A summary of the Powering the Drive to Net Zero report by the Coalition for the Decarbonisation of Road Transport (CDRT)
In 2021, the global automotive manufacturing market was $2.7 trillion. Dominated by internal combustion engine (ICE) vehicles, it produces almost a quarter of global energy-related CO2 emissions. To achieve the goals of the Paris agreement, the sector needs to transition to manufacturing zero-emission vehicles.
The International Energy Agency describe lithium-ion batteries as “the key technology for electrifying transport”. However, other technologies such as hydrogen could have a role in decarbonising transport. Especially in hard to abate sectors such as heavy-duty transport, shipping or aviation.
The CDRT has been exploring the barriers to scaling up the UK’s battery supply chain. And it has identified seven demonstrator solutions with the potential to mobilise finance at the pace and scale needed. Four are ‘financial’ and three are ‘enabling’.
Financial Solutions
- Battery Investment Facility – to bring together public and private capital to unlock investment into critical companies in the battery supply chain
- Sustainable Import Guarantee – a new financial instrument to incentivise sustainable supply chains, specifically through trade finance
- Offtake Support Mechanism – offtake agreements are an important tool in providing supply chain stability within a new supply chain
- Battery value guarantee – a mechanism for a battery within an EV to have a guaranteed end-of-life value and owner
Enabling Solutions
- Investor Showcase – a knowledge hub to connect businesses seeking investment to knowledgeable investors looking for investment opportunities
- Battery passport (UK) – a scheme to keep a record of an individual battery’s constituent parts and ensure transparency through the supply chain
- Lenders’ Handbook – a practical guide to help potential investors understand the key battery technologies, current and under development
Conclusions
Only the private sector can provide finance at the pace and scale needed to enable the transition to cleaner road transport. Yet, organisations across the battery supply chain find it hard to secure the funding needed to scale up. Battery developments are often considered high risk.
Banks and institutional investors are cautious about investing in an emerging sector. Mainly when future revenues are not certain and offtake agreements to buy batteries have yet to be signed. This means developers have to bridge a funding gap as they seek to scale up.
Innovative financial solutions including de-risking mechanisms such as guarantees, along with supportive government policies, are essential to unlock the larger sums of capital needed to build battery supply chains.
To learn more about the coalition established by the Green Finance Institute, supported by HM Treasury:
Coalition for the Decarbonisation of Road Transport
(We are a member of the CDRT.)
