulfur oxides, nitrogen oxides and particulate matter, leading to important air quality improvements. As a result of this exploration, the sector has built significant experience handling and using LNG as a cost-effective bunker fuel which has resulted in LNG representing approximately 3.3 percent of overall energy use in shipping, albeit predominantly in applications where it is carried as a cargo and where its use is an efficient way to manage the boil-off of cargo during transit.20

While LNG’s air quality improvements are undeniable, the sector debates as to what extent LNG may be able to contribute to decarbonizing shipping. LNG is a fossil fuel and does emit carbon dioxide during its combustion, similar to oil-derived bunker fuels. Therefore, it is generally accepted that LNG will not be able to decarbonize maritime transport fully, nor achieve the GHG emissions reductions of the Initial IMO GHG Strategy on its own, even if combined with energy efficiency measures. LNG offers a theoretical carbon advantage of up to 30 percent less carbon dioxide emissions at combustion, compared to oil-derived bunker fuels. However, LNG needs to consider not just carbon dioxide reductions in operation—for example, when it is used on board a ship—but its full lifecycle GHG emissions relative to conventional fuels.

Specifically, using LNG has an inherent risk of methane escaping into the atmosphere, known as methane leakage or methane slip, throughout its lifecycle. This is true for any use of natural gas, not only for a liquefied bunker fuel. As methane is estimated to be 86 times more potent a GHG than carbon dioxide over a 20-year period—and 36 times over a 100-year time period—even small volumes of methane leakage can diminish GHG and climate-related justifications for using LNG as a low-carbon substitute for oil-derived fuels.21 Leakage of methane toward the estimated upper-bound values suggested in the literature can result in LNG having even higher lifecycle GHG emissions than oil-derived bunker fuels. Methane leakage in LNG when used as a bunker fuel can occur at each stage of the fuel's lifecycle. In respect of GHG emissions produced through on-board combustion, the significance of the engine type is illustrated by the fact that downstream emissions of methane from maritime transport grew by 151 percent between 2012 and 2018—despite only a 28 percent increase in the use of LNG as a bunker fuel over the same period.22

The volume of methane leakage depends on many factors, ranging from where the natural gas is extracted and how it is distributed—upstream and midstream GHG emissions, account for about 6 to 36 percent of GHG overall emissions— to what type of engine is used to burn it. Downstream

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GHG emissions, account for about 64 to 94 percent of overall GHG emissions. For all these reasons, the recent analysis conducted by the World Bank did not identify any overall clear, strong, and unambiguous driver for LNG's large-scale uptake as a bunker fuel for propulsion purposes—even on a short-term basis up to 2030.

Conversely, the same study did find that natural gas in its non-liquefied state may play a different and more important role as a feedstock in kickstarting the commercial production of zero carbon bunker fuels.  In the early stages of decarbonization, before enough renewable electricity supply becomes available to generate green hydrogen or green ammonia economically and at scale, natural gas with carbon capture and storage (CCS) could offer a viable way of reducing GHG emissions as an interim step toward full decarbonization.

2.2 The Inter Urban Freight and Logistics Subsector

Moving on to the terrestrial trunk haul of the logistical chain, carbon emissions from interurban freight and logistics can be reduced in many ways, most of them mutually reinforcing.1

Reducing demand for freight transport or moderating its growth

Most LDCs are at a stage in their economic development when freight transport intensity is rising, in some cases steeply. A long-term inverse relationship exists between average per capita income and freight ton–kilometer GDP elasticity (International Transport Forum 2017). This is a function primarily of increasing material consumption and supply chain restructuring. On average, the material footprint of nations increases by an average of 6 percent for every 10 percent increase in GDP (Wiedmann et al. 2015). Between 2000 and 2017 the material footprint, measured by tonnes per capita, in low-income countries increased slightly above the global average while in middle-income countries it grew between 2 and 3 times faster than the global figure (United Nations Statistics Division 2021) arising from increased amounts in production and consumption.

Intrinsic to the process of economic growth are a series of developments, which increase both the number of links in domestic supply chains—the ‘handling factor—and their average length. Increases in the handling factor are driven by greater processing of primary products, wider industrialization and the evolution of wholesale and retailing systems, while the average length of haul is extended mainly by the wider sourcing and distribution of products and the spatial concentration of production, storage, and terminal capacity. Upgraded transport infrastructure facilitates these trends. In LDCs the resulting improvements in accessibility and connectivity are often large and can induce substantial logistical restructuring.

In many developed economies these freight traffic generating trends have slackened and, as a result, the ton–kilometer and GDP growth trends have decoupled. This is partly the result of the processes of centralization and wider sourcing nearing their maximum spatial extent. However, it has been reinforced by the service sector expanding its share of GDP and the off shoring of manufacturing to lower income countries (McKinnon 2006). In several European countries the decoupling has become quite pronounced (Alises and Vassallo, 2015) while even in an emerging market like China evidence of weak decoupling between freight and GDP growth trends has been detected (Zhu et al, 2020).

However, it is expected that it will be many years before most LDCs exhibit a similar tendency. Forecasts suggest that, on a business-as-usual basis, the ratio of freight generation to GDP per capita in these countries will remain high (ITF 2019). Policy makers are naturally reluctant to try to

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depress this ratio fearing that it may inhibit future economic growth. Western experience suggests that the spatial restructuring of production and logistics systems, usually in response to major infrastructural upgrades, is hardwired into the development process. Any constraint would deny businesses some of the benefits of market expansion, scale economies, inventory centralization and industrial agglomeration, a natural concern for policy makers in an LDC.

The main inhibitor to any action on this decarbonization lever is a natural reluctance to restrain processes intimately linked to economic growth. Demand management is now widely advocated and accepted as a legitimate and effective means of cutting carbon emissions from personal travel. It was generally dismissed as a policy option for decarbonizing freight, particularly in LDCs. In its 2011 Transport white paper, for example, the European Commission (2011) rejected the case for curbing mobility, referring partly to freight movement. In the absence of policy measures to restrain the growth of freight traffic, LDCs are likely to follow a similar logistics development path of the wealthier countries, locking themselves into transport-intensive production and warehousing systems that are subsequently difficult, costly, and slow to decarbonize.

What are the prospects of the spatial development of logistics systems in LDCs deviating from this path to constrain their longer-term carbon intensity? The geographical concentration of inventory appears to be a natural corollary of improvements in transport infrastructure. Infrastructural upgrades enable companies to exploit the so-called square root law of inventory (Zinn et al. 1989; Oeser and Romano 2016). Such upgrades allow companies to serve wider areas more quickly, reliably, and cheaply from more centralized facilities. Therefore, companies economize on the amount of safety stock, and hence working capital, they require to maintain a given level of customer service. Additional economic benefits accrue from economies of scale in warehousing up to the point when the maximum efficient size is reached for particular types of building and storage system (Pfohl et al. 1992; Baumgartner et al. 2012).

These more centralized facilities concentrate inventory and related materials-handling activities. It reduces the carbon intensity of warehousing operations by reducing energy consumption per unit of throughput (Baker and Marchant 2015). As warehousing typically represents only 11–13 percent of total logistics carbon dioxide emissions (McKinnon 2018), these savings in building-related emissions are much more than offset by the additional transport emissions generated by the delivery of goods over longer distances from fewer locations. It would require the imposition of a high carbon price to negate the logistical efficiency improvements that centralization offers. Few, if any, LDC governments would wish to deny businesses these efficiency gains, especially as: (i) the prevailing systems often inefficiently reflect the quality of transport systems, and (ii) they have been so fundamental to the development of macrologistics elsewhere.

Nevertheless, avenues are available to abate the carbon penalty of inventory centralization without public policy intervention and at a lower mitigation cost.

Virtual inventory management: This is not a new concept nor one applicable to all businesses. Under certain circumstances, it can ease the pressure on companies to physically centralize their inventory. It basically involves using IT to manage inventory centrally even when it is physically dispersed in several locations (Christopher 2015). It allows companies to enjoy much of the benefit of the square root law without generating large amounts of additional freight movement.

Dispersed load disaggregation: Many warehouses in LDCs combine the traditional roles of storing inventory and acting as break-bulk locations where large loads are disaggregated into smaller consignments for local delivery. These activities can be geographically decoupled allowing companies to centralize the inventory while retaining a dispersed network of break-bulk points to maintain the efficiency of the transport operation, in economic and carbon terms. These localized

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break-bulk operations can be performed in different types of premises, dedicated, or shared and involving varying levels of unitized loading.

Modal shift: Inventory centralization expands service areas, increasing the average length of freight hauls and making them more amenable to modal shift to rail or waterborne services. A centralized logistical system is more transport-intensive, but the modal shift substantially reduces its carbon intensity, which is what matters in the present context (Kohn and Huge-Brodin 2008). The probability of this modal shift occurring substantially increases where centralized warehouses are encouraged to locate in rail-accessible locations.

Concentration of logistical activity in freight villages: Clustering interrelated freight-generating activities in freight villages can eliminate intermediate supply chain links and the associated freight movement, yielding sustainability benefits (Baydar et al. 2017). Such industrial or logistical complexes have long been seen as offering economic agglomeration benefits, and serve as nuclei for regional economic development (Sheffi 2012). They can also yield significant freight-related carbon savings where close process integration occurs between the adjacent premises. These savings are further augmented where the freight village has direct rail or waterway connections and the potential to generate full trainloads of freight.

Computerized vehicle routing and scheduling (CVRS): Another enabler, which is at an earlier stage in its development and adoption in some LDCs, is computerized vehicle routing and scheduling (CVRS). More efficient routing, particularly on multiple collection and delivery rounds, can reduce the distances freight consignments travel between a fixed set of origins and destinations. The lower density of road networks in LDCs limits routing options but also increases the distance penalty when vehicles deviate from the optimal route. Increasing both the uptake of CVRS and the functionality of the packages used by road carriers in LDCs could cut freight ton–kilometer per ton of product moved. Advanced CVRS systems can be set to minimize fuel consumption and carbon dioxide emissions, although this does not necessarily minimize vehicle- or ton–kilometer (Bektas and Laporte 2011).

Shifting freight to lower carbon transport modes

In the 1950s up to 90 percent of all freight in Africa, Latin America, and South Asia was carried by rail, in ton–kilometer, the proportion has fallen to under 30 percent and in many countries is under 10 percent (Aritua 2019). In most LDCs, most domestic freight moves by road—90 percent in Sub-Saharan Africa, excluding South Africa—and this share has been increasing (Kaack et al,.2018). Figure 2-4 uses mainly Asian data to show how the proportion of ton–kilometers moved by rail varies widely by country but in most cases has been contracting. In some countries, most notably India, the total amount of freight movement by rail has grown but at a slower rate than the freight market with the result that rail’s share has shrunk (Gota and Qamar 2021). For modal shifts to contribute to the decarbonization of freight transport, low carbon modes must expand the proportion of freight that they carry.

Aritua (2019) observes that "countries increasingly include freight rail on the critical path to decarbonization". In the latest round of NDCs, only six countries explicitly mention freight modal shift as a decarbonization measure—Argentina, Cambodia, Colombia, Mongolia, South Korea and Thailand. Others have declared modal shift objectives in other documentation (ADB and SloCAT 2021). But in many LDCs the potential for modal shift as a decarbonization lever is tightly constrained by infrastructure and geography. Some completely lack rail or inland waterway networks.

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Constructing such networks from scratch would be very expensive, sometimes prohibitively so, particularly where the terrain is difficult and would carry a heavy carbon penalty.

Figure 2-4: Rail share of domestic freight ton-kilometers (various years).

0

100

200

300

400

500

600

700

800

900

2010 2011 2012 2013 2014 2015 2016 2017 2018

World China India Southeast Asia United States European Union

0%10%20%30%40%50%60%70%80%90%

100%

Rail s

hare

of fre

ight la

nd tra

nspo

rt

Source: Asian Development Bank and SLOCAT, 2021.Note: Red column indicates earlier years' % and orange column the % for the later years.

In addition, several countries with existing rail networks often have low density offering freight users limited connectivity. Across Sub-Saharan African and South Asian countries, the average track densities, of respectively 2.76 kilometers per 1000 square kilometers and 7.8 kilometers per 1000 square kilometers are an order of magnitude lower than, for example, Germany with 107.5 kilometers, the UK with 67.1 kilometers or France with 49.8 kilometers. Some have legacy rail or inland waterway networks built to extract raw materials or serve military purposes that are poorly configured to meet existing logistical requirements. The low density makes them relatively inaccessible and results in freight having to move very circuitously between origins and destinations. According to Asian Development Bank and SloCAT (2021), "there has been only a marginal increase in heavy rail infrastructure in many Asian economies in the last two decades."

In addition, in many LDCs the average length of haul is too short for the railways to exploit their competitive advantage on longer distance movements. The integration of national railway networks across regional blocs can extend this average haul length to a rail-competitive level (ASEAN 2015), though this requires a common track gauge and a degree of interoperability between national rail systems that is often lacking. Rail freight traffic can also be subject to longer delays at international borders than road traffic, particularly where differences in track gauge necessitate transhipment and staffing levels are inadequate. However, some developments can reverse the long-term downward trend in the market share of low carbon freight modes, where feasible. They can be divided into four categories.

Market-related: Many companies, particularly multinationals, are attaching greater weight to carbon intensity in their choice of freight transport mode. In a recent European survey, ninety senior logistics executives identified freight modal shift as the most cost-effective method of decarbonizing logistics (McKinnon and Petersen 2021). This reflects a wider corporate commitment to decarbonization and growing recognition that switching freight to rail or waterborne services

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is an effective means of cutting emissions. LDCs can benefit from a global transition to low carbon transport modes. Global corporations gaining experience of using these modes in Europe and North America are more likely to explore opportunities for switching in LDCs. They can be assisted in this by large logistics providers and freight forwarders that have a presence in these countries and experience in using alternative modes.

Managerial: Rail administrations need to follow the example of their counterparts in Europe and North America and reinvent themselves as logistics businesses attuned to the needs of a broader range of industries. Rail freight operators need to become more market-oriented and sensitive to the logistical requirements of their clients (Aritua 2019). They have to diversify their commodity mix beyond primary products and compete for traffic outside their traditional captive markets (Aritua 2019). Some railway companies, such as Deutsche Bahn (DB) in Germany and Société nationale des chemins de fer français (SNCF) in France have helped build up this logistical competence by acquiring large logistics providers, respectively Schenker and Geodis. Railway companies can also partner with logistics providers, taking advantage of their skills in marketing and using them as an operational interface with customers. This may involve the redefinition of a rail freight business’s role, allowing it to concentrate on trunk haulage and leaving its integration into clients’ logistics systems and supply chains to other providers. Such a strategy is particularly applicable in the case of intermodal services where the rail linehaul must be supported by a dense network of road feeder services, which are typically provided by outside carriers. LDCs can tap into a wealth of experience in the development of intermodal services in Europe and North America and try to replicate their growth of intermodal rail volumes over the past decade. It is predicted that worldwide demand for intermodal freight volumes will grow by around eight percent per annum between 2021 and 2026 (Research and Markets 2021). While much of this growth will be in North America and Europe, LDCs can benefit from this global trend. Research in Brazil (Torres de Miranda Pintoa et al, 2018) has shown how the use of road-rail intermodal service can cut freight transport emissions by 77 percent.

Logistical innovations such as synchromodality are also transferable to LDCs. This form of synchronized intermodality, originally developed in the Netherlands, aims to coordinate the scheduling of freight movements by different modes to minimize delays at modal interchange points and thereby keep intermodal transit times competitive with those of trucking (Tavasszy et al. 2015). The concept can also be adopted by shippers where they incorporate the choice of freight transport mode into production planning and inventory management. For some categories of inventory this can significantly cut both logistics costs and carbon dioxide emissions (Dong et al. 2018).

Infrastructural: In some LDCs, investment in rail infrastructure is significantly increasing. A global analysis of planned investment in heavy haul lines dedicated to freight traffic found that 56 percent of it was to be in African countries (Grob and Craven 2017). New systems for financing rail improvements have been devised (African Development Bank 2015) and, although some of the investment has been misspent on underperforming schemes, rail modernization programs are now underway in some countries. The development of new highspeed rail lines for passenger traffic can potentially release extra capacity for freight trains on existing lines, though to date HSR has seen very limited development in LDCs (Environmental and Energy Strategy Institute 2018). Regional modal shift initiatives with a strong infrastructural emphasis—such as those of the Central and Northern Corridors in East Africa (Gota 2018) and the ASEAN Transport Strategic Plan —are helping the railways exploit their long haul competitive advantage while encouraging intraregional trade.

Electrification of the rail network in some LDCs confers an environmental advantage, which will strengthen as electricity is decarbonized, and more track is electrified. Significant rail electrification

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is underway in several Asian countries, though very few railway lines of South America and Sub-Saharan Africa are electrified, and this situation seems unlikely to change soon.

Technological: Rail freight operations in the developed world are benefiting from technical innovations that are transferable to LDCs, many of them associated with intermodality and digitalization. For example, new intermodal handling systems are cutting the cost and time it takes to tranship or transload unitized loads, while new track-and-trace systems are giving shippers much-needed visibility of the movement of their consignments through rail and intermodal networks.

Improving asset utilization: Optimizing vehicle loading

Numerous studies, although primarily from Europe and North American, have shown that the average utilization of truck capacity is relatively low and that raising it can be both a quick and a cost-effective means of cutting carbon dioxide emissions.24 Available data for developed countries suggests that between 20 and 30 percent of truck-kilometers are run empty, while for LDCs the average is often much higher, exceeding 40 percent in some cases. This higher figure for LDCs can attributed to several factors.

(i) These countries carry out a higher proportion of road freight operations out on an own-account basis (World Bank and IRU 2016). Large firms, unable to find hire-and-reward’ services of adequate quality in some countries, acquire their own fleets, but then often have difficulty in, or are legally prohibited from, finding backloads for their vehicles.

(ii) The difficulty that small hire-and-reward carriers also experience in obtaining backloads in freight markets lack both the online and offline load matching services now well-established in developed countries.

(iii) Freight traffic imbalances are more pronounced in some LDCs, particularly in the port hinterlands of countries with dominant trade flows in one direction.

(iv) The unreliability of transit times, often caused by poor and congested infrastructure, discourages carriers from searching and waiting for potential back loads.

Empty running is only part of the problem, however. Developed countries also experience serious underloading of laden vehicles. Although very few official statistics are available to monitor this, industry estimates in Europe and US suggest that only around 60 percent of road freight capacity is used (Jentzsch et al. 2018). The truck occupancy rate in Brazil is estimated to average only 47 percent (Soliani 2021). Analysis of underloading of trucks in Europe has identified eleven reasons for them not running full on every kilometer traveled. McKinnon (2021) classifies these constraints into five general categories (figure 2-5): regulatory, market-related, interfunctional, infrastructural and equipment-related, showing how the same constraint can belong to more than one category. In LDCs the problem is more one of overloading than underloading. Available statistics confirm that the infringement of loading regulations in LDCs is well above the European level. In Indonesia, where it is 45 percent, research has revealed a linear relationship between the degree of overloading and carbon dioxide emissions (Wahyudi et al. 2013). Overloading not only impairs the truck’s fuel efficiency: it also damages the road pavement, making it uneven for all categories of traffic and reducing their average fuel efficiency.

While many trucks in developed countries are overloaded, effective enforcement of weight limits and severe penalties for infringement suppresses overloading to a relatively low level. As a result, the practice seldom features in logistics decarbonization discussions. In LDCs, on the other hand,

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overloading is much more pervasive and has a much greater impact on average carbon intensity. Figure 2-5 maps the interrelationships between factors responsible for high levels of overloading. These factors are divided into three categories: vehicle constraints, market pressures and regulatory deficiencies. It can be argued that for a mix of commercial, infrastructural, and regulatory reasons the carrying capacity of the vehicles is too small relative to the pattern of road freight demand. Market pressures on shippers and carriers encourage them to flout the law, though they would be deterred from doing so if weight regulations were adequately policed.

In practice, in many LDCs enforcement is weak, with overloading fines, if paid at all, considered a routine cost of business. Authorities are also reluctant in some countries to act to undermine the financial viability of this critical sector, particularly in some cases where policy makers themselves have commercial interests in the sector.

Figure 2-5: Factors influencing the overloading of trucks in LDCs.

Source: McKinnon, 2021.

However, digitalization, or more specifically, the development of online platforms for the buying and selling of vehicle capacity is helping overcome one of the main barriers to vehicle backloading—the lack of transparency in the road freight market. Such platforms have been well established in developed countries for 15 years or more, though are still relatively new to many LDCs. Their influence is growing rapidly, particularly in countries such as China, India, Indonesia and Nigeria. The uptake of these online load-matching services, facilitated by the development of mobile communications, is growing. Mobile connectivity not only details of available loads but access to a range of other freight management services. It includes route planning, track-and-trace, and proof of delivery and invoicing, all of which can help them improve capacity utilization and overall productivity.

Digitalization is driven primarily by commercial motives, though yields environmental co-benefits. It also helps reform the complex freight market structures in countries such as India, allowing shippers to rationalize their procurement of haulage services. Within six years, Freight Tigers, India’s largest online freight platform, captured around 2 or 3 percent of all road freight transactions in this US $110-130 billion market. Similar platforms, such as G7 in China, Waresix in Indonesia and Kobo360 in

vehicle dimension

open-top design permits overloading

vehicle construction and use regulations too restrictive

carriers lack capital to upgrade to larger vehicle

infrastructural constraints on vehicle dimensions

weight carrying capacity of vehicles too lowmarket dimension

increasing consignment sizes

shippers add excess weight to cut transport costs

lack of weight monitoring at pick-up points

low road freight rates – carriers need to overload to make adequate margin

regulatory dimension

lax enforcement of weight regulations

lack of investment in road-side weight checks

low penalties for overloading – fines factored into business costs

reluctance of authorities to damage viability of road freight sector

truck overloading becomes endemic

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Nigeria, offer an ecosystem of online freight services. They are rapidly expanding in their respective markets, in some cases boosted by the need for carriers and shippers to control their freight networks more effectively during the COVID-19 pandemic.

The real cost of vehicle IT systems is sharply declining, making it more affordable to the small carriers, which account for the vast majority trucking operations in LDCs. The more intelligent the vehicle, the more effectively the operator can take advantage of the online platforms. GPS tracking also increases the visibility of road freight operations and traffic conditions across the road network, making it easier to plan routes and schedules in ways that improve loading.

Another enabler which is gathering momentum in developed countries and is likely to diffuse to LDCs is supply chain collaboration, particularly between companies at the same level in a supply chain, a practice known as horizontal logistics collaboration (Cruijssens 2020). This involves shippers sharing vehicle capacity either on a bilateral or multilateral basis, both to save money and to cut emissions. The methods, costs and benefits of doing this have been well researched in Europe, partly with EU funding. Several company case studies have shown the beneficial impacts on vehicle load factors and carbon dioxide emissions. The practice is constrained by a range of factors, such as management culture, lack of trust, concerns about data privacy and fear of infringing competition law (McKinnon and Petersen 2021), though these can be successfully overcome. Multinational companies that have had a positive experience of supply chain collaboration in Europe—such as Nestle, Procter & Gamble and Kimberley-Clark—and that have extensive logistical operations in LDCs could help to demonstrate its benefits and help catalyze its wider adoption in these countries. Other management practices, such as vendor managed inventory (Disney et al. 2003), which are widely applied in developed countries, could also be transferred to LDCs to help raise vehicle load factors.

Countries with suitable and well-maintained road infrastructure and an effective enforcement regime might benefit from relaxing legal limits on truck weight. This decarbonization measure can be cost-effective but would need to be undertaken as part of a package of measures to discourage modal shift from the lower carbon modes of rail or water. GPS-based intelligent access programs (IAPs) pioneered in Australia can help confine the movement of high capacity vehicles (HCVs) to roads with adequate capacity and load bearing (International Transport Forum 2019b). The implementation of a high capacity transport (HCT) strategy could help mitigate the truck overloading problem on routes with adequate infrastructural capacity.

Finally, the use of articulated trucks permits drop-and-hook operations in which the loading or unloading of trailers can be decoupled from the operation of the tractor unit. Having delivered a full trailer, the tractor unit is detached and then available to pick up and deliver another loaded trailer. In this way, the empty running of trailers can be reduced and the overall productivity of the transport operation enhanced. As an increasing proportion of the LDC truck fleets become articulated, this practice will become more widespread. It requires the standardization of equipment to facilitate the interchange of tractors and trailers and usually an articulation ratio of trailers to tractors, of 1:1.2 or more to provide enough operational flexibility. In China, where 37 percent of trucks with a gross weight in excess of 15 tons are now articulated, the government has been promoting drop-and-hook systems since 2007 (Yang et al. 2019), though this practice is still much less common than in North America and Europe where it has been a standard mode of operation for several decades.

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Increasing vehicle energy efficiency

When comparing energy use in the domestic freight sectors of developed and developing countries, it is important to distinguish energy efficiency, expressed as fuel consumption per vehicle-kilometer, from energy intensity, measured by the ratio of energy use to ton–kilometers. The latter is a composite measure of energy efficiency and vehicle loading, and relates to the third and fourth decarbonization levers. In this section we are primarily concerned with energy efficiency. As long-haul road freight is almost universally powered by diesel, the relevant index is liters of fuel consumed per 100 kilometers. On the other hand, as rail freight operations worldwide are fairly evenly split between electrical and diesel power, kilojoules per train-kilometer will be used as their energy efficiency variable.

The average fuel efficiency of road freight vehicles is much lower in LDCs than in developed regions. If one equates fuel efficiency with carbon dioxide efficiency, interregional benchmarking of grams of carbon dioxide per vehicle kilometer by the International Transport Forum (ITF) (2019a) reveals how wide the differentials are. In 2015, when compared with the EU, emissions per truck-kilometer in Latin American, African, Indian and Middle Eastern freight vehicles were, respectively, 24 percent, 38 percent, 49 percent, and 51 percent higher. ITF modeling suggests that on the basis of prevailing trends and policy initiatives, the carbon efficiency of their truck fleets will fall further behind those of Europe and North America by 2030 (figure 2-6).

Figure 2-6: Projected reduction in the carbon intensity of road freight transport.

Urban freight13%

38%International freight

49%

Domestic non-urban freight

0.0002

0.0003

0.0004

0.0005

0.0006

0.0007

0.0008

2015 2020 2025 2030 2035 2040 2045 2050

North America EU27 Africa India China Middle East Latin America

Source: International Transport Forum, 2019a.

One must exercise caution in interpreting these figures because they are influenced by average load weight. Other things being equal, the heavier the load, the lower will be the energy efficiency. International Energy Agency (2019) data for China, Europe, India, and US suggest that the weight of the average load moved by heavy trucks is similar—within a 20 percent variation—while in the case of medium-weight vehicles, it is significantly higher in China and India. Although no comparable data are available for other LDCs, it is safe to say that average payload weight differences are likely to account for only a small part of the observed international variation in average truck fuel and carbon efficiency.

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The lower energy efficiency of trucking operations in LDCs can be attributed to numerous economic, infrastructural, vehicle-related, behavioral and regulatory factors.

Diesel fuel subsidies: Although some countries have successfully reduced these subsidies in recent years, they are still widespread across the developing world, easing the financial pressure on truck operators to operate their vehicles more fuel efficiently. The extent of this pressure is debatable (Park et al. 2021) even though the price elasticity of road freight demand for diesel fuel is relatively low, the subsidies in some countries, such as Egypt India, Indonesia, and Iran, are large enough to make them a significant factor (International Energy Agency 2021).

Poor road infrastructure: Where the capacity of the road network is inadequate, the density of traffic prevents trucks from traveling at fuel-efficient speeds. Where congestion causes stop–start operations, fuel consumption per kilometer rises steeply. The standard of the road pavement also strongly influences average fuel efficiency and is generally inferior in LDCs. These countries are typically at the lower end of global transport infrastructure rankings (World Bank 2018).

Old and undermaintained truck fleets: Truck age is inversely related to fuel efficiency, as a Ugandan study has confirmed (Namukasa et al. 2020). In some LDCs, such as Niger and Benin, the average age of a truck is more than twice that of the average European vehicle (ACEA 2021; Bove et al. 2018). The fuel performance of trucks also degrades more rapidly in LDCs because of poor maintenance and their operation on substandard roads. In haulage sectors subject to intense competition, a high degree of fragmentation, and undercapitalization, it is very difficult to shorten the vehicle replacement cycle.

Lower levels of retrofitting with fuel-saving equipment: In developed countries devices, which include anti-idling devices and aerodynamic profiling, have shown to offer a quick payback in financial and environmental terms. Small trucking businesses and owner-drivers in LDCs general lack the resources to acquire this equipment. Also, in countries where poor and congested infrastructure seriously constrain average truck speed, the cost and carbon benefits of aerodynamic profiling can be marginal (McKinnon 2015), as revealed in an analysis of fuel efficiency measures for Indian trucking operations (Karali et al. 2019).

Tires: Partly because of the poor condition of the road pavement, many trucks still run on crossply tires, unlike in Europe and North America where radial tires are the norm, typically offering fuel savings of 3-4 percent. More developed countries are also transitioning to low rolling resistance tires, which are slightly more expensive but which further enhance fuel efficiency.

Lack of skills or training in fuel-efficient driving: Numerous studies have shown that driving ability is a major determinant of truck fuel efficiency and that this ability is highly variable. Standards of driver training and testing are generally lower in LDCs with relatively small proportions of drivers given specialist training in eco-driving. The older trucks that they drive lack many of driver assistance and fuel monitoring tools that are now standard in the latest generation of European and North American vehicles.

Vehicle overloading: A relatively high proportion of trucks in LDCs operate not only above legal weight limits but well above their optimal design weight. Consequently, they burn much more fuel than necessary. Research in Indonesia found that overloading increased truck carbon dioxide emissions by an average of 70–80 percent (Wahyudi et al. 2013). Total annual emissions of carbon dioxide per truck per annum were inflated by between 22 and 54 tons, depending on vehicle type and size, for every 10 percent increase in overloading.

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International comparisons of the energy efficiency of rail freight operations are distorted not only by differences in average trainload weight, but also by variations in the proportion of operations that are electrified. Electrified rail freight services are significantly more energy efficient than their diesel-powered counterparts (Kaack et al. 2018). IEA data suggest that the average energy efficiency of freight trains in China, Europe, Japan and Russia is very similar, despite significant differences in average train length, partly because their levels of electrification are within a much narrower range of 70–90 percent (International Energy Agency 2019). The energy efficiency of Indian rail freight operations is substantially lower despite having very similar average trainload and electrification levels to China. This suggest that factors other than loading and electrification affect energy consumption per train–kilometer, factors that are likely to be depressing rail energy and carbon dioxide efficiency in other LDCs.

Much of the research on energy use in the rail freight sector focuses on variations in energy intensity expressed in MJ per ton–kilometer. This clearly shows the importance of train loading, either in total or per locomotive, as a determinant of energy intensity. Gucwa and Schaefer (2013) found that diesel powered trains in India carry between 1000 and 1500 tons per locomotive. Their average energy intensities were comparable to those of the US and Canada, while Uruguay with per locomotive loading of only around 300 tons had an energy intensity three times higher.

The lower energy efficiency of rail freight operations in LDCs is partly due to lower levels of rail electrification, but also to a series of other factors. Locomotives are generally older and less well maintained. The poorer standard of the track prevents locomotives from consistently reaching fuel efficient speeds. In countries where passenger services are prioritized, freight trains are regularly diverted into sidings to clear a path for passenger trains with a substantial loss of energy in slowing, stopping, and re-accelerating trains weighing many hundreds of tons. The idling of stationary diesel-powered locomotives can also account for a significant amount of rail freight carbon dioxide, particularly in LDCs where this practice is common.

A range of technical, operational and behavioral enablers can help to overcome the barriers to improved fuel efficiency in both road and rail freight operations.

Driver training: Research and experience in Europe and North America has shown that training truck drivers to drive more fuel efficiently is one of the most cost-effective means of cutting carbon dioxide emissions from trucking. Average fuel and carbon dioxide savings ranging from 5 to 15 percent can be achieved depending on a driver's previous experience and capability (Boriboonsomsin 2015; AECOM 2016). Eco-driver training features prominently in the sustainable freight programs of Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), UNCTAD, the Smart Freight Centre and others and has been shown to yield significant carbon dioxide savings in countries such as China, Thailand, Laos and Vietnam (Asian Development Bank 2016; Grütter and Dang 2016 ). The carbon dioxide benefits of driver training are potentially greater in LDCs than developed countries, given the more difficult traffic conditions and much smaller proportions of trucks with onboard driver assistance devices. This training also improves road safety, which is an important co-benefit in LDCs with high accident levels.

Overhauling the vehicle fleet: This can be done by shortening the vehicle replacement cycle, maintaining the vehicles more effectively and retrofitting them with fuel efficient devices. In theory, as trucks in LDCs have a longer working life, retrofitting should play a greater role in raising average fuel efficiency. Smart freight programs detail the full list of technical options and are broadly similar for developed and developing countries (UNCTAD 2021, Centre for Sustainable Road Freight 2016). Their uptake in LDCs, however, is constrained in several ways.

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� The lower proportions of articulated vehicles and lower average speeds reduce the relative fuel and carbo dioxide savings from aerodynamic profiling.

� More uneven road surfaces can inhibit the switch to low rolling resistance tires.

� Lightweighting, which has been advocated as carbon dioxide-saving measure in Europe and North America, has less relevance in countries where control of overloading is a more urgent priority.

� Upgrading of vehicle maintenance is often hampered by shortages of skilled mechanics and spare parts, particularly for older, imported vehicles.

Technical improvements to the fuel- and carbon dioxide -efficiency of freight fleets in LDCs are heavily dependent on the quality of the road infrastructure, the availability of capital and international supply chains for used vehicles and spare parts.

Modifying operations: In developed countries, road-based distribution operations are being modified in three ways which cut fuel consumption. To what extent might they be transferred to LDCs?

Rescheduling deliveries into off-peak periods: This allows vehicles to operate closer to their most fuel-efficient speeds and deliver more reliability. In developed countries where many factories, warehouses and shops operate on a 24:7 basis, many supply chains are flexible to accommodate this rescheduling. More research is required to assess the feasibility and carbon impact of this practice across the developing world. Most of the published studies on this subject have had an urban focus —for instance, Holgiun-Veras et al. 2018. In several large Indian cities, such as New Delhi, Kolkata, and Mumbai, as well as Dhaka in Bangladesh, truck movements are already confined to night-time hours by local regulations to ease traffic congestion during the day. Opportunities for delivery rescheduling at interurban and interregional levels in LDCs and its potential carbon impact merits fuller investigation.

Roll out deceleration of road freight vehicles: Some large trucking companies, such as Schneider in the US and Geodis in Europe, have been reducing maximum trucks speeds mainly to save fuel and cut emissions (McKinnon 2016). It has been estimated that reducing the maximum speed of a US class 8 truck from 75 to 65 miles per hour, brings it within its optimal speed range or sweet spot, and cuts fuel consumption by 27 percent (Garthwaite 2012). In some LDCs, with long stretches of high capacity road used by trucks traveling well above their optimal speed, this could be an effective decarbonization measure. Much road freight in LDCs, however, moves at speeds below the average fuel consumption sweet spot. Under these circumstances, so-called down speeding would raise rather than lower the carbon intensity while lengthening transit times and inflating delivery costs.

More fuel-efficient routing: Computerized vehicle routing and scheduling (CVRS) was mooted earlier as an option for reducing road ton-kilometer, as it can minimize the distance traveled between delivery and collection points. This need not minimize fuel consumption and carbon dioxide emissions, however, as it can direct vehicles onto inferior and more heavily congested roads. Research in Germany has shown how vehicle routing algorithms can be recalibrated to minimize fuel consumption or carbon dioxide and in the process, often minimize total costs (Ehmke et al. 2016) As CVRS becomes more widely adopted by carriers in LDCs, efforts could be made to maximize its carbon benefits.

New technology has been increasing the energy efficiency of railway rolling stock hauled by diesel, electric, and hybrid locomotives. It is being incorporated into new rolling stock and retrofitted onto existing locomotives, many of which have a life span of several decades and longer on average in LDCs. This technology needs to be diffused more rapidly into developing countries. As in the road

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freight sector, the use of driver training and driver advisory systems (DAS), anti-idling devices, and improved maintenance can offer substantial energy savings. Potential rail energy savings from DAS can be in the range 5–20 percent (International Energy Agency 2019). These can be supplemented by enhancements to rail infrastructure, particularly track and signaling upgrades and, in some countries, giving freight greater priority over lightly used passenger rail services in the allocation of train paths.

Switching logistics to lower carbon energy sources

This final lever is the least activated so far. though the only one to offer the prospect of getting carbon dioxide emissions from domestic freight down to zero over the next few decades. In the long-distance road freight sector, the main switch to low carbon fuels so far has been in the blending of biodiesel, typically in a seven-percent blend with fossil diesel. Worldwide, biodiesel represented only 1.6 percent of road freight fuel in 2017, most of it consumed in Brazil, Europe, and North America. Biodiesel is significantly used in B5–B7 blends in China, India, and several ASEAN countries (International Energy Agency, 2017). On a tank-to-wheel basis, a B7 biodiesel blend cuts carbon dioxide emissions by about five percent (DBEIS and DEFRA 2020). On a well-to-wheel or life-cycle basis, emission savings depend on the feedstock used. Where this is recycled vegetable oil, for example, the savings can be in the region of 15 percent. Where they are produced with biofuel crops, particularly those grown on deforested land, GHG emissions can, on a wheel-to-wheel basis, exceed those of fossil diesel they replace (Transport and Environment 2021).

In the major countries producing biodiesel, such as Brazil, Indonesia, and Malaysia, the main feedstock is palm oil, casting doubt on the net GHG reductions being achieved by running their truck fleets on biodiesel blends. Efforts are being made, however, to certify the sustainability of biodiesel sourced from tropical plantations. The IEA (2020) is projecting increases in biodiesel production of 20 percent in Brazil, 39 percent in Argentina, China, Malaysia and Thailand, 48 percent in Indonesia and six-fold in India. Some countries are planning to substantially increase biodiesel blends, for example to B30 in Indonesia (Searle and Bitnere 2018), though the age of much of the truck fleet in LDCs is likely to constrain the percentage biodiesel blend.

Truck fleets of LDCs use very little use of other lower carbon fuels such as biomethane—a gaseous fuel produced by the anaerobic digestion of food and agricultural waste—and hydro-treated vegetable oil (HVO) also known as renewable diesel’. The high price of gas-powered vehicles, lack of gas refueling facilities and limited supplies of sustainable biomethane constrains its use in the road freight sectors of these countries. HVO is a diesel drop-in fuel that can be blended to much higher levels than biodiesel without engine modifications. It is produced mainly from waste and residues and consumed in trucks predominantly in Europe and North America. Neither of these lower carbon, alternative fuels are expected to capture a significant share of the road freight markets in LDCs at least in the short term.

In Europe and North America, liquid and gaseous biofuels are mainly seen as transitional, helping decarbonize trucking in the short to medium term. This is so until a new generation of electric vehicles becomes available, powered with what will by then be low carbon electricity. Most LDCs are at an earlier stage of this transition. The length of this transition, and in some countries whether it happens at all, will depend on the speed with which electric powertrain technology diffuses globally from China, Europe, and North America.

Worldwide, around 50 percent of rail freight operations are powered by electricity (International Energy Agency 2018). The percentage of electrified rail track electrified varies widely across the developing world and there are likely to be corresponding variations in the proportions of electrified

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freight haulage. Countries with extensively electrified rail freight services will be well placed to decarbonize as the carbon intensity of their grid electricity reduces. LDCs differ widely, however, in the existing carbon intensity of their electricity and the rate at which it has been declining (figure 2-7) (International Energy Agency 2020a).

The use of biodiesel as a transitional option for cutting carbon dioxide emissions has been much more limited in the rail sector than in road freight, despite the fact that it can be similarly blended. Research partly attributes this to locomotives having a much longer lives and hence potentially longer term, biodiesel-related maintenance problems (Stead et al. 2019). The higher cost of biodiesel may also discourage its use in the rail sector, particularly as some countries already subsidize the fossil diesel consumed in rail freight operations. If these technical and economic issues could be resolved, biodiesel-blended fuel could help with the decarbonization of diesel-powered rail freight services, particularly in those LDCs in which biodiesel production is forecast to rise steeply over the next few years.

Figure 2-7: Average carbon intensity of electricity generation 2010–2018: gCO2 per KWH.

0

100

200

300

400

500

600

700

800

900

2010 2011 2012 2013 2014 2015 2016 2017 2018

World China India Southeast Asia United States European Union

0%10%20%30%40%50%60%70%80%90%

100%

Rail s

hare

of fre

ight la

nd tra

nspo

rt

Source: International Energy Agency, 2020a.

Prior to the transition to electric vehicles, it is helpful to review the factors that impact on road freight. It is helpful to distinguish the short-to-medium term impacts , and the longer-term consequences when mass adoption will be reached in LDCs.

Short-to-medium term. Over this 10–15 year period, the increased blending of diesel with sustainable biodiesel offers the easiest option. It is constrained by the age and engine tolerances of much of the truck fleet in LDCs, though as fleets are renewed, the uptake of B7 and higher blends could be substantially raised. The raise depends on sufficient quantities of genuinely low GHG biodiesel that can be produced. LDCs must avoid the situation in the EU where a large proportion of the biodiesel consumed in road transport emits substantially more GHG than fossil diesel. In most LDCs, HVO production would have to start from scratch and find a scalable supply of waste material as feedstock. Developing biomethane production and distribution systems at scale would present

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even greater challenges and create the need for new gas vehicles, which probably very few carriers would be able to afford.

Longer term. Complete decarbonization of long haul trucking will be achieved by electrification as generally agreed, but much uncertainty prevails about the relative use of the three different methods of getting low, and ultimately zero, carbon electricity into the vehicles. This can be done by using batteries, hydrogen fuel cells, highway electrification, and various combinations of these technologies. Battery-powered vehicles, for example, can have hydrogen fuel-cell range extenders, while trolley trucks that draw electricity from overhead catenaries will need batteries to access premises off the electrified highway network. It is likely that all three technologies will coexist in proportions varying by country and road haulage duty cycle.

Those LDCs with a truck manufacturing capability, such as Brazil, India, and Thailand, will be in a stronger position to shape the future mix of these technologies, than countries that rely on imports, particularly of second-hand vehicles. Global supply chains for new and used vehicles connect individual LDCs to the truck markets and production systems of one of four truck manufacturing hubs: China, EU, Japan, and North America. These allegiances are likely to influence individual LDCs’ truck transition from diesel to electrical power.

This transition is likely to be more difficult and take longer in LDCs than in developed countries for several interrelated reasons.

Limited supply of new low carbon vehicles: As global truck manufacturing capacity is concentrated in developed countries, their trucking sectors are better resourced and their governments set more ambitious carbon reduction targets. Therefore, production capacity is likely to be primarily dedicated to meeting these countries’ demands.

High capital cost of the low carbon vehicles: Battery-powered HDV tractor units may be around twice as expensive as diesel-powered tractor units in 2030. Although their much lower lifetime energy and maintenance costs may enable these vehicles achieve total cost of ownership (TCO) parity by the 2030s, the high capital cost will present a major barrier in the undercapitalized trucking sectors of many LDCs. This will limit the demand for new low carbon vehicles in LDCs. Though that is a constraint, it could be lessened by the adoption of vehicle-leasing schemes and the injection of more climate finance into the decarbonization global truck fleets.

Increased supply of diesel trucks to LDCs: As the low carbon vehicle roll-out accelerates in Europe and North America, shortening previous replacement cycles, the supply of used diesel vehicles for export to LDCs is likely to increase. Such an increase would reduce their price in international markets. If permitted, a surge in the import of second-hand diesel HDVs will help rejuvenate LDC fleets with more fuel efficient, cleaner vehicles, but in the longer term delay the transition to low carbon trucks.

Global market for used low carbon trucks: At present used diesel trucks typically enter the export market after five to eight years. Electric motors of HDV are expected to have a much longer life than diesel engines with initial battery lives of approximately 7–10 years depending on the duty cycle (NACFE 2021). It is anticipated that some of these truck batteries will then be reconditioned for a second-life in a non transport role, while others will have their materials recycled for reuse in new batteries. Future shortages of these materials may result in governments imposing restrictions on their export. Separate value chains may therefore have to develop to supply batteries for the used electric trucks imported by LDVs.

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Supporting infrastructure: The electricity grids of LDCs will also have to be upgraded to meet the power demands of these vehicles on a reliable basis. Additionally, in many LDCs their decarbonization impact will be contingent on the carbon intensity of grid electricity dropping steeply from its existing level by the time that main vehicle power shift gets underway.

Forecast growth of road freight traffic: In many LDCs, road freight traffic is predicted to grow sharply over the next few decades, and truck fleets will expand to accommodate this growth. The population of vehicles to be electrified and the corresponding demand for low carbon electricity may therefore increase very rapidly in LDCs.

This scenario may be too conservative. In some LDCs, efforts are underway to prepare for the transition to low carbon trucks. India, in particular, has ambitious plans to electrify its truck fleet, mainly with batteries though. It is also exploring the electrification of lanes on the 1300 kilometer Delhi–Mumbai expressway for trucks and buses (India Times 2021). India also has the advantaging of having a large truck manufacturing sector and so it is much less dependent on exports of new and second-hand vehicles from other countries. Even in India, however, the defossilization of the truck fleet may be relatively slow. In its high ambition forecast the International Council on Clean Transport (ICCT) sees only 60 percent of medium and heavy duty trucks being electrified by 2050, while several other organizations project a slower uptake (Kumar 2021). The task of electrifying India’s truck fleet is made all the more formidable by the forecast seven percent per annum compound growth rate for road freight (Stranger and Lakhina 2021). If achieved, the impact of India transitioning to zero emission trucks would be globally significant from an emissions perspective, but would also create a powerful example for other developing nations.

Many LDCs can decarbonize logistically in the form of solar power. The long hours of intense sun light, which many of these countries have in abundance, could potentially be utilized. These countries can recharge truck batteries either directly from solar panels on the roofs of articulated trailers or indirectly from panels on warehouse and factory roofs. The cost of solar power has dropped very sharply in recent years greatly improving the economics of covering the roofs of logistic buildings and trailers with panels and microgenerating renewable energy within the logistics system. Rooftop solar power is already developing rapidly in Brazil, China, India, and Mexico (IRENA 2019). Similarly, where weather conditions are favorable, the installation of wind turbines at warehouse and terminal sites can extend the range of microgeneration options.

2.3 The Urban Freight and Logistics Subsector

The challenges and responses of the urban freight and logistics sector are similar, but with some notable differences. The ASIF framework25 and the resulting five lever framework26, 27 can also be used to present initiatives in the urban freight and logistics subsector, even if the emphasis on certain categories and measures may different. It reflects the unique challenge of the first- or last-mile delivery in an urban context:

Reducing the demand for freight transport or moderating its growth

The challenge of reducing the demand for urban freight transport or moderating its growth, given the derived nature of the demand, remains as problematic in LDCs in the urban context as in the interurban context, for many of the same reasons discussed earlier. The main opportunities are more likely to be realized through some of the other levers, which in some cases, are far more suitable and promising for an urban context. These are discussed in the following sections.

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Shifting freight to lower carbon transport modes

Most urban freight transport is undertaken by road transport and is almost completely fossil-fuel dependent. The introduction and use of fuel-efficient and environmentally friendly vehicles and vessels for cities with navigable rivers is crucial to achieving lower carbon emissions. These include: (i) for instance, expanding the use of electric freight vehicles (EFVs), particularly for last-mile deliveries; (ii) the implementation of light modes such as cargo bikes or drones; and (iii) the use of high capacity vehicles such as trams and vessels.

Urban rail: An approach that has been explored to reduce road freight transportation is leveraging an existing urban and suburban rail network to deliver goods in cities. This alternative seeks to make better use of any underexploited capacity of passenger rail networks, where available, in larger cities. This can include the heavy gauge rail network, subways, light freight railways (LFR), and tramways.

One early example of urban rail freight transportation was developed by Volkswagen in Dresden, Germany. The German automotive company conceived the transparent-manufacturing concept in the late 1990s. It aimed at making the outputs of car production much more visible to the outside world, allowing the public to attend the production of cars as an event. But having the manufacturing facility within the city limited their warehousing capacity and parking areas for freight vehicles. Consequently, a logistics center was built in the Dresden freight village, located four miles west of the main factory. The company developed a freight-carrying cargo tram, also known as the CarGoTram to interconnect both facilities ( photo 2-1). It operated on the normal network of tram tracks for the entire trip, taking most of the car components from the freight village, through the city center, and right to the conveyor belt at the production plant. Its operation did not affect the passenger trams in any way since the CarGoTram timetable fitted around the passenger services, whereby the passenger trains had priority. The CarGoTram used to carry up to 60 tons of goods, which is equivalent to three truck trips. It is worth mentioning that this concept is very simple as it has only one departure point, one destination, and one operator or client, and the trip takes only 15 minutes. However, in December 2021, after 19 years of operation, the CarGoTram stopped working. According to the German car manufacturer, they changed their logistic flow owing to a production changeover, making the tram economic unviable. In addition, the company reported that the railway was old, thus maintenance and repairs were costly and time consuming.

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Photo 2-1: CarGoTram in Dresden, Germany.

Source: Dresden tramway: CarGoTram # 2004. (2021). https://www.flickr.com/photos/anurgaliyev/41540781972.

Similar initiatives have been also tested in Amsterdam, Paris, and Zurich. The Municipality of Amsterdam signed a 10-year joint venture contract with CityCargo. The pilot project began in 2007 with 10 trams, expecting to expand to 50 after four years. That would have represented half of the daily truckload to the inner city. The project considered several strategically located crossdocks near Schiphol airport. This way, inbound goods landing at the airport could be transported onboard the freight trams. At these locations, goods would have been sorted in a picking area, and then transferred to the inner-city transshipment facilities, where light electric vehicles were to perform the last-mile deliveries. Therefore, readjusting the existing passenger network implied large investments, that CityCargo could not sustain. Consequently, in December 2008, the company was declared bankrupt, and the project was abandoned (Arvidsson and Browne 2013).

In Paris, the supermarket and department store Monoprix took part in a research project to develop a system that combines rail and low emission vehicles powered by compressed natural gas (CNG) to supply nonperishable products to 90 locations since 2008. In this case, regional passenger trains are used by the grocery chain to transport goods from a suburban distribution center to a building in Paris, where cargo is transshipped to CNG vehicles to deliver goods to their final destinations throughout the night. The main outcomes of this initiative have been the yearly savings of 70,000 liters of fuel, by substituting the usage of 10,000 trucks per year, which would have covered 700,0000 kilometers. This project has displayed a significant reduction in GHG emissions (see table 2-1). It is worth mentioning that in this project all the goods are palletized, without any need to deconsolidate them until they arrive at their final destination.

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Table 2-1: Reduction in GHG emissions reported by Monoprix.

Item Road based Rail + CNG trucks Yearly reduction

CO2 874 464 47%

NOx 7.2 3.1 57%

Particulate matter (PM) 140 90 36%

Source: Fransoo and Mora-Quiñones, 2021.

In Zurich, there is a non-commercial initiative focused on waste recycling. The project started in 2003 with four stops to collect waste. After one year of operations, they it extended to eight collection points, focusing on bulky waste from households. They included the collection of household electronic waste and industrial equipment in 2005. The initiative invested in converting old trams and wagons into new containers to increase its capacity. In 2004, the project collected 785 tons of waste in 94 collection rides. The usage of cargo tram diminished the road haulage by 5,020 kilometers, leading to yearly savings of 37,500 liters of diesel, representing a decline of approximately 5,000 kilograms of carbon dioxide emissions (Marinov et al. 2013). This is a good example of how to use alternative modes of transportation for certain reverse logistic niches, but it does not render a feasible solution for urban deliveries.

In summary, the implementation of rail for urban logistics potentially requires significant investment in infrastructure to make it a flexible multimodal urban system. For instance, urban consolidation centers (UCCs) would ideally be built at the terminals to consolidate cargo. Also, crossdocks would be needed at each station to transship the freight into light vehicles for the last mile. Consequently, loading or unloading areas would need to be developed. Significant handling costs prevail at each station to deconsolidate goods, and require strong collaboration among logistic service providers. In addition, as many railway stations are underground, lifting the goods is very costly.

Hence, countries with excess capacity on an urban rail network, might initially focus on cargo flows that require little consolidation or deconsolidation, for instance during off-peak hours as a good strategy. In large cities in Latin America, many of the CPG manufacturers have large depots inside the city that are replenished overnight. This requires a point-to-point shipment from the factory or distribution center outside the city to the depot at the city center. Another example could be the collection of waste from consolidation depots within the city to landfills or other large waste facilities outside the city borders. These would appear to offer the most promising initial opportunities.

Cargo bikes: A rapidly growing option to meet the demand for freight transportation volumes in urban areas, while not contributing to the reduction of greenhouse gas emission is the use of cargo bikes, particularly the recent use of e-bikes. The main advantages are that cargo bikes are emission free– direct GHG emissions—noiseless, and agile, particularly for urban areas with narrow streets, congestion, and no available parking spaces (Anderluh et al. 2019). Moreover, due to their small size and visibility of the rider, they tend to be safe and have a greater level of acceptance among other users of space.

However, cargo bikes for urban logistics have a limited hauling capacity, can only cover short, or relatively short, operating distances, and face limitations for operating under extreme weather or topological conditions. In addition, cargo bikes have limitations for transporting fragile or refrigerated goods. These conditions significantly reduce the possibilities of more general use of cargo bikes, even in e-bike form, for urban logistics. Thus, the simplest use of cargo bikes is for last-mile delivery. This implies that the goods should be close to the final destination. Since large e-commerce companies like Amazon tend to locate their warehouses in the suburbs, very few

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orders would be in a short distance of five miles. Consequently, e-bikes are not suited for last-mile delivery. Some of these companies are now setting up additional depots to enable this mode of transport. Retailers that can leverage their local stores represent a segment that could implement cargo bikes for delivering their goods.

Given that the proximity to the demand is key for the viability of introducing cargo bikes as a solution to decongest urban spaces. Several studies simulate the integration of consolidation centers of different types, microdepots (MD), microconsolidation centers (MCC) and classical UCCs, with cargo bikes, where freight is transferred or transshipped (Melo and Baptista 2017; Fikar et al, 2018; Hofman et al. 2017; Arnold et al. 2018; Marujo et al. 2018; Elbert and Friedrich 2020; Snoeck and Winkenbach 2020). In most of the scenarios presented in these studies, the integration of cargo bikes has a positive environmental impact. But the findings are not conclusive as the results depend on the infrastructure, demand, regulations, and labor, among others.

Furthermore, the feasibility of these initiatives relies on having numerous consolidation centers close to the demand hot spots. The latter suggests that investments in real estate are necessary, hindering the economic viability of projects. Accordingly, researchers studied a mobile depot-based concept in Rio de Janeiro where freight vehicles work as crossdocks, transshipping cargo to motorized tricycles, and thus avoid the cost of having fixed physical spaces (Marujo et al. 2018). Their results show environmental benefits, but the economic feasibility depends on areas with low delivery drop sizes.28 Additionally, the concept discussed above implies existence of parking spaces so that the trucks can park and carry out their operations, and also externalities in agreement with local residents in the immediate vicinity of these operations.29

Drones: Drones, or unmanned aerial vehicles (UAVs) have trended in discussions on urban logistics as an alternative to cope with the saturated ground transportation conditions in urban areas. A systematic literature review of 111 interdisciplinary publications found that a debate about the technical, regulatory, societal, and environmental impacts of the use of drones for parcel and passenger transportation. The study concluded that “there is a strong need to provide scientific evidence for the promises linked to the use of drones for transportation” (Kellermann et al. 2020). New technological advances in the drone industry have led companies to incorporate them as part of their value proposition. E-commerce and logistics companies are pioneering drone-base delivery programs to meet the expectations of the customers while overcoming the challenges of congested urban spaces. For example, Amazon launched “Prime Air” in 2013, promising to deliver goods up to five pounds within 30 minutes of ordering to customers in a 10-mile radius of a participating fulfillment center (Pandit and Poojari 2014).

Consequently, this new form of delivery is getting special attention from companies that promise fast shipping. Academic studies and pilot initiatives show that drone-based delivery for small packages is technically and economically feasible, and that may contribute to ease traffic congestion, particularly for fast-food restaurants. In 2016, Domino’s Pizza successfully tested the use of drones to deliver pizzas in the UK. Other examples within the food and beverages industry are the "TacoCopter" and the "Burrito Bomber" in the USA.

However, despite having been conceived than five years ago, none of these initiatives by Amazon or food delivery service have materialized in any significant manner, and not at all in urban spaces. In fact, the density of deliveries in urban spaces reduces the competitiveness of drone delivery. Due to the limited freight capacities of drones and the expected growth of e-commerce, the traffic density would need to increase dramatically to reach any sizeable share in urban freight. Researchers estimate how many delivery drones would operate in a typical European city. For instance, in the case study presented for Paris, they predict a traffic density of roughly 64 thousand drone-based

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deliveries by 2035. In the paper entitled "Deconflicting the Urban Drone Airspace" (Peinecke and Kuenz 2018) examine to what extent a conflict-free operation of thousands of drones flying in very level (VLL) urban airspace is possible. They conclude that is feasible but that one of the main challenges for deploying drones at a large scale will be regulating and managing airspace complexity. However, even 64,000 drone deliveries just cover a very tiny fraction of total cargo entering a city like Paris. As a frame of reference, just in deliveries for food and drinks, Paris’s consumers would require between 25 and 50 million kilograms of deliveries per day. Sixty-four thousand drones could deliver just 300,000 kilograms.

Inland Waterway Transport (IWT): Intermodal freight transportation initiatives in cities like Amsterdam, London, Paris or Tokyo, have included inland waterway transport (IWT) projects as an alternative to improve the performance of urban logistics and reduce carbon emissions. For instance, a project deployed in western Paris in 2011 showed a reduction of 30 percent of emissions by using barges instead of trucks for waste management (Diziain et al. 2014). Thus, waterway transport might offer an environmental answer to expensive road congestion. The question is to what extent can IWT initiatives for urban logistics can be implemented successfully?

An interesting initiative was the river shuttle “Volkoli”, which provided boat–bike distribution of small packages via the River Seine in Paris. The barge docked in 5 to 10 stop points, from where e-trikes were unloaded by a crane to carry out last-mile deliveries. Each e-trike returned to the barge to pick up or drop off packages 3 or 4 times per day. Nevertheless, the initiative was discontinued in 2014 because it was not profitable, according to Jean Francois Mounic, CEO of Labatut, the parent company.

Although it did not work in Paris, a successful boat-bike project has worked in Amsterdam since 1997. The DHL Express Floating Service Center is a multimodal initiative in which packages are transferred to a boat in a mooring outside the city. The vessel travels through the canals, then it docks to deploy a fleet of cargo bikes to make last-mile deliveries. The project started with an adapted pleasure cruiser that was converted to a multifunctional vessel, part container—for cargo bikes and packages— part sorting office, and part delivery vehicle. In 2018, the aging boat was replaced by a boat with an electric motor and more capacity. Inspired by this success, DHL launched parcel delivery by boat in London in 2020, aiming at increasing the efficiency and speed of parcel delivery via the River Thames. The riverboat departs from Wandsworth Riverside Quarter Pier to Bankside Pier in central London. Then, courier bicycles perform the last-mile delivery.

The primary condition of the inclusion of IWT for urban logistics is the existence of navigable waterways running through or adjacent to a city. The local conditions of the urban structure of a riverside city should be studied to get a better understanding of the spatial structure of the city and decide the most beneficial transport use of the river for the given conditions. Then, intermodal infrastructure should be built to ensure the efficiency and reliability of the supply chains. An interesting and innovative example is the Amsterdam Logistics City Hub. This is a new multimodal initiative that can serve as an intermodal facility connecting interurban and urban transportation. A key design decision of the hub is its location next to the water, allowing distribution by barges into the city of Amsterdam.

A prosperous initiative of IWT in a developing country is the case of Bangladesh. It developed a low carbon policy and business plan to support its inland waterway transport sector. The pilot project focused on shifting road transportation between Dhaka and Chittagong. The waterway, which accounts for 60 percent of the country’s commercial traffic, connects the inland waterways of River Meghna that extend 24,000 kilometers. To do so, public and private entities partnered in an alliance to raise the competitiveness of the IWT sector by granting short-term subsidies to carriers to equalize the costs of using inland waterways instead of roads. Also, the alliance

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constructed infrastructure to ensure warehousing capacity and last-mile connectivity. The project expects a reduction of carbon emissions by 10 percent annually by 2030 (The World Bank 2020). However, several barriers persist toward greater adoption of IWT, that can be grouped as economic, operational, behavioral change, and policy and regulations (table 2-2)

Table 2-2: Inland Waterways Transport Barriers.

Economic factors Operational factors Behavioral change Policy and Regulations

Low cost for road transportation

ConsolidationReceiver wants low cost

Allocating financial responsibility

Economic feasibility Nature of goodsReceiver wants fast delivery

Low political support

Financing of infrastructure

Weather conditionsRoad transport culture

no strict regulations on road traffic

Allocating financial responsibility

Ownership of infrastructure

Operation of infrastructureLow bridges planned

Ownership of infrastructure

Location Not applicable Not applicable

Financial risk of logistics companies

Accessibility Not applicable Not applicable

Transshipment costs Decision making  Not applicable  Not applicable

Source: Jandl, 2016.

Many cities in LDCs that traditionally have relied significantly on waterway transport, do not consider the Bangladesh model as part of their urban freight innovations. They are the delta cities of Belem in Brazil, Lagos in Nigeria, Bangkok in Thailand and Ho-Chi Minh City in Vietnam., What makes water transport a particularly attractive opportunity is that the transport infrastructure is readily available, and that electrification of the existing fleet of small vessels requires relatively little investment, as just the outboards motors need to be replaced by electromotors.

Improving asset utilization - optimizing vehicle loading

Urban Consolidation Centers (UCC): UCC are a concept that involves the consolidation of deliveries to improve the efficiency in the flow of goods in heavily congested cities. Also known as city logistics hubs, urban distribution centers, city consolidation platforms, among others. The main idea is to consolidate cargo coming from different sources—distribution centers, suppliers, parcel carriers—in a center where customer orders are aggregated and transshipped or crossdocked to fewer and smaller delivery vehicles that are shipped to the final destinations—such as home delivery, retail stores, or wholesalers—performing last-mile deliveries more efficiently than individual carriers (figure 2-8).

The consolidation of goods in UCCs leads to fewer transportation activities and may significantly increase the average load factor of freight vehicles. Hence, less fuel consumption and GHG emissions result. In a review of 24 UCCs, researchers found significant improvements in vehicle load factors, which ranged from 15 to 100 percent (Allen et al. 2012). Also, the reductions in vehicle trips and kilometers traveled ranged between 60 and 80 percent, and the GHG emissions from these operations ranged from 25 to 80 percent. Nevertheless, most of the UCCs are not successful in the long run because lack of a sustainable business model (Van Duin et al. 2016). The high operational

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costs often avert attracting enough users. These high operational costs are driven by high costs of real estate as the locations of the UCCs need to be close to the points of delivery, and high cost of labor due to extensive manual handling activities required.

Figure 2-8: Urban Consolidation Center schema.

Distribution

Center

Supplier

UCC

Parcel

Carriers

Source: Fransoo & Mora-Quiñones, 2021

In this context, municipalities may enforce administrative measures to reduce the number of large freight vehicles entering the city. For instance, they may implement road pricing, limited access zones, and dedicated loading or unloading areas for small vehicles. These measures may result in benefits for the adoption of UCCs as they usually employ smaller vehicles for the distribution of goods within the city, becoming a competitive advantage over larger tucks used by carriers (van Heeswijk et al. 2019).

Usually, local or national governments subsidize UCCs because of the environmental and social benefits they represent (Paddeu 2017). However barring a few exceptions, they stop operating when the public subsidies are cut (Dablanc 2007). Therefore, recent studies have been focusing on providing frameworks and models to assess the financial viability of the UCCs. At high level, two alternative business models can be distinguished (Van Rooijen and Quak 2010). The first model considers that carriers outsource their urban deliveries to the UCC. In this case, the costs for last-mile distribution are considerably higher for carriers, travel speeds are low, unloading operations are time consuming, the truck capacity may be significantly underutilized, and the regulations may be restrictive. The second model considers that the receiver selects the UCC as its delivery address, like a P.O. Box. By aggregating multiple deliveries into one, the receiver can plan the reception of the orders, saving time and costs. In this model, the UCC provides value-adding services for the retailers such as temporary storage, waste collection, e-commerce, and home deliveries, among others. However, as shipping costs are usually added in order prices, outsourcing costs typically exceed the efficiency gains (Verlinde et al. 2012).

However, providing a competitive urban delivery service is becoming more difficult for logistics providers. On the one hand, customers expect fast shipping, custom tight delivery time windows, traceability of the parcels, and product returns, even for free. On the other hand, urban spaces are congested, with strict urban freight policies, and a lack of dedicated logistics infrastructure (Allen et al. 2017; Janjevic and Winkenbach 2020). So, how can logistic service providers offer an excellent service at a competitive price?

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The main UCCs’ stakeholders identified consistently in the extant literature are local authorities, receivers, logistic service providers, suppliers, and others like residents and research centers (Björklund and Johansson 2018). Multiple studies emphasize the relevance of including different stakeholders during the process of developing a UCC (Ambrosini et al. 2013; Gonzalez-Feliu et al. 2014a; Nordtømme et al. 2015; Österle et al. 2015). Researchers suggest that the stakeholders should collaborate closely, share costs and benefits, establish common goals, and build partnerships. The poor collaboration between them can be a reason behind the frequent failures of UCCs. For that, we must understand the drivers of the stakeholders involved in urban logistics.

Furthermore, an alternative that could be viable for large cities in developing countries is milk-run logistics. The concept is inspired by the logistics in the dairy industry. This is usually a logistics procurement method in which a manufacturer visits various suppliers in sequence in a predefined route to consolidate goods and deliver them to the factory (Brar and Saini 2011). But, in the case of the distribution of goods, it could work in the opposite direction.

Suppliers in large cities in developing countries tend to have distribution centers close to each other in the hinterlands, usually in clusters. A milk-run model could be employed to improve asset utilization. The schema is that single trucks stop by several distribution centers in sequence during off-hours and then carry out the distribution of goods as usual. This consolidates the stem and on the point of delivery, thus reducing the number of freight vehicles to serve the same number of customers.

However, for this solution to work, it implies collaboration between companies, which from a commercial perspective, could reject the initiative because they would lose direct contact with customers. In addition, based on the experience of the UCCs, the handling costs may increase and with it, more operations in the loading of the vehicles. This solution can be challenging in environments such as Latin America or Africa, where security controls for the entry and exit of cargo vehicles are meticulous, and absorb time. In conclusion, at this stage viable business models for UCCs without government subsidy are few and far between. Some cities now succeed in enforcing the use of UCCs by regulation, but this dramatically increases the cost of logistics to the suppliers or customers. A viable way out into the future is unclear. It seems that UCCs in very restricted areas such as historic downtowns are viable from a systemic perspective. UCCs in such locations are viable if coupled with increasing the space for pedestrian and hence attracting more consumers or tourists—such as for instance in the city of Dubrovnik in Croatia—but operation at a larger scale does not seem feasible unless labor costs are very low or automated handling becomes more flexible and substantially cheaper.

Pick-up points: The potential benefits of initiatives such as low emission zones (LEZs) or multi-use lanes (MULs) are increased when combined with off-hour deliveries (OHDs), rendering more reductions on carbon emissions and externalities. Also, the combination of these initiatives yields more benefits to the logistic service providers. However, for logistic service providers (LSPs) that would like to distribute goods in the middle of the night, it also implies that recipients should be willing to receive them.

In the case of companies like a business-to-business (B2B), authorities can incentivize the adoption of OHDs, as in the case of New York City. If so, firms can program receivers. However, in the case of deliveries for households or business-to-consumer (B2C), delivering goods at off-hours could be inconvenient. With B2C deliveries having been increasing on account of the growth of e-commerce, a solution that can address these concerns is the deployment of pick-up points (Taniguchi and Thompson 2015). Pick-up points provide flexibility to customers, allowing them to choose where they want to receive their orders. This solution is integrated with push notifications that inform

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customers when they can collect their parcels. There are different types of pick-up points. For instance, click and collect or parcel lockers.

The 'click and collect' method has been widely adopted by retailers, as they already have placed infrastructure or their stores where customers can collect their goods. Moreover, as customers visit stores, they can easily change products, reducing the reverse logistics costs for returns. Also, retailers can increase sales as they attract more traffic to their stores. In Germany, for instance, parcel carriers like DHL or Hermes make use of a dense network of tens of thousands of corner stores to serve as pickup point for parcel delivery. These stores may include small grocery stores, bakeries, or tobacco stores. However, this method implies that customers travel to the stores, and depending on their mode of transportation, this could affect mobility. If customers make dedicated trips by car to pick up their parcels, overall carbon emissions could increase rather than decrease. It is therefore important for carbon emission reduction that the density of pick-up points is so high that consumers would mostly walk or bike to the pick-up points close to their homes.

An alternative possibility to pick-up points at retail outlets is to install parcel lockers close to high-density demand areas. These are usually located in public spaces, such as railway stations, supermarkets, or malls that in general are always open and provide security (photo 2-2). The main disadvantage of using parcel lockers is that they have a very limited capacity in the number of parcels that can be stored, and their weight and size are limited. Some LSPs have motivated customers to collect their packages faster by providing monetary incentives.

Photo 2-2: Amazon locker inside a mall in Mexico City.

Source: Fransoo and Mora-Quiñones, 2021.

In this case, recipients must travel to collect their parcels. Prandtstetter et al. (2021) examine the impact of parcel lockers on distance traveled as well as on carbon emissions, for the Austrian courier express parcel (CEP) and customers. Their results show that the total traveled distance is reduced when using parcel lockers because many recipients are not at home when deliveries take place. When this happens, logistic service providers attempt to deliver on another day, and if the unsuccessful delivery persists, then they drop the packages at a pick-up point—collect at the neighbor, at the post office, at third party offices, at parcel lockers—increasing time, distance traveled, costs and emissions. Thus, by implementing pick-up points from the beginning, the first delivery attempt is always successful. However, this implies that recipients travel to collect their

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parcels. In their model, they assume that parcel lockers are white labeled, making it available for any LSP. Also, the recipients decide on the parcel lockers, meaning that if multiple parcels are delivered to the same recipient, they are deposited in the same parcel locker location. In addition, parcels are directly delivered to the parcel locker, so no home delivery is attempted. Under these conditions, the impact on carbon emissions can yield a reduction of up to 40 percent compared to doing business as usual.

In emerging markets like India, Amazon has successfully deployed the "I have space" (IHS) program, in which the company partners with local nanostore30 shopkeepers to provide pickup and delivery services within a two-to-four-kilometer radius of the store. By doing so, the company leverages the asset utilization of the nanostores, in using the available space in the stores to deliver parcels and the free time of shopkeepers to conduct the last-mile deliveries at nonpeak store hours. On average, store owners deliver between 30 to 40 packages a day, earning an additional parttime income with zero investment, and with the flexibility of working in their free time. In addition, the receiver may decide to pick up at the store, increasing traffic in the store, implying an additional sales opportunity. The environmental impact of this initiative reduces the distance traveled by freight vehicles, yielding a reduction in carbon emissions, as last-mile deliveries are done on foot or on a two-wheeler. The initiative was launched in August 2014 and by 2021 has been scaled up to close to 28000+ stores in 350 cities.

Optimizing vehicle loading: Loading or unloading areas. A recent case study in New York City,31 has revealed both the magnitude and the implications of the problem freight drivers face parking in large urban areas in picking up or delivering supplies. An absence of spaces for freight vehicles to deliver or collect has two main outcomes. First, it increases the routing time, thus cost, while drivers circle around their destinations exploring for parking. Second, while searching, these vehicles contribute to traffic and more carbon emissions.32 Conversely, the development of appropriate initiatives that promote designating dedicated loading or unloading areas for freight vehicles can improve urban traffic and thus reduce carbon emissions, particularly in dense areas with a fragmented market.

In a recent field experiment33 in downtown Querétaro in Mexico, the efficiency gains for freight vehicles from four consumer packaged goods (CPG) companies in travel time and total time parked was calculated at 39 and 17 percent, respectively. The study also showed that the delivery vehicles in their study are normally parked for a very large share of the time, in many cases upwards from 70 percent. Much of this parking activity is illegal and may hinder other traffic, thus leading to knock-on effects such as passenger vehicles waiting in a blocked lane or street with their engine running.

Thus, the provision of available dedicated parking space for freight vehicles may reduce carbon emissions in multiple dimensions. (i) It reduces the number of vehicles needed as the time duration of the route shrinks and vehicle utilization increases. (ii) It reduces cruising time while the vehicles search for parking space. (iii) It reduces the number of short-distance movements as multiple deliveries will take place on foot from the same parking bay. While the study did not explicitly record emissions reduction, drivers reported anecdotally that they experienced substantial savings in fuel costs.

In developing countries, nanostores dominate the grocery retail landscape, as they are located handily within residential neighborhoods, providing convenience for daily shopping. Due to the limited space and their cash constraints, the drop size to nanostores is small and in high frequencies. This implies that CPGs visit each nanostore two or three times a week, that in most cases lack designated parking spaces, and hence need to rely on curbside parking. In urban environments,

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curbside parking is very scarce in general, resulting in extensive illegal parking movements such as parking on the sidewalk or double parking. Creating dedicated parking spaces for unloading and enforcing the proper usage of these spaces is however, challenging.

Some researchers argue that mobile-enabled booking systems for unloading bays could lead to efficient use (Mor et al. 2020). However, given that transit times and unloading times are stochastic, timeslots would either lead to extensive hedging on the parking time—booking a slot longer than needed to ensure its availability—or on the travel time—arriving on average earlier than planned to be sure to be able to use the booking. The former would lead to a low utilization of the system, while the latter would lead to double parking or cruising.

To counter these effects, the city of Barcelona has developed the DUM (Distribution of Urban Merchandise) app. In using the app, a delivery vehicle can claim that bay for a period of 30 minutes —or 60 minutes for electric vehicles—once it arrives at a loading bay, and reports this in the app. The purpose is to limit the time that a vehicle occupies a slot. The data that this app generates are being used to show the likely availability of parking slots in a particular area. The data provide probabilistic rather than deterministic information, with areas indicated in green, yellow, or red. Researchers developed a modeling framework for stochastic models for parking that can serve as a foundation for more developments in this area (Abhishek et al. 2020).

Another initiative to foster the implementation of loading or unloading areas will be tested in Fall 2021 in the city center of Zapopan, a municipality in the metropolitan area of Guadalajara, Mexico. This project is funded by the German Corporation for International Cooperation (GmbH) in collaboration with the Government of Jalisco State, other Mexican authorities, and private organizations aimed at fostering innovative digital platforms to improve urban logistics for the proper management of loading or unloading areas. The expected results consider improving mobility and air quality by designing and locating loading or unloading bays, their management, and building a user-friendly mobile app for freight drivers so they can locate available bays in real time.

Moreover, the setup cost for the designation of loading or unloading areas is low, facilitating the scalability of the solution for municipalities. A comprehensive study must be conducted to understand the specific needs to deploy such initiatives successfully—demand of bays, type of freight vehicles, size of the streets, and traffic—of the targeted intervention area.. Then, the study should estimate the characteristics of the zone, the number of loading or unloading areas and their location. Afterwards, the municipality transforms the public space by clearly designating these areas. The municipality can invest in advance systems depending on the type of solution and budget—sensors, cameras, mobile apps—to manage and control the areas.

It is essential to engage with residents to sensitize them about the initiative and the expected improvements in their quality of life and mitigate externalities that would prevent the rejection of these measures. (Lückenkötter et al. 2013). Also, the traffic authorities should enforce additional regulations that foster compliance of the use of the loading or unloading areas by private and public parties, particularly avoiding its misuse by nonfreight vehicles. For instance, a successful implementation took place in Göteborg, Sweden. The city designated five loading or unloading bays in three areas each. The city changed regulations—delivery time windows, length restrictions for freight vehicles, and dedicated streets only for pedestrians—and intensified the monitoring and compliance to the new rules. Furthermore, the collaboration between the different stakeholders was critical for success. They conceived the Freight Network, composed of transport suppliers, property owners, associations, retailers, researchers, and the municipality (Iwan and Malecki 2017).

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In addition, pilot projects would help increase awareness among residents to alleviate their potential resistance to change to new policies and regulations in developing countries. A pilot project can use randomized evaluations of the measures. By correctly designing and implementing a randomized evaluation in the field, the intervention provides an unbiased estimate of the impact of the program in the sample under study (Duflo et al. 2007). Usually, these projects involve the participation of local partners, such as governments, NGOs, or private companies, to deploy the measures in real-world scenarios, becoming field experiments. Working with local partners on a small scale implies minor budgets. It also provides flexibility to researchers to influence the program design. In such awareness campaigns, claimed benefits of improving urban logistics should not be limited to carbon emission reduction. Improving urban logistics in developing countries generally goes hand-in-hand with reduction of general traffic congestion, and reduction of other emissions, such as particulate matter. The latter has visible effects on air quality and provides clear health benefits. Hence, successful policy makers in developing countries tend to emphasize these benefits in their awareness campaigns.

Increasing vehicle energy efficiency

Off-hour Deliveries (OHD): Off-hour deliveries (OHD) initiatives focus on moving freight deliveries from peak hours to off-peak hours, during late night and early morning. For establishments that are always open, business staff can receive OHDs. However, for unattended deliveries, a storage location, like delivery lockers or container pods must be available. Several benefits are associated to this measure. For instance, logistic service providers can schedule arrival times more accurately, thus improving level of service. This measure can provide a better shopping environment because shopkeepers can focus on receiving the supplies without being distracted by serving customers for those stores that have limited access and receive their supplies through their front doors. This can reduce the time per stop for van sales agents, hence reduce delivery costs.

Reducing time per stop can increase substantially the efficiency of deliveries. In fragmented markets, such as the grocery retail sector in developing countries, van sales agents can serve more than 60 nanostores per route, where most of the time in the route is spent while the delivery is taking place. Nanostores are traditional grocery retail stores, family-operated, independent, and nonorganized, mostly with less than 100 square meters ofcommercial space (Fransoo et al. 2017). A nanostore delivery vehicle is likely parked more than 80 percent of the time (Fransoo et al. 2020). Moreover, many cities have a significant deficit on parking zones for freight vehicles. But, during off-hours, the demand for parking areas drops, as buses and private vehicles are less active. Therefore, this policy facilitates finding a parking spot, reducing time, and driving distance, hence reducing carbon emissions.

In New York City the off-hours deliveries project (NYC OHD) is a program that seeks to incentivize the measure. It is a private–public–academic effort, aimed at promoting the adoption of receivers of freight supplies to voluntarily receive deliveries between 7:00 p.m. and 6:00 a.m.. Twenty-five receivers and eight carriers participated in the pilot. Studies reveal that carriers who deliver in the off-hours decreased their operational costs and parking fines by 35–45 percent. Also, delivery trucks produced 55–67 percent less emissions than they would throughout regular hour deliveries, amounting to a net reduction of 2.5 million tons of carbon dioxide per year (Holguín-Veras et al. 2018a and 2018b). Similar programs were tested in Bogota, Columbia, and Sao Paulo, Brazil, obtaining significant carbon emission reductions (table 2-3).

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Table 2-3: Reduction in GHG emissions from OHD initiatives.

City/ Pollutant ROG TOG CO CO2 NOX PM10 PM25 Policy

Bogota 13.49% 13.49% 13.50% 13.12% 12.70% 13.41% 13.41%Partial OHD (6:00 PM to 10:00 PM)

New York City

67.17% 67.17% 67.00% 55.14% 59.47% 65.53% 65.53%Full OHD (7:00 PM to 6:00 AM)

Sao Paulo 49.98% 49.98% 51.43% 42.52% 44.64% 45.90% 45.90%Full OHD (7:00 PM to 6:00 AM)

Source: Fransoo and Mora-Quiñones, 2021.

Furthermore, other OHD examples can be found in emerging markets such as Mexico City. Since 2008, authorities restricted the downtown’s access of freight vehicles over 3.8 tons or over 7.5 meters long during the day. Vehicles that exceeding these dimensions can only carry out deliveries from 9:00 p.m.to 9:00 a.m. of the following day.

A major challenge for logistics at night is that the receiving location often times is not open. In the New York project, some locations gave the drivers the keys of stores or of delivery sheds and worked around a potential barrier. In cities or parts of cities with lower levels of security, this might be a challenge. Furthermore, the likelihood of robberies taking place during the delivery might be more challenging in certain cities or countries. Hence, for cities, along with carriers, it is important to tailor OHD projects to the specific circumstances. For instance, it could be targeted at larger stores that are open at night, or delivery locations that are safe, such as shopping malls. Even if only a small part of deliveries is moved to off-peak hours, this can have a major impact on emissions in a city.

Another major concern toward the adoption of OHD is noise. The most common noise sources associated with delivery operations include engine idling, truck and forklift back-up alarms, slamming doors, delivery staff talking or shouting, among others. According to the managers of the project in New York, several measures can mitigate noise, which they classified in two groups: (i) implementation of quiet delivery practices and (ii) use of low noise delivery equipment. Authorities introduced the NYC noise code handbook in 2005, which includes definitions, laws, and standards to reduce noise in the city, to promote the public health, safety, and the peace and quiet of the inhabitants of the city. To solve the second challenge, the city promotes the use of low noise materials handling equipment, low noise lift tailgate, and securing systems, among others.

Note that off-peak does not necessarily mean at night. It could imply setting up deliveries to take place such that the morning rush hour is avoided. Unfortunately, many cities in Europe allow deliveries in the downtown areas to take place only in the morning, thus causing additional freight traffic in the morning rush hour. From a traffic and emission perspective, setups where freight vehicles can deliver between the time after the morning rush hour until the early evening reduces emission and traffic. As with LEZs, measures like these would need to be combined with facilities for parking or with urban consolidation centers.

Switching logistics to lower carbon energy sources

Urban Freight Electrification. In 2011, the European Commission published the paper entitled "Roadmap to a Single European Transport Area – Towards a competitive and resource-efficient transport system", setting several goals to achieve the 60 percent GHG emission reduction target

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for 2050. One of the sections considers developing and deploying new and sustainable fuels and propulsion systems, aimed at reducing the usage of fossil-fueled cars by half in urban transport by 2030 and removing them completely by 2050.

Various types of electric vehicles can be classified by their source of power. Electric vehicles (EVs) or battery electric vehicles (BEVs) are powered only by electric motors. Plug-in hybrid electric vehicles (PHEVs) and hybrid electric vehicles (HEVs) combine internal combustion engines with electric motors. The main difference between PHEVs and HEVs is that in the case of the former, those vehicles should be plugged into the electric grid to charge the battery that feeds power to the electric motor, whereas in the case of the latter, they have a recovery mechanism that when slowing down the vehicle, the breaks act as generators, converting mechanical energy into electric energy that is stored in the batteries of the HEV to be used when necessary (Foltyński 2014). For urban logistics, the most used electric freight vehicles (EFVs) are BEVs.

Evidence shows that shifting internal combustion engines (ICE) freight vehicles to electric freight vehicles (EFVs) is an energy-efficient alternative that could significantly reduce carbon emissions in urban logistics and accelerate the decarbonization of the sector. For instance, the Validating Freight Electric Vehicles in Urban Europe (FREVUE) project deployed more than 100 EFVs across eight large European cities—Amsterdam, Lisbon, London, Madrid, Milan, Oslo, Rotterdam, and Stockholm— between 2013 and 2017 to test their performance for carrying out different types of logistics operations. The EFVs used in the project ranged from light vehicles from 2.2 tons to large vehicles over 18 tons. The overall results show a reduction of approximately 45 percent in carbon emissions (Yong et al. 2018).

As part of the FREVUE project, ten logistic service providers integrated EFVs into their operations. At the beginning of the project, the participating fleet managers were skeptical about the performance of the EFVs compared to ICE freight vehicles. Only 39 percent of them thought that EFVs were a viable alternative to their diesel equivalents. However, at the end of the project, the perception changed considerably, by nearly doubling the rate to 72 percent. For example, Heineken tested EFVs of different capacities in Rotterdam, starting with four vehicles and then growing the electric fleet to nine vehicles to distribute beer. Also, UPS trialed 16 EFVs in London as part of the FREVUE project and increased the number to 52 as of early 2017, representing roughly 30 percent of their central London fleet. The adoption of EFVs by these companies confirms that they are suitable and reliable for urban logistics.

So, when electric vehicles have demonstrated to be a good alternative to decarbonize urban logistics, why has its adoption been so slow? First, replacing conventional truck fleets for EFVs is expensive. The initial vehicle cost for EFVs remains significantly higher than for diesel trucks. However, as more EFVs suppliers enter the market and battery prices fall, EFVs prices will drop too. Furthermore, the maintenance costs for EFVs are significantly lower than for ICE vehicles. While evidence for trucks is still limited, the increasing experience with electric powered cars suggests that the drop in maintenance costs is such that already in 2021, this compensates for the higher acquisition costs. This is similar for light electric vehicles and for trucks this adoption is anticipated within the next five years.

The cost of battery storage is the biggest factor in battery-electric truck incremental cost. Nevertheless, the cost of batteries in countries like the US has dropped roughly 80 percent since 2010 and it is projected to continue falling (figure 2-9).

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Figure 2-9: Cost of batteries in the US (2010–2030).

Source: Advanced Clean Fleets – Cost Workgroup, 2020.Note: The red line represents the projections that apply to heavy duty vehicles based on a 5-year delay with respect to light-duty battery pack prices (California Air Resources Board, 2020).

Other prevailing barriers toward the adoption of EFVs in logistics are the limited range of 100–150 kilometers, charging time between six and eight hours for a full charge, limited charging infrastructure network, and cargo weight and size. But urban freight and logistics remain a promising segment for the widespread implementation of light EFVs, as operations typically require traveling short daily distances, usually less than 100 kilometers, less volume and mass constraints for cargo, and they can charge overnight in the depot. For instance, in a restricted zone in Mexico City, companies are using light EFVs to carry out the distribution of goods (photo 2-3).

Photo 2-3: Light electric freight vehicle in transit in Mexico City’s historic center.

Source: Fransoo and Mora-Quiñones, 2021.

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The charging requirements and costs for overnight charging include: (i) electricity cost, based on the commercial electricity tariff charged by the energy supplier; (ii) network cost, defined as the prices for delivery of electricity to the connection point at the depot; and (iii) setup costs, such as those for the installation of chargers, or network connections. These costs vary strongly from case to case, depending on the geographic location of the depot and the type of electrical generation. For small consumers such as logistics depots across Europe, electricity cost and network cost represent almost 75 percent of the bill (Hildermeier et al. 2018). The mass deployment of EFVs can have a large impact on reducing carbon emissions while helping foster more renewable energy use.

Given these costs, fleet renewal programs have been deployed in several countries, not just for cars, but for light freight vehicles too. The European Automobile Manufacturers Association (ACEA) condensed in a document the tax benefits and purchase incentives given in the 27 member states of the European Union and the United Kingdom for 2020. In addition, the International Council on Clean Transportation (ICCT) issued the "Commercial fleet renewal programs as a response to the COVID-19 crisis in the European Union", based on the experiences from the 2008 global financial crisis, to incentivize the fleet renewal programs for the economic recovery period (ICCT 2021).

Moreover, the widespread adoption of EFVs for urban logistics depends on their availability in the market. According to the original equipment manufacturers (OEMs), the market is now well developed for light EFVs under 3.5 tons. This means that companies are placing large orders, fostering the mass production of small EFVs, implying economies of scale that mitigate the purchase barrier (Yong et al. 2018). For instance, Amazon announced in 2020 that it ordered 100,000 BEV light-commercial vehicles from Rivian. Also, UPS ordered 10,000 BEV light vehicles, and FedEx announced the transition to an all zero emission vehicle fleet by 2040 (Global EV Outlook 2021).

Furthermore, as the technology to produce EFVs is much simpler than for ICEs, private companies are investing in producing their fleets. In Mexico, Grupo Bimbo announced in 2019 the incorporation of 4000 new EFVs to its delivery fleet.34 To achieve this goal, Moldex, a subsidiary of Grupo Bimbo, which since 2012 works in the engineering and production of electric vehicles (photo 2-4), has developed the production capacities to produce 1000 EFVs per year. The company also invested in clean energy to power the fleet. They installed a wind farm named Piedra Larga in Oaxaca state (Grupo Bimbo 2021). Also, AB InBev announced in 2019 the incorporation of 2000 EFVs in the next three years to Mexico, as part of their sustainability goals, planning to reduce GHG by 25 percent by 2025.

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Photo 2-4: Electric vehicles of Grupo Bimbo in Mexico.

Source: Grupo Bimbo, 2019. https://www.grupobimbo.com/en/

These private initiatives are good examples of how large companies are strategically investing to meet their sustainability goals. However, for smaller firms, replacing their fleets with EFVs is still not economically viable in the short term. Therefore, cities can promote the uptake of EFVs by setting multiple incentives. For instance, in the FREVUE project in Amsterdam, local authorities granted subsidies to participating companies, paying for the extra costs compared to a conventional vehicle. Other financial instruments tested in the project to make more engaging the usage of EFVs were beneficial taxation schemes like no congestion charge, no parking fees, or no road tax. Another supportive policy trialed in the FREVUE project was enabling EFVs to enter LEZs, use bus lanes, parking at nonloading areas, wider time access restrictions, and entrance to pedestrian zones, resulting in operational advantages.

In the majority of LDCs, the largest part of the freight fleet is owned by owner-operators. In many cases the fleet is also part of the informal sector, and often relies on second-hand vehicles from more developed markets. This hampers the transition to electrification of the fleet. It does imply that an initial part of the fleet renewal may need to be helped by governmental or intergovernmental subsidies. These subsidies could be directly applied in the fleet, but could also be in the manufacturing capabilities. The production of light electric vehicles requires much less capital investment and could significantly boost the renewal that domestic fleets need. Because the population densities in cities of developing countries tend to be substantially higher than in most developed countries, and the retail landscape is more fragmented because of the millions of nanostores, and labor cost tend to be lower, it is likely that the size of vehicles is smaller in cities in developing countries compared to their developed countries equivalents. This would allow electrification to be faster. For instance, a distribution company like Sokowatch in East Africa has started to electrify its fleet of tuk-tuks.

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Low Emission Zones (LEZ): One of the most adopted policies by cities to reduce urban carbon emissions is the establishment of low emission zones (LEZs). This regulates the access of vehicles, particularly the most polluting, to certain urban zones to improve air quality, reduce noise, and improve health. Examples include limiting access of heavy goods vehicles (HGVs) in many cities across Latin America, diesel-powered vans in many cities in Germany, or combustion motorcycles in most cities in China. In Europe, urban freight accounts for 25 percent of urban transport-related carbon emissions and 30–50 percent of other pollutants—PM10, PM2.5, and nitrogen dioxide (ALICE and ERTRAC Urban mobility WG 2015). Data for developing countries are less reliable and recent, but are generally thought to account for at least 40 percent of carbon emissions.

Cities can balance the flow of goods with the livability of urban spaces by enforcing LEZs measures. It is likely to find LEZs in downtown districts that in many cases have historic buildings, attracting tourism, and fostering the local economy. The first country to implement LEZs was Sweden in 1996 in the cities of Stockholm, Gothenburg, and Malmö. Following the Swedish lead, Germany, the Netherlands, Italy, and the UK adopted LEZs between 2007 and 2008 (Amundsen and Sundvor 2018). Since then, the number of LEZs has grown significantly in Europe. They can be found in more than 250 sites across 15 countries.

Despite the diffusion of these initiatives in many countries, evaluating the environmental impact of LEZs is challenging because other factors affect the measurements of ambient air, like meteorological phenomena, the normal renewal of the vehicle fleet, or other policy measures. Researchers studied the impact on urban air quality in Denmark, Germany, the Netherlands, Italy, and the UK concluding mixed results (Holman et al. 2015). They recommend conducting more sophisticated statistical analyses to remove the confounding factors. However, they report that in Germany, the reduction of PM10 and nitrogen dioxide concentrations fell seven and four percent respectively owing to the implementation of LEZs. Thus, the large adoption of LEZs in the European Union is mainly because of the improvements in the reduction of diesel particle emissions and not in the mitigation of carbon emissions. Therefore, the promotion of LEZs tends to be primarily health driven.

In the megacities of emerging markets such as Mexico City or Sao Paulo, authorities have enforced restrictions for the access of large freight vehicles in certain areas. In the case of Mexico City, the department of mobility established an area named ‘A perimeter’ since 2008 that covers the most congested zones in its downtown, where only light vehicles less than 3.8 tons and no longer than 7.5 meters can circulate at any time. In 2019, the government prohibited the circulation of vehicles larger than 3.5 tons during peak hours, that is between 6:00 a.m. and 10:00a.m., and between 6:00 p.m. and 8:00 p.m.. Also, larger freight vehicles, over 7.5 meters, can only circulate at night, between 10:00 p.m. and 5:00 a.m. of the next day. These measures are part of a mobility program aimed at reducing 30 percent of carbon emissions by 2024.35 The measure encourages the renewal of the fleet since it excludes those diesel vehicles that have traps for particles or those that are natural gas, electric, or hybrid.

In the case of Sao Paulo, the restrictions of circulation for freight vehicles started in 1982. The first decree banned large trucks over 15 tons from entering a delimited zone during peak hours, from 6:00 a.m. to 9:00 a.m., and from 4:00 p.m. to 9:00 p.m.. However, due to the massive expansion of the number of freight vehicles in Brazil, the city of Sao Paulo enacted more regulations. The city, as of 2021, has three types of traffic restrictions, namely the maximal circulation restriction zone, the restricted structural roads, and the special restricted circulation zones, known as ZMRC, VER, and ZERC as abbreviated in Portuguese. Zone ZMRC focuses on a high density commercial area. Zone VER applies to certain arterial roads, and zone ZERC is exclusively for residential zones. However, as the distribution of goods is essential for the livelihood of the city, officials grant transit permission

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to smaller urban freight vehicles less than 2.20 meters in width and 6.20 meters in length, known as VUCs—veículos urbanos de carga—in Brazil.

Several constraints add more complexity to logistics service providers’ operations, reducing their efficiency and efficacy because deliveries are delayed, the level of service diminishes, and nighttime shipments are more exposed to robberies (Vieira et al. 2015). Consequently, firms are shifting toward substituting their fleet with VUCs. Thus, perversely more vehicles circulate in the city as companies seek to secure their market competitiveness and ensure the flow of goods. Therefore, the implementation of LEZs or other policies that regulate the access of freight vehicles to certain urban areas must be planned thoroughly for the short, medium, and long term. Otherwise, we could have opposite undesirable outcomes or a rebound effect.

In general, LEZs operate permanently and local authorities, notably traffic police, enforce these regulations., assisted by physical barriers, or other surveillance systems like cameras. A coercive mechanism assists compliance with the standards of LEZs. For instance, in Germany, all vehicles entering the LEZs are required to carry a sticker. The penalty for entering a LEZ without displaying a sticker or with the wrong sticker, even if the vehicle meets the standards is 80 euros. In London, penalties for vehicles with an exceeding weight of 3.5 tons are £2000 (Matters 2021).

The next level for the LEZ for freight vehicles is known as zero emission zones for freight (ZEZ-Fs). These are areas where only zero emission freight vehicles can enter. In the Netherlands, the goal is to have ZEZ-Fs in 30 to 40 large cities by 2025, aiming at reducing carbon dioxide emissions by 1 megaton. Attaining this goal is only feasible by a combination of full electrification, along with other measures such as increased loading bays and urban consolidation centers.

Multiuse Lanes (MUL): Another measure in the domain of traffic management to improve the conditions of urban freight mobility and the mitigation of carbon emissions is the development of multiuse lanes (MUL). MULs seek to leverage the installed road network capacity in urban areas by facilitating its use for multiple modes of transportation based on the time of the day or the traffic conditions.

Successful implementation of MULs can be found in the city of Barcelona. It began in 1998 when the city presented the Barcelona Municipality Mobility Pact, which the authorities elaborated in collaboration with over 35 organizations that represented the different modes of transport and stakeholders of urban mobility—public transport, freight transport, cycling, and school buses. In this long-term plan, the city transformed 5.5 kilometers of traditional roadways into MULs, providing versatility to the public transport users, freight loading or unloading areas, and private vehicle parking. In the case of Barcelona, the MULs are combined with OHD. During peak hours, buses, and taxis are the exclusive users of the lanes, but in between peak hours, the lanes can be used as loading or unloading areas—44 on-street parking spaces—for freight vehicles for 30 minutes. They can also be used as parking spots during the nighttime and on the weekends (Blanco 2014). The estimated cost per lane was of 500,000 euros, with an estimated three-year payback time. MULs are enabled by electronic signals indicating the permitted use at a particular time interval.

The City of Barcelona sought to ensure MUL compliance by including urban planning, awareness campaigns, infrastructure, information, surveillance by agents of the Barcelona de Serveis Municipals (BSM),36 enforcement from police officers, and information technologies. The latter mainly implements the variable message sign system (VMS) (photo 2-5).37 Active participation by the stakeholders of the city was crucial for the success of this technology. The main actors involved in the initiative include the municipality that planned and installed the system, transport operators, city planners, receivers, chambers of commerce, drivers, public transport operators, and associations of shopkeepers (SUGAR 2021).

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Photo 2-5: Variable Message Sign System (VMS) in Barcelona.

Source: Fransoo and Mora-Quiñones, 2021.

Researchers evaluates the performance of using a MUL for urban freight. Their results exhibit that MUL projects are only beneficial during off-hours because if established during peak hours, they strongly impact the traffic flow. Taking away space from cars for public transportation and for freight inadvertently will lead initially to more congestion. However, when accompanied by better and faster public transportation, eventually this will increase commuters share of public transportation. Examples of these include the many bus rapid transit (BRT) systems across Latin America and Africa. While beyond the scope of this paper, the interaction with passenger transport remains relevant to be considered in urban logistics.

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Notes

1. Mckinnon, Alan (2021) Tailoring Logistics Decarbonisation to the Needs, Opportunities and Constraints of Less Developed Countries. A paper prepared for the World Bank.

2. UNCTAD (2021) uses a variant of the ASI framework which it calls the 4M approach.

3. Proposed by Schipper and Marie (1999) and adopted by the IPCC’s 5th Assessment Report (Sims et al, 2014).

4. McKinnon, 2015; ALICE ,2019.

5. International Maritime Organization (IMO). 2020. Fourth IMO GHG Study 2020.

6. Lloyd’s Register and University Maritime Advisory Services. 2017. Zero-Emission Vessels: Transition Pathways.  Available at: https://www.lr.org/en/insights/global-marine-trends-2030/zero-emission- vessels-transition-pathways/.

7. International Maritime Organization (IMO). 2018a. “UN body adopts climate change strategy for shipping. Available at: https://www.imo.org/en/MediaCentre/PressBriefings/Pages/06GHGinitialstrategy.aspx.

8. International Maritime Organization (IMO) 2018b. Maritime Environment Protection Committee (MEPC). 72/17/Add.1.

9. International Maritime Organization (IMO). Cutting Sulphur Oxide Emissions. https://www.imo.org/en/MediaCentre/HotTopics/Pages/Sulphur-2020.aspx.

10. Current affected emissions control areas (ECA) are the North American area ECA (controlling both NOx and SOx emissions) and the Baltic Sea and North Sea area ECA (controlling SOx emissions) as set out in MARPOL Annex VI as amended. The People’s Republic of China has established a coastal ECA effected through domestic law.

11. Climate Action Tracker. Global Shipping. Available at: https://climateactiontracker.org/sectors/shipping/.

12. In this context, zero-carbon bunker fuels encompass bunker fuels which—in terms of GHG emissions—are “effectively” zero (that is where the fuel is produced from non-biogenic renewable electricity) or “net-zero” (that is where the production of the fuel removes a quantity of carbon dioxide (CO2) from the atmo-sphere equivalent to that emitted during combustion); Englert, D; Losos, A; Raucci, C; Smith, T. 2021. The Potential of Zero-Carbon Bunker Fuels in Developing Countries. World Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/35435.

13. Global Maritime Forum (GMF). 2021. Five percent zero emission fuels by 2030 needed for Paris-aligned ship-ping decarbonization. https://www.globalmaritimeforum.org/content/2021/03/Getting-to-Zero-Coalition_ Five-percent-zero-emission-fuels-by-2030.pdf; International Energy Agency (IEA)). 2020. Energy Technology Perspectives 2020. https://iea.blob.core.windows.net/assets/7f8aed40-89af-4348-be19-c8a67df0b9ea/Energy_Technology_Perspectives_2020_PDF.pdf

14. International Maritime Organization (IMO). 2020. Fourth IMO GHG Study 2020.

15. The IMO has adopted a range of energy efficiency measures through amendments to MARPOL Annex VI. Technical measures include the introduction of the EEDI for new ships and the EEXI for ships in ser-vice (effective from 2023). Operational measures include the Ship Energy Efficiency Management Plan (SEEMP) as well as the newly adopted Carbon Intensity Indicator (CII) (effective from 2023).

16. World Bank. 2021, forthcoming). Energy efficiency in shipping (working title).

17. Englert, Dominik; Losos, Andrew; Raucci, Carlo; Smith, Tristan. 2021. The Potential of Zero-Carbon Bunker Fuels in Developing Countries. World Bank, Washington, DC. © World Bank. https://openknowledge.world-bank.org/handle/10986/35435 License: CC BY 3.0 IGO.

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18. Global Maritime Forum. 2021. Mapping of Zero Emission Pilots and Demonstration Projects. https://www.globalmaritimeforum.org/content/2021/03/Mapping-of-Zero-Emission-Pilots-and-Demonstration-Projects-Second-edition.pdf.

19. International Chamber of Shipping (ICS). 2020. Catalysing the fourth propulsion revolution. https://www.ics-shipping.org/wp-content/uploads/2020/11/Catalysing-the-fourth-propulsion-revolution.pdf.

20. International Maritime Organization (IMO). 2020. Fourth IMO GHG Study 2020.

21. Intergovernmental Panel on Climate Change (IPCC). 2013. Anthropogenic and natural radiative forcing.” In Climate change 2013: The physical science basis. Working Group Contribution to the Fifth Assessment Report of the International Panel on Climate Change  (pp 659-740). Cambridge. Cambridge University Press. doi:10.1017/CBO9781107415324.0. 

22. Indian Ports Association. Container Traffic (unloaded/loaded) 2014-2015 to 2016-2017. http://www.ipa.nic.in//showimg.cshtml?ID=803.

23. This disproportionate increase is due to the fleet increasing the use of LNG in dual-fuel internal combus-tion engines, which tend to emit more methane than steam boilers, and is evidence that downstream methane emissions are material and growing.

24. This research is summarized in McKinnon (2018 and 2021).

25. Proposed by Schipper and Marie (1999) and adopted by the IPCC’s 5th Assessment Report (Sims et al, 2014).

26. McKinnon, 2015;

27. ALICE ,2019.

28. The drop size is the volume of all products in a single delivery to a single delivery address.

29. See Fransoo & Mora-Quiñones (2021). Decarbonizing Urban Logistics: Perspectives for Low and Middle Income Countries. A Paper prepared for the World Bank.

30. Nanostores are small, independent, family-owned and operated retail stores, in particular in the grocery sector, that dominate the retail landscape in developing countries. Fransoo et al (2017) estimate that glob-ally about 50 million grocery nanostores serve about 4 billion consumers on a daily basis.

31. Jaller et al. (2013).

32. Chiara and Goodchild, 2020).

33. Fransoo et al. (2020).

34. Grupo Bimbo announces the incorporation of 4,000 new electric-powered vehicles to its sustainable distri-bution fleet. (2019). https://www.grupobimbo.com/en/Grupo-bimbo-vehicles-electric-fleet-distribution-sustainable-investment-means-environment-innovation-technology-mexican

35. Emissions reduction plan of the mobility sector in Mexico City, 2021. https://www.jefaturadegobierno.cdmx.gob.mx/storage/app/media/plan-reduccion-de-emisiones.pdf

36. The Barcelona de Serveis Municipals (BSM) is a company owned by the municipality that manages ser-vices and infrastructure related to mobility and tourism (https://www.bsmsa.cat/es/).

37. EU project to make urban freight management more sustainable. (2021). https://www.itsinternational.com/its8/feature/eu-project-make-urban-freight-management-more-sustainable

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Zhu, F., Wu, X., and Gao, Y. 2020. Decomposition analysis of decoupling freight transport from economic growth in China. Transportation Research Part D: Transport and Environment, 78, 102201.

Zinn, W., M. Levy, and D. J. Bowersox. 1989. Measuring the Effect of Inventory Centralization/ Decentralization on Aggregate Safety Stock: The ‘Square Root Law’ Revisited. Journal of Business Logistics, 10 (1).

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3. What Requisite Policy Interventions Assist Freight and Logistics?

Ample options facilitate the decarbonization of the freight and logistics sector, while also generating additional social and environmental benefits.

This section outlines the immediate policy actions necessary to implement a menu of measures. It illustrates the levers of operational aspects, technology, policy, and the built environment—in the case of terrestrial and urban freight and logistics—that contribute to decarbonize the freight and logistics subsector, without inhibiting trade and regional economic growth. The section will be broadly structured into the three main subsectors.

3.1 The Maritime Subsector

Reducing emissions—both GHG emissions and air pollutants—from shipping is a political, technological, and financial challenge on a global scale. The production of the new fuels opens avenues to new development and business opportunities. Many countries that have not been traditional energy exporters, including some LDCs, could enter the future market for zero carbon bunker fuels from 2030. In this market, these potential new producers and suppliers can take advantage of a global investment opportunity of at least US$1 trillion. This would also create the opportunity for several countries to shift from being energy importers to energy exporters. Decarbonizing maritime transport should ideally be tackled through collective action by regulators, the public, and the private sector alike. First, a full lifecycle and a GHG perspective should be applied to any bunker fuel considered as a low or zero carbon alternative to HFO. This applies to LNG and zero carbon bunker fuels. It means that all GHGs with relevant global warming potential need to be assessed, or else the impact of one GHG may simply be replaced by another, or merely displaced from one stage of the fuel's lifecycle to another. For example, a specific bunker fuel may ultimately be able to curtail the downstream carbon dioxide emissions associated with its combustion in a vessel. However, the fuel may still have higher GHG—carbon dioxide, methane—emissions associated with its extraction, which is upstream or its distribution, a midstream activity. In such cases, the same low or zero carbon bunker fuel may unintentionally lead to higher overall GHG emissions than traditional oil-derived alternatives. Methane has been identified by the Intergovernmental Panel for Climate Change (IPCC) as the second largest contributor to global warming, second only to carbon dioxide and is responsible for 0.5 out of the 1.1 degree Celsius warming.1

The Initial IMO GHG Strategy commits first to reduce and then phase out GHG emissions from ships aligning with the Paris Agreement’s temperature goals. Recent work by the World Bank2 highlighted the value of reassessing and possibly reducing existing policy support for LNG as a bunker fuel to manage the climate change risks associated with its large-scale adoption in that role. Additionally, that study recommended urgent and robust policy action to regulate existing methane emissions throughout the LNG supply chain and its use on ships. Without such action to regulate methane emissions throughout the LNG supply chain, existing LNG use in shipping risks causing even higher lifecycle GHG emissions than the use of conventional oil-derived fuels.

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Energy efficiency: Vast untapped energy efficiency potential is present in the maritime transport sector due to several market barriers and failures. These barriers include, but are not limited to, hidden costs, perceptions of technology risks, split incentives, and information asymmetry.3 The private sector should intervene at the public policy and voluntary level support need to overcome these barriers.

The IMO has adopted policy and regulations at the global level to incentivize the uptake of energy efficiency measures, but they lack ambition. The IMO has implemented a suite of policies on energy efficiency that cover newbuild technical energy efficiency, operational efficiency, existing fleet technical energy efficiency, and existing fleet and newbuild operational efficiency. However, the latest policies are feeble and guided by the least ambitious interpretation of the IMO’s carbon intensity objective of "at least 40 percent".3 The policies as adopted are therefore incompatible with the Paris Agreement’s temperature goals and the IMO's Initial GHG Strategy.3

The European Union (EU) has adopted policies to incentivize the decarbonization of the maritime transport sector, such as including shipping in the EU emission trading system (ETS).3 However, these policies do not fully address the barriers that prevent the industry from adopting the range of energy efficiency measures available. The EU along with other national governments and regions should adopt policies that create additional incentives to introduce energy efficiency measures in shipping. This would have the additional potential benefit of accelerating and complementing the policy making process at the IMO.

A combination of pricing-based mechanisms, command and control policies, and voluntary standards need to be introduced to unleash the full efficiency potential of shipping. Command and control regulations should be deployed to address the necessary first step to overcome non-price obstacles with pricing-based mechanisms being used to complement these types of policies. In parallel, private sector action could contribute to increased energy efficiency in shipping by strengthening existing private standards and initiatives in transparency and data quality, for instance.

As energy efficiency improvements depend on individual setup and setting, more and better information will justify measures from an environmental and economic perspective. Often technical information exists, but the information asymmetry persists and can inhibit investment. Future information or clarification needs to be produced at a more granular level—specific not just to ship type and size but also how and where it operates. This can help with information asymmetries that may exist between different stakeholders and directly address information-related market failures.

Zero carbon bunker fuels: Public policy support through the IMO or national action is vital to accelerate crucial research, development and deployment (RD&D) for zero carbon bunker fuels. It would enable industry to confidently decide on long-term investment about shipping’s decarbonization. RD&D of zero carbon bunker fuels need to be accelerated if the Initial IMO GHG Strategy 2050 target and eventual full decarbonization of shipping are to be achieved.2 The public sector—globally at the IMO, regionally, or nationally—can play a key role in this transition by helping accelerate the commercialization of zero carbon bunker fuels.

Carbon pricing policies can be a very effective way of closing the competitiveness gap between fossil fuels and the more expensive zero carbon bunker fuels. For example, the cost of ammonia as bunker fuel, which is produced from renewable electricity would cost about four to seven times as much as conventional oil-based fuel in 2030.4 The IMO is considering carbon pricing as a midterm measure to close that gap.5 The European Commission proposed carbon pricing for shipping through gradually including shipping in the EU ETS from 2023.6 The United States plans to copy the EU monitoring, reporting, and verification (MRV) as a stepping stone to charge shipping for its

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carbon emissions.7 Following the launch of China´s ETS in 2021, announcements indicate that once the EU moves forward, it would consider adding shipping to its trading scheme.7

Governments can support shipping’s energy transition by facilitating the large-scale production of the new zero carbon bunker fuels. This implicates the adoption of hydrogen strategies and strategic plans to scale up renewable energy production. Globally, the number of countries with hydrogen strategies in effect or in development have almost doubled in 2021, from 24 in January 2021 to 43 by July 2021.8 A recent report by Bloomberg New Energy Finance highlights three outstanding hydrogen roadmaps for Brazil, India, and the United States.9 In particular, the United States roadmap has ambitions to drive down the cost of green hydrogen to US$1 per kilogram compared to the prevailing US$3–7 per kilogram cost of production.10 To support this cost reduction, governments such as the United States can immediately implement subsidy mechanisms to incentivize the production of green hydrogen.

Governments can specifically support shipping’s energy transition by facilitating the initiation of urgently needed pilot and demonstrator projects. Several financing options address inherent risks of early-stage investments and would create an enabling environment where industry and financial stakeholders can eventually make confident long-term investment decisions about shipping's decarbonization. Besides concessional loans, investment guarantees, fiscal incentives, or preferential administrative treatment such as permits, contracts for difference can also bring down the cost of zero carbon fuel production.11

Governments can leverage their purchasing power in public procurement and provide offtake guarantees. Civilian fleets owned and operated by governments can stimulate the uptake of zero carbon technology and fuels under public procurement strategies dedicated to zero carbon shipping. For example, the UK has been considering options to subsidize its offshore energy sector through public tenders for its nationally owned fleet. Its government has expressed an ambition that all newly ordered domestically operating vessels shall be fitted with zero-emission propulsion technology by 2025.12

Financing a rapid and equitable transition: Shipping’s full decarbonization through zero carbon bunker fuels will likely cost over a US$1 trillion.13 To finance this investment in land-based and vessel infrastructure at 87 and 13 percent respectively, carbon pricing can play a key role. Carbon pricing serves as a cost-effective policy that closes the competitiveness gap to zero carbon bunker fuels. Equally important, it is an opportunity to raise funds for urgently needed RD&D as well as to support developing countries, thereby ensuring a rapid and equitable transition.

Carbon pricing is a policy option, which not only curbs GHG emissions, but has the potential to yield significant revenues. This market-based measure can help support the necessary RD&D of zero carbon bunker fuels. At the same time, the revenue from a carbon pricing mechanism can be strategically recycled to target investments in developing countries with the aim of ensuring a fair and equitable energy transition. These targeted investments would help unlock the full potential that many developing countries must contribute to shipping’s future zero carbon bunker fuel supply chain.

A simplified estimation of carbon revenues highlights the scale of potentially available financing, which offers a new set of additional actions. Carbon revenues are the product of the ton of carbon equivalent and the carbon price applied per ton of carbon equivalent. Based on a linear carbon dioxide equivalent (CO2e) reduction pathway under a scenario consistent with the IMO Initial GHG Strategy and a scenario consistent with net zero in 2050, aggregate estimated carbon revenues collected over a period between 2022 and 2050—and at a carbon price of US$100/ton—could amount up to US$1.0–1.7 trillion (figure 3-1).14 Under such assumptions, annual revenues in 2022 could

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range between US$70.9 and US$75.8 billion. To put these numbers into perspective, public climate finance, including through state-owned companies, in 2018 amounted to US$261 billion.15 Carbon revenues from shipping could potentially change the landscape of climate finance significantly.

Figure 3-1: Estimated accumulated carbon revenues based on two decarbonization scenarios (baseline year considers GHG including black carbon expressed in CO2e).

Source: IMO, Fourth IMO GHG Study, 2020.

The case is compelling for the increased use of the revenues from carbon pricing mechanisms for in-sector and out-of-sector. In-sector use implies the spending of revenues to support the decarbonization of maritime transport. Out-of-sector use targets the financing of wider development goals, specifically in support of countries that may suffer disproportionate negative impacts because of the way their carbon pricing mechanism is implemented. These out-of-sector uses could be non-climate related, such as funding to support the implementation of the United Nations’ wider sustainable development goals (SDGs).

Arguments in favor of cost-effectiveness lean on financing broader climate and development goals. The exclusive channeling of revenues to finance maritime transport infrastructure and other in-sector climate change mitigation efforts are unlikely to be the most cost-effective way of achieving GHG reduction or development targets. If the aim is to maximize climate and development outcomes, the case for only financing shipping-related activities from carbon revenues is weak to non-existent.

However, some arguments justify in-sector use. In-sector revenue use could increase GHG reduction ambitions16 or be used to prevent disproportionate negative impacts that may be caused by introducing a carbon price, such as increased transport cost. Tackling the disproportionately negative impacts before they occur—improvement of maritime transport infrastructure—as opposed to addressing them ex post, which would rather be the case for broader revenue use could have additional benefits.

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Splitting the revenue's end use would be a viable way forward since both exclusive in-sector use as well as a wider out-of-sector development use have its benefits. Given the broad benefits for both in-sector and out-of-sector revenue use, a proportion of the carbon revenues could be devoted to financing in-sector climate change mitigation in building a zero carbon bunker fuel supply infrastructure or enhancing port infrastructure for instance. Another share could be devoted to wider climate or development goals in developing countries.

Regardless of the ultimate revenue use, the diligent management of these large sums will be an institutional challenge and will require institutional capacity to handle the disbursement on this scale, while ensuring effective and efficient use of the funding. Developing and operationalizing an international mechanism will be a complex task requiring many governance challenges to be addressed. Furthermore, the selection process and criteria for ultimate carbon revenue disbursements need to be considered thoroughly, whereby some of these key aspects are being examined.17

3.2 The Interurban Freight and Logistics Subsector

Reducing the demand for freight transport or moderating its growth

Developed countries have demonstrated transport policies explicitly designed to suppress freight demand. As part of a transport prevention scheme, the Dutch government advised companies how to rationalize their production and distribution operations, while the EU Marco Polo II programme went further in offering financial support for traffic avoidance actions that made the whole supply chain more efficient by cutting the journey distance and reducing the amount of waste, among other things. These efficiency gains, however, were not to be at the expense of jobs or total output. Only four actions were funded, at a total cost of €13.3 million, and three of them delivered only 20–40 percent of their objectives (EU Innovation and Networks Executive Agency 2020). Traffic avoidance yielded 12 percent of the program’s savings by comparison of 88 percent from modal shift. The program was discontinued in 2013 and no further traffic avoidance initiatives have since been pursued. This European experience casts doubt on the effectiveness of policies explicitly designed to curb freight traffic growth.

LDCs can, nevertheless, use various policy instruments to promote the four ways of reducing the transport carbon penalty associated with centralization.

Advisory schemes: Managers need significant technical knowledge of the design and operation of logistics systems to be able to assess the benefits and costs of the four enablers to their specific business. Governments can help guide, possibly working with professional institutes and providing use-cases of successful implementations.

Land use planning: This has a critical role to play in clustering logistics properties into freight villages, possibly making rail access a condition for the award of planning permission and facilitating the development of localized networks of break-bulk facilities (McKinnon 2009).

Financial policies: A combination of economic incentives and taxes can be used to encourage modal split on trunk hauls from more centralized warehouses and the colocation of industrial or logistical premises on strategic, rail-connected sites.

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Infrastructure provision: The infrastructural upgrades, which are responsible for much of the redistribution of logistical activity into more carbon intensive systems, can also be planned in a way that encourages convergence on freight villages and modal shift to rail or water.

The discussion of options to manage freight demand highlights the close interconnection between the first decarbonization lever and the second one, which aims to transfer as much freight as possible to lower carbon transport modes, mainly rail.

Shifting freight to lower carbon transport modes

Governments around the world have been trying to promote a shift freight from road to rail and water for many decades, and in the process have deployed a broad array of policy instruments. European countries and the EU have gained a wealth of experience in developing, applying, and evaluating freight modal shift policies over many years. It represents an important potential source of advice for LDCs. A recent study reviewed a total of 93 modal split initiatives implemented in Europe, twenty of which were subsequently evaluated (Takman and Gonzales-Aregali 2021). Overall, financial incentives had more positive outcomes than other measures and the policy impact was greater on modal shift to rail than to waterborne services.

It is worth underlining, however, that many years of public intervention in the European freight market has failed to redress the road–rail imbalance. It may merely have averted an even greater erosion of freight to the road network. A recent report by Asian Development Bank and SloCAT (2021) arrived at a similar conclusion for modal shift initiatives implemented by several Asian countries. In a few developed countries, such as Australia, Japan, and the US, the railways have been able to increase their share of the freight market, with varying degrees of government support (Kaack et al. 2018).

LDCs can learn from this experience, try to adapt the more successful initiatives to local conditions and explore other options not yet trialed elsewhere. Many LDCs are subject to similar physical constraints to their European counterparts. They have short average haul lengths and high ratios of road to rail network densities. On their hand, being at an earlier stage in the development of their economies the degree of logistical lock-in to road-based, just-in-time replenishment may be lower and the commodity mix more amenable to rail haulage.

Generally, it is desirable for public policy on modal shift to have the following characteristics.

A holistic view of the freight market: This would make the lower carbon modes more attractive while also discouraging use of road freight. This simultaneously exerts pull and push pressures on companies’ modal split decisions (Gota 2018). Some policies are inherently crossmodal, such as removing fuel subsidies or increasing fuel taxes, which favor the more energy-efficient or lower carbon modes. Full internalization of the external costs of freight transport has long been advocated as a means of achieving an environmentally sustainable modal split (UIC 2018). In LDCs, where the level of non-carbon externalities, such as air pollution and accidents, are relatively high, this more general from of internalization is probably more appropriate than carbon taxation or pricing, though even more difficult to implement. Although much debated in Europe, North America, and elsewhere, full internalization of the environmental costs of freight transport and, more recently, carbon pricing of domestic freight transport has yet to happen. Effectively, the governments of LDCs have no precedents to follow. If these measures are implemented, they will support all five decarbonization levers and not only a modal shift.

Targeted by sector, commodity or corridor: Not all segments of the freight market are contestable. It is important to identify those that low carbon modes can serve most effectively and competitively,

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and concentrate efforts and investment. This segmentation of the market can be geographical, focusing on freight corridors where substantial volumes of commodities amenable to a switch to rail or water are moved, preferably over longer distances (Havenga et al. 2014). Numerous corridor-based modal split initiatives serve as examples across the developed and developing world. As part of its TEN-T Connecting Europe programme the European Commission (2021) is channeling much of its modal shift effort into a network of nine intermodal corridors which crisscross the continent. Similar freight corridor strategies have been implemented in Mexico (Martner 2016), East Africa (Gota 2018) and the Asia-Pacific region (Asian Development Bank 2018; UNESCAP 2017).

The development of six dedicated freight corridors (DFCs) are likely to be crucial to the decarbonization of the Indian freight transport system. Cumulative carbon dioxide reductions from these DFCs between 2016 and 2040 could be as much as 77 percent on a business-as-usual basis and 93 percent within a low carbon scenario (Pangotra and Shunkla 2012). Deployment of a series of enablers can help maximize the carbon savings accruing from these DFCs (Shankar et al. 2019). Geographically concentrating investment and crossborder facilitation of rail freight movement along international corridors can also reinforce domestic freight modal shift efforts (UNESCAP 2019). As much rail and waterborne freight in LDCs has its origin or destination at a major port, the development of intermodal corridors can help to ensure that these alternative modes capture of significant share of hinterland transport (Acciaro and McKinnon 2013).

Multifaceted, combining several policy instruments in a coordinated action: For this purpose, the three-fold classification of Takman and Gonzales-Aregali (2021) can be extended to six categories:

Taxation: In addition to the fiscal options mentioned earlier, fuel and infrastructure taxes and charges can be varied by mode. Full recovery of the freight share of the infrastructural cost by the respective modes would, in some countries, place a heavier tax burden on trucking operations.

� Financial incentives: These should be available to the operators or users of low carbon freight services, generally where it can be demonstrated that modal shift will yield a net environmental benefit. These can take the form of subsidies, as in the case of the UK Mode Shift Revenue Support scheme (UK Department for Transport 2021), for users of rail or waterborne services, or grants for the installation of, for example, rail sidings at industrial or logistics premises, or intermodal equipment.

� Regulation: For many decades quantitative licensing was used in developed and less developed countries to constrain the capacity, operations, and pricing of road haulage partly to protect the railways (McKinnon 1998). In most countries it failed to preserve rail’s market share, and was generally abandoned between 1970 and the early 2000s. Outside centrally planned economies, little interest prevails in reversing freight market liberalization to get more freight onto rail or waterway networks. A strong case can, however, be made for much tighter enforcement of qualitative regulations on trucking, particularly in LDCs. Infringements are rife in LDCs, and create unfair competition for alternative modes and within the road freight sector (Bove et al. 2018).

� Infrastructure: The upgrading of rail and waterway infrastructure is critical in many LDCs. Its standard falls well short of that in developed countries and is a major inhibitor of freight modal shift. In addition to the usual investment in track and signaling, much of the infrastructural expenditure usually needs to go into intermodal terminals, inland and at ports.

� Land use planning: Planning approval for new industrial and warehouse development can be made conditional on those premises with good road or waterway access. Such a planning condition can be reserved for large-scale, possibly multiple-occupant developments likely

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to generate full trainloads of freight. This is preferred rather than planning the same for small numbers of wagonloads, which can be difficult and costly to marshal. Planning authorities can also facilitate the location of intermodal terminals at strategic locations and their use as hubs for related logistical activity.

� Advisory services: Government agencies can supplement the marketing activities of rail freight operators by providing businesses with more general advice on the modal choice decision. The UK government, for example, funds a Mode Shift Centre (2021), which exists to demystify rail and water freight for potential users. It explains what a modal shift entails and provides case studies of companies that have successfully increased their use of rail or waterborne services. This helps overcome managers’ natural reluctance to risk disruption of a well-established road-based logistics operation.

Optimizing vehicle loading

Governments should first review regulations that may be preventing carriers and shippers from achieving higher vehicle load factors. Four such regulations are:

� Limits on own account operators’ ability to backload their vehicles or foreign carriers to engage in cabotage.18

� Zonal restrictions on the areas within which domestic carriers can pick or deliver loads.

� Construction and use regulations on the maximum permitted size and weight trucks.

� Antitrust law governing the extent to which competing companies can logistically collaborate.

Other possible policy measures affecting this decarbonization lever fall into three categories.

Enforcement: Reduced levels of overloading in LDCs requires tougher enforcement to cut the excess carbon dioxide emitted but also other negative externalities.

Road user charging: Hauliers get a stronger incentive to use capacity more efficiently by increasing vehicle operating costs, though in many LDCs it would likely exacerbate the overloading problem. Distance-based road charging in Europe shows that it has promoted an increase in load efficiency(Gomez and Vassallo 2020). Such road charging systems, however, can be technically and administratively cumbersome, expensive to implement, difficult to align with social costs, and politically controversial.

Advice: Over the past decade many new green freight programs were established at national and international levels. These programs advise carriers and shippers in LDCs (table 3-1). Much of this advice focuses on fuel efficiency, but some lessons also relate to vehicle loading. Some of these programs are government-sponsored and often delivered with the support international development organizations, such as GIZ, and industry bodies. Advisory schemes often emphasize the financial benefits of increasing vehicle load factors as they usually motivate carriers and shippers more strongly that environmental benefits. Improved asset utilization is viewed as a low hanging fruit in the decarbonization of logistics.

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Table 3-1: Green Freight Programs.

National Green Freight Programs International Organizations promoting Green Freight Initiatives

ArgentinaTransporte Intelligente and Rango Verde

Clean Air Asia

Brazil Depoluir and PLVB Climate and Clean Air Coalition

Chile Giro Limpio Environmental Defense Fund

ChinaChina Green Freight and Green Freight Asia

GIZ

India Green Freight Asia International Council for Clean Transportation

Mexico SmartWay Rocky Mountain Institute

Vietnam Green Freight Asia SLOCAT

Smart Freight Center

Transport Decarbonization Alliance

Source: McKinnon, 2021.

Increasing vehicle energy efficiency

Governments have many policy instruments at their disposal to improve the fuel efficiency of trucking and rail freight operations. They fall categories similar to those that can be used for other decarbonization levers: regulatory, financial, infrastructural and advisory.

Regulatory: Worldwide, the main regulatory measure applied to raise truck fuel efficiency is the imposition of fuel economy standards for new vehicles for a decade since 2010. As the ICCT observes, "Fuel economy standards are one of the most cost-effective and politically attractive carbon mitigation measures" (ICCT, 2018). Approximately 70 percent of all new trucks sales were subject so such standards in 2020 (International Energy Agency 2020). This proportion is steadily rising while fuel efficiency standards are tightening. Of the small number of LDCs with truck manufacturing industries, only India has so far introduced a fuel economy standard for HDVs. The others, which rely on imports of both new and used vehicles, indirectly benefit from fuel economy standards in the exporting countries. However, in the case of second-hand vehicles, such benefits occur only after a significant time lag and after some degradation of the vehicle's original fuel efficiency. LDCs relying heavily on used-vehicle imports, can accelerate the indirect fuel and carbon savings they derive fuel economy standards elsewhere by restricting the maximum age of these imported vehicles, as several countries already do.

Tightening regulations on vehicle maintenance can also raise the fuel efficiency of existing domestic truck fleets. Tougher enforcement of truck overloading regulations also translates into improved fuel efficiency. South Africa has set a good example to LDCs in implementing a road transport management system (RTMS). This is an industry-led, government-supported, voluntary, self-regulation scheme that encourages consignees, consignors and road transport operators to implement a management system or a set of standards. These standards demonstrate compliance with road traffic regulations and contributes to preserving road infrastructure, improving road safety, and increasing productivity (RTMS 2018). Reduced fuel consumption and carbon emissions are another outcome.

Financial: A phased withdrawal of diesel fuel subsidies and their gradual replacement with taxes put road carriers under greater financial pressure to economize on fuel consumption. It is politically

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challenging in countries where such subsidies are tightly woven into the socioeconomic fabric. This measure can be made more palatable when combined with other financial incentives such as scrappage schemes for older vehicles, financial support for driver training, and vehicle retrofitting with fuel saving devices.

Infrastructural: Investment in the capacity of the road network to ease congestion and improve pavement condition yields truck fuel efficiency as well as a host of other benefits. Efforts can also be made to improve the management of traffic flow to allow trucks to operate at more fuel-efficient speeds. For example, advisory programs can promote the rescheduling of deliveries to off-peak periods. Easing of any access restrictions at industrial and logistical premises in the evening or during the night can mitigate local environment impacts.

Advisory: Governments can initiate or support green freight programs to advise shippers and carriers on a range of fuel-economy measures (table 3-1). Such programs have proliferated since 2000, most of them providing online guidance on fuel efficiency. Governments can access this wealth of information, customizing and translating it to local needs. They can play an important role in promoting industry-led green freight initiatives such as the Rango Verde or Green Range, in Argentina (Rodriguez 2017).

Experience has shown, however, that it is difficult to get the relevant messages across to the vast number of small carriers. The road freight sector is highly fragmented in most countries, including LDCs. In Europe, for example, nearly half a million small and medium-sized operators account for more than 90 percent of road freight movement and require much more advice and support with decarbonization efforts (Toelke and McKinnon 2021). The critical importance of engaging these small carriers has also been recognized in some LDCs, such as Mexico (GIZ 2013). This engagement process can be assisted where the procurement of freight services by government agencies and the private sector emphasizes environmental criteria (WBCSD et al. 2019)

Government rail freight policies can also support fuel-saving initiatives. Investment in track upgrades and rolling stock renewal, often motivated mainly by other policy objectives, generally cut fuel and carbon dioxide emissions per ton–kilometer. Rail freight operations already benefit from fuel subsidies or preferential fuel duty rates. On the one hand, this helps keep rail services price competitive and promote modal shift; but on the other, it eases pressure on rail freight operators to improve fuel efficiency. This is an example of a public policy conflict between different freight decarbonization goals.

Switching logistics to lower carbon energy sources

Public policies in support of the logistics decarbonization lever are likely to diverge to a greater extent between LDCs because of national differences in several key parameters.

� Country size, geography, and climate

� Carbon intensity of the electricity supply in the short, medium and long term

� Presence of a truck manufacturing capability

� Sourcing of new and imported vehicles

� Financial state of the trucking industry

� Spatial pattern of freight flow

� Freight modal shift potential

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At one extreme would be a small country, with very low carbon electricity, that is heavily or totally dependent on road freight. Much of its freight is channeled along a few corridors, carried by hauliers earning healthy margins and regularly replacing their vehicles. Such a country, possibly resembling Costa Rica, would be well placed to promote a rapid switch to electrified haulage. It would obtain a substantial reduction in the GHG by so doing.

This would contrast with a large country whose electricity has a high and slowly declining carbon intensity. This country is again heavily road dependent, but with long dispersed freight flows handled by hauliers typically earning low margins and running old vehicles. The decarbonization of such a country’s road freight sector is clearly going to take much longer and so, in the meantime, it would be advisable to focus policy attention on other decarbonization levers, mainly three and four, and explore opportunities for using sustainable biofuels as an interim measure.

Other countries fall between these extremes. Those most favorably disposed to the switch to low carbon trucks would be well advised to reserve judgement on their relative support for particular powertrain technologies. They should learn from the experience of developed countries. The European Commission and the Government of the United Kingdom, for example, are adopting a position of technological neutrality until they see how the new low carbon truck market evolves. The governments of LDCs, however, should guard against a possible flood of used diesel truck exports from developed countries by tightening controls on the import of these vehicles by age and fuel economy standard.

Wherever a country is on the truck decarbonization spectrum, phasing out diesel fuel subsidies or transferring them to greener alternatives will help push the freight sector toward nonfossil power. Biofuel mandates and tax incentives can also be used to promote the use of biofuels in the freight sector, but only those which offer net GHG reductions on a verifiable life cycle basis. Where appropriate, financial incentives can also be used to encourage the purchase of biogas vehicles, the installation of biogas refueling systems, and the development of in situ renewable energy systems using solar or wind power.

Public policy options are more straightforward for LDCs with electrified rail freight networks. Extensions to the electrified network will improve the energy efficiency of rail freight operations and improve its access to decarbonizing electricity. Often, targeted extensions to the electrified network can plug gaps in rail freight routes that permit a switch from diesel to electric haulage across the entire route. Potential carbon savings per kilometer of newly electrified line can therefore be disproportionately high. In LDCs where diesel rail haulage is the norm, little of the network is electrified and the carbon intensity of the electricity relatively low, governments could investigate alternative methods of rail electrification. Such methods would involve batteries and hydrogen fuel-cells which have been researched (SINTEF, 2017) and are being piloted in the US (Luvishis 2021).

3.3 Urban Freight and Logistics Subsector

The decarbonization of urban logistics is crucial to achieving the goals set in the global climate agenda. This is particularly so in emerging and developing countries where urbanization rates are expected to be higher than in the developed world. For instance, India is projected to overtake China as the world’s most populous country by 2027, and by 2050 the population of Sub-Sharan Africa is forecasted to double (United Nations 2019). The urban scene in the developing world is much more complex than in other regions because of problems associated with unplanned areas, inadequate infrastructure, income disparities, slums, transportation informality, and a highly fragmented market, among others. The positive side in this context is that many points of intervention show up. Cities in

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the developing world could adjust solutions based on their requirements and limitations to mitigate carbon emissions as soon as possible.

The analysis, undertaken as an input to this paper, organized the various initiatives reviewed in an impact–effort grid—of carbon emissions abatement potential and ease of implementation—to facilitate the identification of the most promising alternatives for developed, emerging, and developing countries (figure 3-2). The initiatives range in three categories: operational, regulatory, and technological.

Figure 3-2. Impact - Effort grid of decarbonization alternatives.

Source: Fransoo and Mora-Quiñones, 2021.

The initiatives on the efficient frontier are in the regulatory domain, specifically low emission zones (LEZ), off-hour deliveries (OHD), and loading or unloading areas. This suggests that policy makers should determine the scope and frame initiatives that they consider relevant to enforce in highly congested urban spaces. The designation of specific zones, rather than an entire city, can result in more acceptance from the public and businesses. The frame to implement these initiatives could be based on the issues of greatest concern to the residents, like congestion or the health impacts of air contamination. In addition, policies should be introduced incrementally and gradually made more stringent, instead of taking abrupt actions. Policy makers should run campaigns to inform, simplify, and clarify how the regulations work and the expected benefits they will deliver. This implies that the public should be notified about the timing of the enforcement of regulations so they can prepare (C40 Climate Action Planning Programme, 2019; Fransoo et al. 2020).

Urban consolidation centers (UCCs) are among the highest in the impact they deliver. This solution belongs to the operational category and can increase the average load factor of freight vehicles substantially. However, most of the UCCs fail in the long run because the high operational costs discourage users. Subsequently, UCCs are often subsidized by local or national governments due to the significant benefits that they bring to society and the environment. However, they are typically

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discontinued when subsidies are cut (Dablanc 2007). Therefore, scholars recommend including different stakeholders in their consultations— local authorities, receivers, logistic service providers, suppliers, and others like residents and research centers. This would occur during the developing process of a UCC and exploring alternative business models with these stakeholders. At this stage, the success of business models for UCCs is not evident.

In addition, the concept of UCCs could be adapted for developing countries with the milk-run model. In this model single trucks stop by the multiple facilities to consolidate goods for individual points of delivery. It yields to a reduction of the number of freight vehicles circulating in the city, thus abating carbon emissions. In theory, this model is straightforward to visualize, but in practice this also implies collaboration among multiple stakeholders, increasing the level of complexity to implement the solution.

Another initiative that has a high carbon emissions abatement potential is urban freight electrification. This technological alternative yields a reduction of roughly 45 percent in carbon emissions for urban logistics (Yong et al. 2018). Replacing entire internal combustion engine fleets for electric freight vehicles requires a significant investment, becoming the main barrier towards its adoption, particularly in poor countries. The lower level of complexity in the vehicle technology however could enable local manufacturing, especially for light electric vehicles. This could serve as a competitive advantage for developing countries.

In developed countries, local authorities can grant subsidies to companies to replace their ICE vehicles for EFVs. Nonetheless, we consider it unlikely that developing countries would grant this type of aid. Nongovernmental, intergovernmental, or multilateral organizations could support such initiatives by providing technical assistance and funding. One potential drawback about this initiative is that in regions with rigorous decarbonization measures like Europe, used ICE vehicles from multinational companies are sent to the developing world where they have a presence and where regulations are more relaxed or have not even been enforced. Therefore, we recommend scrapping retired vehicles to prevent them being circulated to other markets.

Cargo bikes and pick-up points are two operational initiatives that require low effort in the ease of implementation. Cargo bikes have been used for decades for different applications, such as mail and parcel delivery. These vehicles are affordable and could be easily customized to the needs of logistic service providers and customers, ranging from the traditional short john to the three-wheel or four-wheel cargo models. In developing countries, policy makers could foster regulations to encourage the use of cargo bikes and other related initiatives. Cargo bikes are an excellent fit for narrow streets, LEZ or for areas that have been closed to car traffic.

However, the low payload and short operational range of cargo bikes limits this solution to certain niches. The latter implies having a microdepot close to the areas where cargo bikes perform last-mile deliveries. It could also deploy a mobile warehouse to transload cargo from larger vehicles such as vessels, trucks, or vans to cargo bikes. To illustrate, we show five examples of modal shift for 60 tonnes of cargo (figure 3-3). In the first row, one vessel transports 60 tons of freight inbound and then transships the cargo to 1200 cargo bikes for outbound delivery. Similarly, we show in the second row how the freight of three large trucks, each one hauling 20 tons, can be transshipped to 30 vans through a UCC.

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Figure 3-3. Modal shift for urban logistics.

# Inbound ðð Initiative ðð Outbound #

1 VesselInland Waterway Transport

(IWT)Cargo bike 1200

3 Large truckUrban Consolidation Centers

(UCC)Van 30

3 Large truck Urban Rail Tram 1

30 Truck/Van Loading/Unloading Areas On foot 30

3 Large truck Drones Drone 12000

Source: Fransoo and Mora-Quiñones, 2021.

The case of Amazon’s “I have space” (IHS) program in India is an outstanding example of how a company has a thorough understanding of the conditions of developing economies. Amazon has leveraged the presence of thousands of nanostores in high congested urban areas as pick-up points. The program incentivizes shopkeepers by compensating them for conducting last-mile deliveries, taking advantage of their space availability, time, and knowledge about their neighborhoods. Thus, this initiative yields positive environmental and social impacts.

Other initiatives, like urban rail, IWT, MUL, and drones require significant investments, geography conditions, technology, and collaboration among multiple stakeholders to be successfully deployed in large scale and sustainable in the long run. These initiatives would only deserve attention if the local infrastructure were ready. For instance, because of underutilized rail networks in cities with extensive public transportation network, waterways are used extensively for freight, such as is usually the case in delta cities.

While these initiatives focus on optimizing the flow of goods, consumer behavior plays a significant role in lowering pressure on an already stressed logistics sector. Customers can be incentivized to wait longer for their home deliveries. This facilitates companies to consolidate orders and ship them more efficiently. For instance, researchers conducted a study with real data from the largest retailer in Mexico. They found that having up to four days for deliveries leads to 57 percent savings in distance, 61 percent in total costs and 56 percent in fuel consumption, thus yielding a significant reduction in carbon emissions (Muñoz-Villamizar et al. 2020). In their research, also known as the “Green Button Project”, they demonstrated that consumers’ behavior can be influenced by providing information about the environmental footprint of the shipping option selected for their home delivery.

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Notes

1. Intergovernmental Panel on Climate Change (IPCC). 2021. Sixth Assessment Report. Climate Change 2021: The Physical Science Basis. https://www.ipcc.ch/report/ar6/wg1/#FullReport

2. Englert, D; Losos, A; Raucci, C; Smith, T. 2021. The Potential of Zero-Carbon Bunker Fuels in Developing Countries. World Bank, Washington, DC. © World Bank

3. World Bank. 2021, forthcoming). Energy efficiency in shipping (working title).

4. Lloyd´s Register (LR) and UMAS. 2020. Techno-economic assessment of zero-carbon fuels.

5. Reference to MSI/Solomon Islands submission

6. European Commission. 'Proposal for Directive Of The European Parliament And Of The Council amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union, Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme and Regulation (EU) 2015/757'. COM (2021) 551 final. Available at: https://eur-lex.europa.eu/resource.html?uri=cellar:618e6837-eec6-11eb-a71c-01aa75ed71a1.0001.02/DOC_1&format=PDF

7. https://www.congress.gov/bill/116th-congress/house-bill/8632/text

8. https://splash247.com/china-looks-at-adding-shipping-to-the-worlds-largest-emissions-trading-scheme/

9. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/experts- explain-why-green-hydrogen-costs-have-fallen-and-will-keep-falling-63037203

10. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/experts-explain- why-green-hydrogen-costs-have-fallen-and-will-keep-falling-63037203

11. European Commission. 2020. A hydrogen strategy for a climate-neutral Europe. https://ec.europa.eu/energy/sites/ener/files/hydrogen_strategy.pdf

12. Oxford University. 2021. Zero-Emissions Shipping: Contracts-for-difference as incentives for the decar-bonisation of international shipping.

13. UK Department for Transport. 2019. Clean Maritime Plan. Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/815664/clean-maritime-plan.pdf

14. Global Maritime Forum (GMF). 2020. The scale of investment needed to decarbonize international ship-ping. Getting to Zero Coalition Insight Series. https://www.globalmaritimeforum.org/content/2020/01/Getting-to-Zero-Coalition_Insightbrief_Scale-of-investment.pdf

15. Based on CO2e estimates from International Maritime Organization (IMO). 2020. Fourth IMO GHG Study 2020. Carbon price of USD 100/ton is the only proposed figure in IMO submissions. Marshall Islands and Solomon Islands. (2021). Reduction of GHG Emissions from Ships: Proposal for IMO to establish a universal mandatory greenhouse gas levy. MEPC 76/7/12.

16. Climate Policy Initiative. Updated view on the Global Landscape of Climate Finance 2019. https://www.climatepolicyinitiative.org/publication/updated-view-on-the-global-landscape-of-climate-finance-2019/#:~:text=Updated%20View%20on%20the%20Global%20Landscape%20of%20Climate%20Finance%202019,-Rob%20Macquarie%2C%20Baysa&text=The%20Landscape%20aims%20to%20comprehensively,climate%20mitigation%20and%20adaptation%20actions.

17. Cabotage is the movement of a domestic load by a foreign-registered carrier.

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Bove, A., Hartmann, O., Stokenberga, A. and Vesin, V. 2018. West and Central Africa: Trucking Competitiveness. SSATP, Africa Transport Policy Program.

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Dablanc, L. 2007. Goods transport in large European cities: Difficult to organize, difficult to modernize. Transportation Research Part A: Policy and Practice, 41(3), 280–85.

EU Innovation and Networks Executive Agency. 2020. Marco Polo II: 2007 2013 : final report. EU Publications Office. https://data.europa.eu/doi/10.2840/024488

European Commission. 2021. Infrastructure - TEN-T - Connecting Europe: Corridor Studies. https://bit.ly/3hG6jaN

Fransoo, J., Cedillo-Campos, M., and Gamez-Perez, K. 2020. Estimating the benefits of dedicated unloading bays by field experimentation. SSRN Electronic Journal. doi: 10.2139/ssrn.3768028

Gota, S. 2018. Northern Corridor: Sustainability Study. UNCTAD, Geneva.

Gomez, J. and Vassallo, J.M. 2020. Has heavy vehicle tolling in Europe been effective in reducing road freight transport and promoting modal shift? Transportation, 47.

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Havenga, J., Simpson, Z., and de bod, A. 2014. South Africa’s freight rail reform: A demand-driven perspective. Journal of Transport and Supply Chain Management, 8.

ICCT. 2018. Overview of Global Fuel Economy Policies. International Council for Clean Transportation, Washington DC.

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Muñoz-Villamizar, A., Velázquez-Martínez, J. C., Mejía-Argueta, C., and Gámez-Pérez, K. 2021. The impact of shipment consolidation strategies for green home delivery: a case study in a Mexican retail company. International Journal of Production Research, 1–18.

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4. The Way Forward

Decarbonization of the freight and logistics sector requires immediate, compelling action by international, national, and municipal policy makers.

This discussion paper has examined the challenges of decarbonizing logistics in the maritime, interurban and urban freight and logistics subsectors, with an emphasis on implications and lessons for the LDCs. The discussion presented different carbon-reducing measures using decarbonization levers, and considered how they may possibly be adapted to the particular needs and circumstances of the different subsectors and in the countries themselves.

Such a broad overview of the subject obviously has its limitations. The distinction between the developed and developing worlds is inevitably crude as on both sides of this artificial divide, and countries vary enormously in their levels of economic and logistical development. Generalizing about LDCs is always particularly difficult given their geographical, economic, and political heterogeneity. Out of this exercise, however, some key messages have emerged that should be of value to policy makers, managers, and researchers. This concluding chapter offers some final thoughts on the way forward. It summarizes the key recommendations as input into the policy discussions globally, regionally, and at a national level.

4.1 The Maritime Subsector

Zero carbon investment decisions are urgently needed to ensure shipping fully decarbonizes in line with the Paris Agreement temperature goals. Shipping assets have a long lifespan of approximately 20–30 years, therefore investment decisions made today on shipping’s decarbonization will have long-lasting impacts until 2050. The decisions and steps required to decarbonize this sector are fully known. Yet the question remains on how to accelerate the uptake of the necessary energy efficiency measures and zero carbon bunker fuels while ensuring that sufficient financing for these measures is available.

Ambitious regulators are encouraged to use a portfolio of measures to support the maritime transport sector in its decarbonization transition through maximum energy efficiency. They can adopt command and control policies along with price-based policies at the national and regional level. Ambitious regulators can address existing energy efficiency market barriers and failures from multiple angles. Furthermore, carbon pricing policies can also be harnessed to close the competitiveness gap between traditional fossil fuels and zero carbon bunker fuels. Together, these measures can be used to inform, enhance, and accelerate the policy making process at the IMO.

Public sector actors can support first movers to accelerate the commercialization of zero carbon bunker fuels. Adopting zero carbon bunker fuels is an essential but risky move. This risk can be reduced if public sector actors support first movers to put the first pilot and demonstrator projects in action. Without this support, the five percent zero carbon bunker fuel target will not be achieved by 2030, thereby limiting the sector’s ability to reach the targets of both the Paris Agreement and IMO Initial GHG Strategy.1

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Finance and multisector cooperation is essential for the maritime transport sector to fully decarbonize. It is estimated that decarbonizing the maritime transport sector will require in excess of US$1 trillion and the cooperation of multiple sectors across the world.2 In this context, carbon pricing can play an important enabling role to not only reduce GHG emissions from shipping but also to raise revenues to feed back into the public or private sector, and potentially offset the impacts of climate change and the wider development challenges of the LDCs.

4.2 The Interurban Freight and Logistics Subsector

The main growth of carbon dioxide emissions from domestic freight transport over the next three decades is forecast to be in non-OECD countries (International Transport Forum 2019a). It is imperative therefore that these countries try to contain, arrest, and eventually reverse the growth in these emissions. The paper discusses how they might do this, maximizing the decarbonization leverage they get from a broad range of trends and initiatives.

For many LDCs, freight modal shift, optimized vehicle loading, and increases in fuel efficiency—levers 2, 3 and 4 respectively—offer the greatest potential leverage. These levers require radical action to build intermodality into company supply chains, curb truck overloading, phase out fuel subsidies, rejuvenate truck and locomotive fleets, and get the logistics workforce to adopt energy-efficient practices, for instance. Within these three categories of initiative are many measures with relatively low or negative carbon mitigation costs that can be implemented in the short to medium term.

Constraining the growth of freight demand, which is lever 1, is a more difficult and risky option to pursue in countries at an earlier stage in their economic development. LDCs can avoid locking themselves into transport- and carbon-intensive macrologistics systems as many developed countries have done. LDCs, for example, can exploit trends in digitalization, which are currently giving businesses greater flexibility to configure their logistics systems in ways that reduce carbon emissions.

The shift from fossil to renewable energy, which is to apply lever 5, will ultimately deliver the deepest carbon reductions. It also presents challenges for many LDCs, given their heavy reliance on imported trucks, underfunded trucking industries, and relatively carbon-intensive electricity. Here too, however, LDCs have a potential advantage, for instance, in the microgeneration of solar energy from the vast photovoltaic footprint of warehouses, factories, freight terminals and trailers.

LDCs can benefit from the transfer of advice, good practice case studies, and training in sustainable logistics from developed countries. Much of this is already being channeled through global, regional, and national green freight programs to managers and policy makers in LDCs (Climate & Clean Air Coalition 2015; Hernandez and Façanha 2017). Recent research in Nigeria (Orji et al. 2019) on barriers to the adoption of eco-innovations in logistics highlights the need for such advisory services. Large logistics providers, freight forwarders and shippers with global operations can also play an important a role in both disseminating information about decarbonization and procuring freight transport services in ways that incentivize local carriers to cut emissions. Another encouraging trend has been the creation of regional alliances to promote the decarbonization of transport, which focus much of their attention on freight and logistics (Bakker et al. 2017). These multinational initiatives, among other things, create new opportunities for freight modal split, improved truck utilization on crossborder routes, and joint initiatives on the supply of low carbon fuels.

This discussion paper outlined a series of public policy interventions for each of the decarbonization levers. Table 4-1 consolidates them into a logistics decarbonization toolkit, indicating their likely

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impact on each of the levers. It presents a large and diverse range of tools available, and demonstrates that the same policy instrument can exert pressure on several decarbonization levers, not always in the right direction. Limited research backs the effectiveness of these policy tools in different LDC settings. As experience and knowledge builds on this subject, governments of LDCs will be able to take a more active and targeted role in the logistics decarbonization process.

Table 4-1: Range of public policy initiatives and impacts on five logistics decarbonization levers.

Source: Mckinnon, 2021.Note: Blank cells reflect the lack of applicability of the instrument under that lever.

4.3 The Urban Freight and Logistics Subsector

This discussion paper also outlined a series of public policy interventions using the decarbonization lever typology for urban freight and logistics with a large and diverse range of tools available. During recent decades, researchers have studied several initiatives theoretically and practically about decarbonizing urban logistics. Some of them focused on improving asset utilization like urban consolidation centers and pick-up points. Others aim at shifting freight to low carbon transportation modes such as urban freight electrification and cargo bikes. Some other initiatives are in the domain of policies and regulations such as the low emission zones, off-hour deliveries, or loading or unloading areas.

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The earlier discussion illustrates clearly of ample potential to implement measures that reduce urban logistics carbon emissions in LDCs, while also reducing congestion and improving air quality. As exemplified throughout this discussion paper, any measure would need to be tailored to the local opportunities. A common template of action is neither recommended nor feasible. Mexico City is different from Bangkok, and learnings from Chongqing may not apply much to Lagos. Therefore, having a fundamental understanding of the various interventions, and relating this to the specific geography, economy, governance, and logistics characteristics of a city is critical to evaluating the success of governmental policies.

For instance, creating loading and unloading zones in narrow streets might be difficult, but a city like Lima in Peru has created such zones in private parking lots that were previously used for passenger vehicles. From the parking lots, a dense logistics operation uses handcarts to supply thousands of stores in the immediate neighborhood. It would appear that regulatory measures yield higher carbon emissions abatement potential with higher ease of implementation. However, the operational and technological initiatives are more constrained at this time, and critical stakeholders should work more in this direction.

In addition, the wide deployment of smartphones in most developing countries can play an accelerating role in implementing changes in public spaces and in logistics operations. For instance, loading bays can be surveyed using mobile phone cameras, or bike couriers can receive delivery instructions via their cell phone. The fragmentation in logistics that is present across much of the developing world can then be leveraged as a strength in transitioning toward a low carbon economy.

4.4 Specific Recommendations

In conclusion, this section offers a stylized summary of the key actions for the municipal, national, and international stakeholders to make a substantive step in their respective decarbonization journeys.

At the Country Level:

Reduce the demand for freight transport or moderate or arrest its growth: Through decoupling the growth of ton–kilometers from economic growth, it pays to be cognizant of the need to ensure green, resilient, inclusive development.

i. Improve transport planning to encourage greater efficiency in using existing networks.

ii. Introduce price signals to make better use of available infrastructure capacity, enhanced where necessary.

iii. Improve the regulatory framework to encourage greater efficiency of freight operations such as urban consolidation centers, low emission zones (LEZs), off-hour deliveries (OHDs), and use of cargo bikes.

Shift freight, where possible and economically justified, to the lower carbon transport modes of rail, and inland water transport:

i. Introduce policies to encourage intermodality— from ship to rail, road to rail, road to smaller load carriers—to facilitate the shift to cleaner, lower carbon modes, including improving the performance of state-owned enterprises (SOEs).

ii. Introduce pricing signals to encourage intermodality and modal switch by removing any subsidy. Also ensure that the price users face reflects the full marginal social cost—including

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the cost of air quality, decreased carbon dioxide emissions, and reducing traffic-related fatalities—of their choice of mode.

Optimize freight loading:

i. Seek to reduce empty running of trucks on the back haul through supporting the development of logistic platforms to convey information on available loads.

ii. Remove regulations that prohibit domestic and international trucks from collecting loads on the backhaul or cabotage, which means many run empty back to the main port.

iii. Improve utilization of existing capacity through better enforcement of overloading, reducing damage to the infrastructure, safety risks, and emissions.

iv. Support the piloting of urban consolidation centers, low emission zones (LEZs), off-hour deliveries (OHDs), multiuse lanes (MULs), and pick-up points.

Increase vessel, vehicle and locomotive and rolling stock energy efficiency:

i. Adopt a progressive tightening of regulation, voluntary action, fuel standards and prices —inclusive of negative externalities—to send clear signals to improve fuel efficiency on all modes.

ii. Address or remove market barriers of hidden costs, access to and costs of capital, and market failures such as split incentives, asymmetric or imperfect information, which prevent the large-scale exploitation of cost-effective and energy efficiency potential.

iii. Adopt a progressive tightening of vehicle standards to send clear signals to markets to improve fuel efficiency for imported and new vehicles and rolling stock.

iv. Improve asset management and ensure adequate maintenance of the publicly provided infrastructure of road and rail.

v. Require haulage firms and railways to ensure their drivers receive eco-driver training and appropriate monitoring.

vi. Facilitate the cooperation among shipping stakeholders where such cooperation is required to exploit energy efficiency potential. For instance new contractual agreements can share the benefits from increased energy efficiency between ship owners and charterers or ships and ports.

Switch vessels, vehicles, locomotives and rolling stock to lower carbon energy sources:

i. Support the sector’s energy transition by electrifying freight transport with renewable electricity, where possible. Facilitate urgently needed pilot and demonstrator projects for the production and use of green fuels, where appropriate climatically and physically.

For the international community:

Support the commitment to decarbonize the maritime sector by 2050:

i. Support the International Maritime Organization’s (IMO) 2018 strategy, to reduce the reduce absolute greenhouse gas (GHG) emissions from ships by at least 50 percent by 2050.

ii. Provide support to strengthen the IMO’s initial target to reduce absolute greenhouse gas (GHG) emissions from ships to 100 percent or net zero by 2050.

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iii. Agree to collective public policy measures that improve the energy efficiency of shipping through a combination of pricing-based mechanisms, regulation, and voluntary standards.

iv. Support collective action to introduce market-based measures to close the competitiveness gap between fossil fuels and green fuels. Allow the use of carbon revenues raised to incentivize changes in sector— in vessels and on land—and also specifically support LDC countries, which may suffer from disproportionately negative impacts because of the decarbonization initiatives in the sector. Contribute to the attainment of LDCs wider development goals.

Support LDCs with technical assistance and investments:

i. Conduct diagnostic studies of the potential for green fuel production and use, and decarbonization options.

ii. Support the piloting of initiatives to decarbonize the freight and logistics sector at the different levels.

iii. Support development of the institutional framework for the introduction of policies, regulations, and market mechanisms.

iv. Provide grant financing—through mechanisms like the Global Facility to Decarbonize Transport—to allow piloting and scaling of pilot or larger investments in the freight and logistics sector, whether on land or sea.

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Notes

1. Global Maritime Forum (GMF). 2021. Five percent zero emission fuels by 2030 needed for Paris-aligned ship-ping decarbonization. https://www.globalmaritimeforum.org/content/2021/03/Getting-to-Zero-Coalition_ Five-percent-zero-emission-fuels-by-2030.pdf

2. Global Maritime Forum (GMF). 2020. The scale of investment needed to decarbonize international ship-ping. Getting to Zero Coalition Insight Series. https://www.globalmaritimeforum.org/content/2020/01/Getting-to-Zero-Coalition_Insight-brief_Scale-of-investment.pdf.

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TRANSPORT DECARBONIZATION INVESTMENT