FUture prospects on TRansport evolution and innovation challenges for the competitiveness of Europe ISBN:

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1 xxxxxxxxxxxxxxxxxxxxxxx FUture prospects on TRansport evolution and innovation challenges for the competitiveness of Europe ISBN:

2 PROJECT INFORMATION Title: FUture prospects on TRansport evolution and innovation challenges for the competitiveness of Europe Acronym: FUTRE Grant Agreement no: Programme: 7th Framework Programme Funding Scheme: Support Action Start date: 1st October 2012 Duration: 24 months FOREWORD AUTHORS: Authors (alphabetical order): Aggelos AGGELAKAKIS (CERTH/HIT), João BERNARDINO (TIS), Maria BOILE (CERTH/HIT), Panagiotis CHRISTIDIS (IPTS) Ana CONDEÇO (IPTS), Michael KRAIL (ISI), Anestis PAPANIKOLAOU (CERTH/HIT), Max REICHENBACH (ITAS), Jens SCHIPPL (ITAS), João Vieira (TIS) Date of Publication: September 2014 PROJECT PARTNERS CERTH/HIT, Centre for Research and Technology Hellas, Hellenic Institute of Transport Fraunhofer-ISI,Institute Systems and Innovation Research TIS, Consultores em Transportes, Inovacao e Sistemas, S.A. Karlsruhe Institute of Technology (KIT) Institute for Technology Assessment and System Analysis (ITAS) Joint Research Centre, Institute for Prospective Technological Studies (IPTS) Spain (HQ) Greece Germany Portugal Germany Belgium Acknowledgement The research leading to these results has received funding from the European Union Seventh Framework Programme FP7/ Specific programme Cooperation Research theme: Transport under grant agreement No FUTRE. EDITING SUPPORT This publication is based on the outcomes of the FUTRE project, a Support Action funded by the European Commission through the 7th Framework Programme. The publication presents the future challenges, demand drivers and upcoming innovations, which can have a considerable impact on the global demand patterns for the passenger and freight transport, and how these might affect the competitiveness of the related industries and service providers. This work aims to bridge the gap between manifold studies on the future of the European transport system and the issue of competitiveness, which needs to be supported through targeted research strategies. FUTRE investigated the challenges of the European transport sector in the long term, to develop the strategic options for European transport research policy. The five main objectives of the project are: n Develop a better understanding of the present competitiveness of the European transport sector. n Provide an assessment of external factors influencing future demand patterns. n Assess potential impacts of upcoming innovations. n Analyze scenarios to identify plausible future challenges to competitiveness. n Develop options for European research strategies. We hope that the readers will find this publication interesting and useful to their work. We believe that the Deliverables of the project, available through: provide useful guidance material for the scientific society, to recognize and evaluate the future prospects of the transport sector.

3 CONTENTS EXPERTS CONSULTED DURING THIS STUDY We wish to thank the following experts who provided important input and significant insights to this project. We relieve them of any liability for its weaknesses, for which we remain fully responsible. 5 Experts Consulted during this study 5 List of figures and tables 6 Table of acronyms 7 Introduction 9 The European innovation systems and the current state of competitiveness of the EU transport sector 13 Measuring Innovation 15 Competitiveness 16 Methodology 17 Key findings on the competitiveness of the EU transport industry 18 Future demand patterns 19 Upcoming innovations 31 Technological Breakthroughs 33 Crucial Constraints and Barriers 34 Impacts on transport systems and competitiveness 34 Scenario analysis and challenges 35 Unlimited scenario 40 Passivity & Collapse Scenario 41 Responsible growth scenario 42 Strategic research policy options 43 Reaction to different scenarios 46 Recommendations for a Future R&D Strategy 53 Further Steps for the EU R&D Policy 56 References 59 Name Affiliation 1. Xavier Aertsens ETP ERTRAC 2. Elena Angiolini Brussels Enterprise Agency 3. David Banister University of Oxford, Transport Studies Unit 4. Paul Bews BNV Mobility 5. Robbert Casier Vlaamse Jeugdraad, Youth Climate Representative 6. Mara Cole Bauhaus Luftfahrt e.v. 7. Michael Decker KIT ITAS 8. Markus Edelmann KIT ITAS 9. José Costa Faria DHL, Vice President Business Development Southern Europe 10. Torsten Fleischer KIT ITAS 11. Ann Frye Ann Frye Limited 12. Caralampo Focas University of Oxford 13. Hugo Garcia Futures Lab 14. Michael Glotz-Richter City of Bremen 15. Reinhard Heil KIT ITAS 16. Daniel Hausknost Institute of Social Ecology, University of Klagenfurt 17. Dave Horton Sociologist, specialist in cycling 18. Jonathan Köhler Fraunhofer ISI 19. André Kühn Fraunhofer ISI 20. Angelo Martino TRT Trasporti e Territorio, Milan/Brussels 21. Massimo Moraglio T.U. Berlin 22. Linda Nierling Institute for Technology Assessment and Systems Analysis 23. Anja Peters Fraunhofer ISI 24. Maike Puhe KIT ITAS 25. Joko Purwanto Transport & Mobility Leuven 26. Prof. Werner Rothengatter KIT Institute for Economic Policy Research 27. Zissis Samaras Aristotle University 28. Filipe Duarte Santos Lisbon University 29. Claus Seibt Wuppertal Institute for Climate, Environment and Energy 30. Florian Senger Fraunhofer ISI 32. Elisabeth Shove University of Lancaster 33. Pelopidas Siskos E3MLAB/NTUA 33. Fernando Navarro Sordo CETM - Spanish Confederation for Freight Transport 34. Claudia de Stasio TRT 35. Elena Tavlaki Signosis 36. Sotiris Theofanis Rutgers / CAIT 37. José Manuel Viegas International Transport Forum 38. Thomas Wakeman Stevens Institute of Technology 39. Saskia Ziemann KIT ITAS

4 6 7 Table of acronyms LIST OF FIGURES & TABLES Tables Table 1: Key factors of evolution of transport demand Table 2: Overall challenges for passenger & freight transport...28, 29 Table 3: Identification of innovation fields and technologies Table 4: Key elements of the scenarios Table 5: Opportunities and barriers for the competitiveness of the European transport sector in each scenario Table 6: The competitiveness prospects of European transport sector under each FUTRE scenario Table 7: EU Transport Policy measures for the Unlimited Scenario...46, 47 Table 8: EU Transport Policy Measures for the Passivity Scenario...48, 49 Table 9: EU Transport Policy Measures for the Responsible Growth Scenario... 50, 51,52 Table 10: Innovation fields with higher need for public R&D support Figures Figure 1: Structure of the publication...11 Figure 2: Correlation between innovation and competitiveness...14 Figure 3: Schematic Overview of the Methodology Figure 4: Identification of long-term perspective on the demand side Figure 5: Causal loop diagram of key factors Figure 6: Unlimited scenario characteristics Figure 7: Passivity & collapse scenario characteristics Figure 8: Responsible growth scenario characteristics Figure 9: Identification of long-term perspective on the global supply side Figure 10: EU27 passenger transport -pkm and modal share in Figure 11: EU27 freight transport -tkm and modal share in Figure 12: Indicators selected for the analysis of competitiveness of the European transport sector ASTRA BERD BEV BRICS CEC CIS CO2 CNG REF E85 ERA ETP EU EV FCEV FP7 GBAORD GDP GERD-GOV H2 ICE ICT ITS IWW JTI LNG NFC OEM PPP P2P R&D RFID SME STEEP TRANS-TOOLS UK US V2I V2V V2X Assessment of Transport Strategies Business Expenditure on R&D Battery electric vehicle Brazil, Russia, India, China, and South Africa Commission of the European Communities Community Innovation Survey Carbon dioxide Compressed Natural Gas Reference Scenario Ethanol fuel blend of 85% denatured ethanol fuel European Research Area European Technology Platform European Union Electric Vehicle Fuel Cell Electric Vehicle Seventh Framework Programme of the EU for research and development Government budget appropriations or outlays for R&D Gross domestic product Gross domestic expenditure on R-D by the Government sector Hydrogen Internal Combustion Engine Information And Communication Technologies Intelligent Transport Systems Inland Water Ways Joint Technology Initiatives Liquefied Natural Gas Near Field Communication Original Equipment Manufacturer Public Private Partnership Peer-to-peer Research and Development Radio Frequency Identification Small and Medium Enterprise Social, Technological, Economical, Environmental and Political factors TOOLS for TRansport forecasting ANd Scenario testing United Kingdom United States Vehicle-To-Infrastructure Vehicle-To-Vehicle Vehicle to X

5 xxxxxxxxxxxxxxxxxxxxxxx 9 1 Introduction

6 10 Introduction Introduction 11 The transport sector plays a fundamental role in the European economy. The quality and efficiency of transport services have a direct impact on economic growth, competitiveness and quality of life. It is widely acknowledged that innovations and targeted research activities are key factors for fostering global competitiveness of the transport sector. Innovation and related research agendas are targeted on future challenges, market drivers and technologies that will become effective in the future. Therefore, the design of research agendas needs to take into account potential future developments and challenges. A long-term perspective in the transport sector is crucial, due to the implications of present decisions on future performance and the nature of investments, such as transport infrastructure, that require forward planning and decisionmaking based on future requirements. In a communication on a sustainable future transport system the European Commission clearly emphasized that because of the complexity and inertia of the transport system, any intervention on the transport sector must be based on a long-term vision for the sustainable mobility of people and goods, not least because policies of structural character take long to implement and must be planned well in advance 1. Furthermore, it is important for the EU to identify and assess its competitive advantages and examine how it positions itself in order to maintain and even enhance existing strengths in the future. Similar to other sectors in the European economy, the transport sector has to compete on an international scale. It is widely acknowledged that ambitious targets from the 2011 white paper (COM, 2011), environmental and social objectives as well as global competitiveness can only be successfully achieved by a highly innovative transport sector which is able to cope with rather different future developments on global scale: Transport is a high-technology industry, making research and innovation crucial to its further development and conducive to European competitiveness, environmental and social agendas 2. Fostering innovations is playing a key role for improving the global competitiveness of knowledge based societies. Therefore, it is not astonishing that targeted research activities for strengthening the global competitiveness of the European Union is a clear goal of European transport and research policies and a key pillar for economic growth and quality of life in European countries (CEC, 2011a). The Commission s work Programme 2012 for Theme 7, Transport, clearly takes on the objectives of Europe 2020 Flagship Initiative on the Innovation Union by starting with the sentence: The Innovation Union initiative underlines that research and innovation are key drivers of competitiveness, jobs, sustainable growth and social progress 2. The European transport sector faces several challenges for which innovation may play an important role. The current economic downturn imposes a reduction of transport demand thus increasing the costs incurred by companies. Innovations that improve the cost efficiency and productivity of the transport sector may reduce the impact of the current economic situation. In terms of environmental challenges, national and international regulations such as the reduction of the transport sector s emissions have created potential markets to green innovations, such as electric vehicles. On the other hand the increasing number of population living in urban areas constitutes a challenge for the transportation system organisation and mobility management innovations. Against this background, this publication presents an assessment of the effects of future challenges, demand drivers and upcoming innovations, which have a considerable impact on the global demand patterns in the passenger and freight sector, on the competitiveness of the European transport sector, including related industries and service providers. It aims to bridge the gap between the manifold studies on the future of the European transport system and its subsections, and the issue of competitiveness that needs to be supported by targeted research strategies. Following a structured approach, five key elements are analyzed, each comprising a respective chapter. Figure 1 illustrates the steps that are followed in this publication. Figure 1: Structure of the publication Chapter 2 specifies the concepts of innovation and competitiveness and develops criteria for their assessment. It presents an understanding of the present competitiveness of the European transport sector. Chapter 3 analyzes the future competitiveness of the transport sector from a demand-oriented perspective. The focus is on the demand needs and behaviour, as influenced by related market drivers and external factors of influence. Chapter 4 analyzes the future competitiveness of the transport sector from a supply-oriented perspective, where the focus is on upcoming technological and organisational innovations, on constraints and market barriers related to established and emerging technologies. In Chapter 5, findings from the demand-oriented and the supply-oriented research are merged in scenarios, consisting of qualitative framings complemented by model-based quantification, illustrating the extent to which they are able to fulfil different policy targets for Europe. 1. CEC 2009: A sustainable future for transport. Towards an integrated, technology-led and user-friendly system. Communication of the Commission of the European Communities. DG TREN. 2. CEC 2011b: Work Programme Cooperation. Theme 7. Transport (including aeronautics). Commission of the European Countries C (2011) 5068 of 19 July Chapter 6 elaborates consequences for transport related research and formulates strategic options for the corresponding research programmes, which will help the transport sector to increase its competitiveness in face of different future challenges.

7 xxxxxxxxxxxxxxxxxxxxxxx 2 13 The European innovation systems and the current state of competitiveness of the EU transport sector

8 14 The European innovation systems and the current state of competitiveness of the EU transport sector T he importance of the transport sector in the EU is widely acknowledged in many policy documents since it is considered as an important pillar of economic growth and quality of life for European countries. The White Paper on Transport, which is the main transport policy document for the European Commission, indicates: Transport is fundamental to our economy and society. Mobility is vital for the internal market and for the quality of life of citizens ( ) enables economic growth and job creation ( ) (COM, 2011; 3). Several threats are imposed to transport today and these will probably get tougher in the future (Condeço-Melhorado, et al., 2013): Environmental constraints: the EU has set a target to reduce greenhouse gas emissions by 80-95% below the 1990 levels by 2050 and 60% of this reduction should come from the transport sector; Competition from fast developing world transport markets: the EU companies are world leaders in many transport sectors. However, other countries have launched coordinated and ambitious plans to promote certain transport sectors, causing the EU to loose competitiveness and face the delocalisation of major companies to more competitive markets. Scarcity of resources: the EU transport sector depends on oil and oil products for 96% of its energy needs. Since oil will become scarcer in the future, transport will need to decarbonize in order to avoid oil price increase and deterioration of people s ability to travel. Security of passenger and goods: security threats of any kind have significant economic and social implications. New technologies may assist in developing high-security systems for the future without compromising on the efficiency of transport systems. Congestion: certain transport infrastructures face important delays that represent a barrier to transport and lead to economic loss for companies and citizens. Innovation in the form of new technologies or more efficient use of existing resources will be the key to address those threats without curving mobility. An innovative transport sector will become the pillar to sustain the economic competitiveness of European countries. The close correlation between innovation and competiveness in the transport sector is illustrated in the following figure 2. Figure 2: Correlation between innovation and competitiveness Source: Condeço-Melhorado, et al., 2013 The European innovation systems and the current state of competitiveness of the EU transport sector Measuring Innovation S everal indicators can be used to illustrate the innovation effort made within the transport sector both by the public and the business sector. R&D is the most important innovation input and the longest-standing area of data collection. From the public viewpoint, statistics on Gross Domestic Expenditure performed by the Government sector (GERD-GOV) show the R&D expenditure by the sector for a given year. Another type of indicator is the Government budget appropriations or outlays for R&D (GBAORD), which reflects the government s intention to commit money to R&D. On an EU level, statistics on Structural Funds and FP7 projects are also useful to characterise the innovation efforts in the transport sector. For the business sector, there are several indicators showing the importance devoted to innovation in transport-related companies. The Business Expenditure on R&D (BERD) measures the national R&D expenditure performed by the business sector, while the EU Industrial R&D Scoreboard, contains the R&D expenditure of the most important companies. The Community Innovation Survey offers data on the Innovation Expenditures, which can be further disaggregated into intramural and extramural R&D, acquisition of innovative machinery, equipment and software and other external knowledge. Finally, patents are another important indicator to illustrate the innovativeness of the transport sector. R&D measures have some limitations in representing innovation activities, the most important one being that R&D is only one part of innovation spending. R&D usually accounts for between onehalf to two-thirds of all innovation expenditure while the other part is devoted to tangible and intangible assets (OECD, 2010). In this sense innovation expenditure gives a more complete definition of innovation. The Community Innovation Survey (CIS) collects international measures of innovation outputs at a firm level. It has been conducted for several times since It is undertaken for all firms with 10 or more employees belonging to core sectors defined by the European Commission and includes several innovation related indicators. 15

9 16 The European innovation systems and the current state The European innovation systems and the current state of competitiveness of the EU transport sector of competitiveness of the EU transport sector 17 Competitiveness There are several specific indicators that may be used to assess competitiveness. These indicators include GDP, employment, productivity, market shares, trade balance and turnover. Generally, there are several different definitions of competitiveness. The European Commission refers to competitiveness as the ability of the economy to provide its population with high and rising standards of living and high rates of employment on a sustainable basis (CEC, 2002; 2). Another definition comes from the World Economic Forum, which defines competitiveness as a set of institutions, policies and factors that determine the level of productivity of a country (World Economic Forum, 2012; 4). FUTRE follows the definition provided by Eurostat, considering the competitiveness of the EU transport sector as the comparative advantage or disadvantage of the European transport sector in selling its products in national and international markets, while generating high income and employment levels. Coming out of the Europe 2020 strategy the Flagship initiative An industrial policy for the Globalisation era puts industrial competitiveness at the centre of EU policy. Although not easily measured, there is an implicit relationship between innovation and competitiveness. Competitiveness is a multifaceted concept that can be applied both at micro (e.g. companies) and macro (e.g. countries) level. According to the definition of competitiveness followed in FUTRE, indicators used to measure competitiveness may be categorized into: labour cost and productivity, innovation, output measures and international competition. Labour costs and productivity as well as innovation are factors that determine the comparative advantage or disadvantage of the European transport sector. Labour costs represent an important factor of price competitiveness but it also depends crucially on labour productivity. Innovation on the other side, both private and publicly funded, increases the range of products and their quality, which improves the capacity of selling them in national and international markets. Output measures such as value added, production value or turnover are used to compare performances among transport sub-sectors and among different countries, while international competition is evaluated by looking at world market shares. Market shares reflect the ability of transport sectors and countries to compete in international markets. Methodology 1 For a better understanding of the present innovation and competitiveness of the European transport sector, a methodology based on a bottom-up approach (Wissenthal, et al., 2011), which estimates R&D investments disaggregated by transport subsector is performed. The methodology comprises four steps, as shown in the following figure 3 (Condeço-Melhorado, et al., 2013). At the first step, key industrial players and innovators by transport subsector are identified. Information on the overall R&D investments for the selected companies is then gathered. Both those companies that are exclusively active in the transport sector as well as large companies that have substantial activities in non-transport sectors but direct part of their overall R&D activity towards transport are considered. The individual companies R&D investments by transport sector and subsector are then summed up. The transport subsectors considered in FUTRE include: automotive industry, civil aeronautics/aviation, waterborne, rail, infrastructure construction, transport service providers, intelligent transport systems. The data sources mentioned earlier offer an incomplete picture about R&D investment in the transport sectors defined in FUTRE, for several reasons including the following: their classifications include companies that are not considered as belonging to the transport sector; specific transport sectors are not treated separately; some countries may be missing important data. To minimize such limitations, this bottom-up approach is followed in FUTRE. It is based mainly on data offered by the EU Industrial R&D Investment Scoreboard. Based on this approach and the patent analysis performed, an assessment of global competitiveness of EU transport is performed. The assessment considers the global competitiveness of the EU transport sector by comparing the EU-27 with its main competitors. Analysis is also performed at the Member State level. A detailed overview of the results of this assessment is presented in Condeco- Melhorado, et al. (2013). Figure 3: Schematic Overview of the Mechanism Identification of key players of the transport sector listed in the top 1000 Source: European Industrial R&D Investment Scoreboard; EU Technological Platforms, associations, etc. 2 Total R&D Investment of a company Source: European Industrial R&D Investment Scoreboard; Annual reports; financial reports R&D investment allocated exclusively to transport activities 3 Estimated R&D investment in transport and by mode Source: Annual reports; financial reports; companies website 4 Estimates total R&D investment by transport subsector Source: Condeço-Melhorado, et al., 2013

10 18 The European innovation systems and the current state of competitiveness of the EU transport sector Key findings on the competitiveness of the EU transport industry W ithin the EU two sectors present the highest value added, turnover and production value. These are the Transportation and storage and the Manufacture of motor vehicles, trailers and semi-trailers. The automotive manufacture together with the air industry are characterised as specialized sectors, offering high quality jobs, which is reflected in higher average personnel costs and apparent labour productivity as well as high R&D expenditure. World market shares revealed that these two European sectors are in a good position to compete in international markets as they lead international exports. Across countries, Germany dominates the automotive sector, while France and UK are in a good position regarding the aerospace equipment manufacture. The manufacture of ships and boats are of similar importance (in terms of value added and world market shares) in UK, France, Germany and Italy, while the manufacture of railway and tramway locomotives and rolling stock is dominated by three countries: Germany, France and Spain. Regarding the transport service providers, Germany, France and the United Kingdom have registered the highest profitability. In general, the EU is the world leader in many of the transport sectors analysed, especially in the manufacture of motor vehicles, trailers and semi-trailers and manufacture of railway locomotives and rolling stock. However there is a fierce competition in the manufacture of air and spacecraft and related equipment between the EU and the US, with the US performing better in some of the analysed indicators (e.g. value added). The EU also lost its leading position (share of exports) in the manufacture of ships and boats, which is now dominated by China. Regarding innovation the EU is above R&D expenditures of other regions, in all transport sectors except in the manufacture of air and spacecraft and related machinery which is dominated by the US. The EU is also leading the share of patent applications on mobility-related technologies. However, looking into specific technologies, we found that Japan and Korea are world leaders in the most dynamic technologies: electric motors, battery, and fuel cells while the US ranks particularly well at aviation related technologies. The higher innovation capacity of the EU transport sector is generally in line with selected competitiveness indicators such as higher value added, turnover and market shares. There are still many areas where transport sectors need to improve their international competitiveness. These are mainly in the aviation and in the shipbuilding sector, where the EU is lagging behind the US and China, respectively, for some indicators. Innovation is needed to improve the competitive position of the EU transport sectors, providing more efficient ways of organizing production and increasing the quality and the range of its products. In summary, the transport industry is experiencing a time of change. In most transport modes the European industry has a global competitive position to defend and there is a clear sense that the best way to do so is by investing in research and innovation. In most analysed modes of transport the challenge is twofold: ensure competitiveness of the European industry while reducing the societal impacts, especially environmental. 3 Future demand patterns

11 20 Future demand patterns Future demand patterns T o identify challenges for the EU transport industry in the long-term and understand how its competitiveness will evolve in the future, it is necessary to foresee the evolution of transport demand and how this evolution may impact the preferences for mobility services and products both in the passenger and freight markets. To assess the needs for transport in 2050 we follow a scenario based analysis. Given the high level of uncertainty associated with the long-term prediction, it is useful to consider alternative future worlds. The idea is to draw a space of plausible possibilities in order to define strategies that accommodate different possible paths. More specifically, the method of pathway/scenario building departs from the consideration of possible global demand patterns and trends, and converges to specific needs and importance of attributes on transport systems. n Identification of possible mega-trends with impacts on transport n Identification of key factors of evolution of transport demand n Derivation of specific possible future insights on the world and transport demand n Drawing of possible global pathways with relevance to transport n Identification of possible key issues that affect passenger and freight transport demand n Assessment of derived trends and challenges and evaluation of challenges the EU will face The following figure 4 illustrates the methodological approach of the identification of long-term perspective on the demand side. Figure 4: Identification of long-term perspective on the demand side Source: Reichenbach and Schippl, 2013 Megatrends are stable trends driven by global forces that impact several societal areas. By considering megatrends it is possible to assess how they will influence aspects of transport needs. The following megatrends were selected as the most relevant to transport: 1. Globalization 2. Urbanization 3. Ageing 4. Knowledge society 5. Individualism 6. Migration 7. Connectivity 8. Immediate needs: here & now Slow Movement Empowerment of Women Awareness / consciousness Consumption 2.0 use, not own Ever Young Seeking for experiences Do it yourself 21

12 22Future demand patterns Future demand patterns 23 Based on the megatrends, related insights and the identification of aspects relevant for mobility systems, a set of key factors for the evolution of transport demand was identified. The key factors are related to different spheres of life and where arranged in the areas defined by the STEEP approach: Social, Technological, Economical, Environmental and Political factors. The factors are outlined in the Table 1 below: Table 1: Key factors of evolution of transport demand Social Demography: Population growth Ageing Global migrations Living place flexibility Education and social capital: Level of education Equality of cultural capital Preferences and awareness: Consumerism (VS spiritual needs) Environmental awareness Propensity to own VS share use Social significance of travel choices (status) Value of doing tasks while travelling Rationality of choices Value of safety Value of health Value of free time and leisure More virtual than physical relations / communication Technological Ability to address energy, environmental and ageing challenges by technical developments Economical Economic development: Level of economic growth Economic stability Volume of international trade Economic equality Production and consumption patterns: Share of knowledge based work Purchasing channel paradigms (P2P and e-commerce VS local commerce...) Scale of production: mass VS customised Paid work time reduction Energy: Fossil energy scarcity prices Urban development: Urbanisation Urban density Congestion Environmental (perceived problem of...) Climate change Biodiversity and other environmental issues Local pollution (air, noise) Political Global cooperation on global issues Power of the State Power of the people and civil organizations International conflicts Security concerns Market liberalization Infrastructure development Source: Bernardino, et al., 2013

13 24 Future demand patterns Future demand patterns To develop the global pathways an analysis of interrelations and systemic behaviour of the set of key factors is performed, following a system thinking approach. The development of causal loop diagrams, as shown in Figure 5, allowed presenting the main relations between the factors in question and the direction of those relations. It showed for example, that people preferences are influenced and reinforced by external conditions; consumerism is made possible when there is abundance (economic growth); and environmental awareness is reinforced by the manifestation of environmental problems. In developing scenarios, a short list of the main driving factors is considered. This list is composed of climate change, energy scarcity and price, economic performance, global cooperation and social preferences. The three scenarios are described as follows: 1. Unlimited: This is the scenario where technology is able to solve the crucial environmental and Figure 5: Causal loop diagram of key factors energy problems. Without any constraint on them, current social practises may continue and even follow a path of increased consumerism and thirst for travel. Global economic competition is the most important driver of societies. Main features: Breakthrough technologies for green growth, little poverty, fast-running lives and experientalism, mix of work and private life, mainstream 3D printing Figure 6: Unlimited scenario characteristics Unlimited Legend: arrows follow a System Dynamics notation. + (-) means a positive (negative) effect from the precedent to the pointed variable Source: Bernardino, et al.,

14 26 Future demand patterns Future demand patterns 3. Responsible growth: 2. Passivity and collapse: This scenario describes a world where societies are not able to address the impending environmental and energy problems. Societies ultimately fall economically and politically. There is a collapse of every type (energy, environment, political), with uncertainty and need to adaption in an unstable world. Main features: Climatic and environmental crisis, severe climate change consequences, mass migration and protectionism, unpreparedness and chaotic change. Figure 7: Passivity & collapse scenario characteristics Passivity & collapse In this scenario the prospect of environmental and economic collapse leads people and countries to cooperation, in order to properly manage the global commons in a responsible way. Since the pace in (responsible) innovation is not high enough to cope with the grand challenges, this necessarily involves drawing back the economic output to a level consistent with sustainability. People consume and travel less, driven by various policy incentives concerted at an international level. Sustainability and safety become overriding paradigms (Krail, et al., 2014). Main features: Internalization of external costs, restricted resource use, less resource-intensive restructured economy, sustainability, solidarity, less consuming lifestyles, new social paradigm, responsible and conscious choices. Figure 8: Responsible growth scenario characteristics Responsible growth A special remark to Hugo Garcia (Futures Lab) for his crucial role in the methodology and process leading to the definition of the scenarios. 27

15 28 29 Future demand patterns Future demand patterns The identification of potential challenges for the transport sector was carried out by providing insights of alternative future transport realities. The methodological approach of this identification is based on the correlation between a list of issues, which are expected to affect the process in which the transport system evolves and the main characteristics of each scenario (that were mentioned above). The main issues from the passenger side are: globalization, growth in passenger transport, urbanization, change in factors influencing modal choice, openness for innovation. On the freight side, main issues include: freight volumes in relation to global economy, openness of global international trade markets, consumption behaviour in relation to ethical values, switch from ownership to sharing, innovative technologies for logistics and new technologies for energy saving and environmental awareness. The key challenges that the transport sector will face in relation to each scenario are outlined in the Table 2 below: Table 2: Overall challenges for passenger & freight transport Scenarios Passenger side Passivity Unlimited and collapse Responsible growth Issues Key challenges Globalisation Corresponding infrastructure is needed, in particular for aviation. Significant reduction in air transport and an increase in shorter distances needs different kinds of infrastructure Demand for sustainable products that meet society s needs. Capacity of infrastructure People expect resource will constrain passenger Energy efficiency of transport modes. High demand efficient innovations to be Growth in passenger transport there is a huge demand for smart and cheap and transport growth. Also, politically fostered. Efficient busses for smaller for efficient zero-emission vehicles. small cars. cities needed. Urbanisation Many smaller cities require Congestion is a problem. Financing of infrastructures cost and energy efficient The travel preferences is a major challenge. PPP solution for urban transport. of city and countryside schemes are needed. Rail linkages between cities residents are different. are extended. Not much demand for Change in factors Difficult to provide the Re-allocation of public funding; much more goes into expensive high quality influencing modal appropriate amount of transport products and choice capacities. small-medium cities. services. Challenge of getting funds Innovations offering new High demand for vehicle Openness for innovation difficulties in bringing them saver mobility options are for new developments and and/or more efficient and designs between e-bikes and e-cars. to the market. expected by the public. Freight side Issues Freight volumes in relation to global economy Openess of global international trade markets Consumption behaviour in relation to ethical values Switch from Ownership to Sharing Innovative technologies for logistics New technologies for Energy saving and environmental awareness Table 2: Overall challenges for passenger & freight transport Scenarios Unlimited Passivity and collapse Responsible growth Key challenges Depletion of natural Overcoming the ageing resources. Demand for condition of transport Achieving more environmentally friendly means of new warehousing management technologies. infrastructure with limited resources and lack of transport. Creation of customised investment. logistics for 3D printing. Development of quick and reliable freight Development of quick, reliable, safe and environmen- services. Protection of Difficulty in border crossing natural resources of small for freight services. tally friendly services. developing economies from globalised markets. Coping with demand Survival of small companies Customer demand for on based on migration patterns is going to be difficult due to time delivery will require in an environment the increased responsibili- flexible logistics systems with limited infrastructure ties of the full product and resources. life cycle. Demand for better planning Nomadism will cause The cost for infrastructure techniques that will help housing demand and will have to be absorbed freight transport companies freight related to construction equipment and energy companies that use by producers/shippers/ to cope with serving multiple customers that need materials. the transport network. products delivered on time. Investments on technologies by few people will Large production of new Investments on green advanced technological create two gear societies: & reverse logistics. materials. technologically advanced or deprived. Achieve the dual objective Achieving these sustain- of cost effective and able technologies and Shift towards green environmental friendly start re-using and recycling sources of energy. freight transport. more of existing materials. Source: Papanikolaou, et al., 2014

16 30 Future demand patterns xxxxxxxxxxxxxxxxxxxxxxx 4 The challenges, which the European Union will face in each of the four analysed scenarios (pathways), determines the European Policy to be followed in the future in the fields of passenger and freight transport. The first conclusion to be drawn is a shift towards multimodal transport, by enhancing aviation and the development of means of transport that can carry both passengers and freight. This new mixed freight and passenger movement might prove to be a challenge during customs checks. Hence, EU member states will need to create a framework that will enable such means to pass through customs, without long waiting times for passengers. With regard to the environment, European governments and manufacturers will need to cooperate in order to create an environmental policy and legislative framework for environmental protection and preservation of energy and natural resources. This effort should be supported by the creation of an environmental campaign throughout the European area that focuses on the proper use of raw materials as well as the principles of reduction (at source), re-use and recycling both on manufacturing and consumer level. At the same time there should be a targeted effort for the creation of a platform that focuses on the exchange of technology and innovation within EU, among European member states or corporations and the utilization of geographical, technological and environmental advantages to enhance their competitiveness globally against other states outside EU. For this purpose it is important to create cooperative agreements between European governments and manufacturers in order to create business models that will compete against global corporations. The focus will be on creating strong non-competitive relationships on a European level. Prerequisite for achieving these goals is political stability within EU with the increasing EU citizen participation in decision-making and the creation of common EU policies on terrorism, crime and planning for extreme weather effects. On a European city level there will be clean and efficient city logistics. In terms of urban transport systems, priority will be given to urban public transport, car-sharing, cycling and walking. The European automotive industry will most probably need to look towards new (greener) alternative modes of transport (such as e-bikes etc), due to the gradual phase out of the car. 31 Upcoming innovations

17 32 33 Upcoming innovations Upcoming innovations The identification of the most relevant innovations (emerging or anticipated technical and organisational innovations in the transport sector) is a procedure which has a focus on radical innovations that are expected to lead to significant improvements of global relevance and to have systemic effects on the transport system. The following figure 9 illustrates the methodological approach for the identification of upcoming innovations, which is described in more detail below. Technological Breakthroughs The innovations gathered from the above analysis were categorized in Innovation Fields and the most important technologies were selected for further evaluation based on their impact as shown in Table 3. Figure 9: Identification of long-term perspective on the global supply side Table 3: Identification of innovation fields and technologies Source: Reichenbach and Schippl, 2013 Innovation Field Automation of road Transport Fuels and propulsion Technologies Improving the means Of transport Innovation or Technology Advanced driver assistance systems Full autonomous driving Intelligent transport communication Systems (e.g. inter-vehicle communication, vehicleinfrastructure communication, intelligent signaling) Battery electric vehicles Hybrid technology (allowing pure electric drive for a certain distance) Fuel cell Electric Vehicles Second Generation biofuels Improvements in conventional internal combustion engines (e.g. downsizing) Liquefied Natural Gas (LNG) for shipping Lightweight materials (e.g. carbon fibers) Improved aerodynamics The first step involves the separation and the definition of three types of transport-related innovations, which are (Reichenbach, et al., 2014): n Product innovations, including fuel efficiency, use of ICT, new materials or new design n Service innovations, for example innovative mobility solutions or logistics concepts supported by ICT n Infrastructure innovations, including innovations in the construction of transport networks as well as energy production and distribution innovations relevant to increasing the share of renewable energy carriers used in the transport sector n Numerous transport-related product, service and infrastructure innovations upcoming expected until 2030 and beyond on a global scale have been identified in EU and other sponsored research projects. FUTRE performed an evaluation of various studiesinnovation fields, aiming to gain an understanding on emerging transport innovations/technologies and, on how these are expected to affect transport system efficiency in Europe and the competitiveness of the European transport sector. The following aspects were taken into consideration in this procedure (Reichenbach, et al., 2014):the likeliness of technological breakthroughs in the corresponding field n crucial constraints and barriers n the potential impacts on the transport system n the potential impacts on global competitiveness of the European transport sector Intelligent transport Systems Services/ organisational innovations Infrastructures Source: Reichenbach, et al., 2014 Ubiquitus (internet) access to harmonized traveller information (passenger) and tracking information (freight) Personal rapid transport (small automated vehicles operating on a network of specially built guide ways) RFID (Radio Frequency Identification), NFC (Near Field Communication) applications for seamless user interfaces Autonomous supply chain management for more efficient use of logistics services Innovative sharing services (car sharing, bike sharing etc.) Tele-working, video-conferencing and holographic conferencing Smart ticketing schemes Innovative new types of transport infrastructure (e.g. Cargo Tube, Hyperloop) Innovative transshipment technologies for seamless intermodal freight transport Inductive charging infrastructure for electric vehicles

18 34 Upcoming innovations Crucial Constraints and Barriers Analysis of potential future constraints for these innovations indicates that growing scarcity of fossil fuels and energy in general will present a major constraint. Having a look at today s innovation activities in the transport industry, this trend even enforces innovations like in the case of electric mobility or energy efficiency. Therefore, other constraints are getting in the spotlight. A shift from a fossil fuel based transport system towards a system mainly driven by renewable energy carriers significantly changes the demand for specific raw materials. Elements like copper, lithium, rare earths and scandium will be required to enable the transition towards a sustainable transport system as such a system will at least to some extent depend on the electrification of road transport. Therefore, an estimation of the future level of criticality of a raw material is crucial to identify bottlenecks and intensify research for substitutes. Besides constraints on innovations induced by critical raw materials, there are further factors hampering transport innovations. Even if key transport innovations are mainly developed by large companies and global players, financial constraints can affect innovation activity of smaller companies in the transport supply chain. The political framework can also negatively influence innovation process by setting too narrow frameworks or by policies that are designed to achieve only short-term targets. 5 Scenario analysis and challenges Impacts on transport systems and competitiveness With an understanding of crucial constraints and barriers, it is important to identify factors leading to a comparative advantage or disadvantage in relation to the major innovations, and develop a view about what impacts the transport innovations will have on the transport sector competitiveness until A group of experts was consulted to evaluate the technologies per innovation field and assess the likeliness of the respective technology, the impacts on travel costs, the environmental impact and the benefit to the European transport industry. The main conclusions of this evaluation include the following (Reichenbach, et al., 2014): n The importance of ICT technologies as a key enabler for all transport services. As ICT systems will be part of the infrastructure, transport experience will be transformed completely n Full autonomous driving is expected to be mainstreamed in the next 20 to 30 years and it will change the way we perceive and understand transportation. The relation of car mobility to public transport will need to be rebalanced, taking into account the different characteristics of markets like transport in core urban areas or non-urban areas. Technologies related to energy (e.g. renewable energy technologies) and materials (e.g. nano-materials, rare earth materials etc.) are important innovation fields. These technologies will have a significant impact on transport systems. n Focus on materials: Since the EU is implementing the Pay per use philosophy for the road transport sector, it is essential to find more resistant materials for roads, so that the maintenance shall be cheaper in long term. n Strong development of electric vehicles (e-cars and e-bicycles). Rise of the role of e-mobility to the global transport system. n Harmonized traveller information (passenger) and tracking information (freight) will be part of any transport system. n Major developments in warehouse logistics (intra-logistics). n Major developments in innovative sharing services. There will be a strong sharing attitude especially in urban areas. n Use of innovative transhipment technologies for rail, inland waterways and shipping on seamless intermodal freight. In terms of the most promising/beneficial technologies overall, expert views indicate that: n The most beneficial technology will be the Internet access to harmonized traveller information (passengers) and tracking (freight) n From the field of automation of road transport the most beneficial technology is the advanced driver assistance systems n From the field of fuels and propulsion technologies the most promising one is the Hybrid technology (allowing pure electric drive for a certain distance) n In the field of services and organizational aspects the smart ticketing schemes are ranked highly n In the field of infrastructures, the Innovative transhipment technologies are the most promising ones.

19 36 Scenario analysis and challenges T o better understand how the market reacts on major upcoming transport-related innovations under the framework of changing demand needs on a European scale, FUTRE created a semi-quantitative scenario framework, which combined the pathways for future travel patterns with the knowledge gained on potential key innovations in transport. The idea of this scenario framing was to set up three scenarios providing a consistent picture composed out of a set of key innovations and trends for consumption and travel patterns. These so-called storylines needed to be translated into quantitative inputs for an integrated modelling approach. To analyse the dynamics between the key transport innovations provided by the European transport industry and the changing travel patterns for passenger and freight is the main objective of the application of the modelling toolset consisting of ASTRA-EC and TRANS-TOOLS. It should provide an understanding of the market reactions on major upcoming transport-related innovations under Scenario analysis and challenges the framework of changing demand needs on a European scale. ASTRA-EC is a dynamic, integrated transport, economic, environmental and technology model based on System Dynamics methodology. It can simulate changing travel patterns in a bottom-up way following the first three stages of the classical four stage passenger and freight transport modelling approach consisting of generation, distribution, modal split and assignment. For the last stage, a detailed transport network is required which can only be provided by a network-based transport model like TRANS-TOOLS. In order to enable the simulation of congestion effects a linkage between ASTRA-EC and TRANS-TOOLS was planned and developed. For each scenario, a set of key elements was used as input to the ASTRA-EC model. These elements, listed in Table 4, were derived from the analysis that was carried out in the previous stages, based on the long-term perspective on the transport demand and supply side. Some of the indicative results, which came from the analysis with the ASTRA-EC model, are the following. Figure 10: EU27 passenger transport -pkm and modal share in 2050 Table 4: Key elements of the scenarios Figure 11: EU27 freight transport -tkm and modal share in 2050 Source: Krail, et al., 2014 Source: Fraunhofer-ISI 37

20 38 Scenario analysis and challenges Scenario analysis and challenges The reference scenario (REF) provided a baseline for comparison with the other future scenarios. A general rule for the Reference scenario was that it included the legislative status and the quantitative approval of the European policy. A set of output indicators from ASTRA-EC was developed and used to carry out the competitiveness assessment of the EU transport sector. The selected indicators, which are listed in figure 12, were simulated by the ASTRA-EC model for each of the main three scenarios. These competitiveness indicators referred to mobility patterns, economic factors and environmental and social impacts. These indicators revealed the drivers for the competitiveness of the sector, which are related with mobility patterns and the innovation capacity of the different transport subsectors. Other indicators show the outcomes of each scenario in terms of economic performances and environmental and social costs (Krail, et al., 2014). The assessment of the different scenarios, based on the indicators mentioned above, revealed several opportunities and barriers for the competitiveness of the European transport sector, which are summarized in Table 5 below and described as follows. Figure 12: Indicators selected for the analysis of competitiveness of the European transport sector Passengers demand Mobility per mode indicators Freight demand per mode Inputs Scenario Economic indicators Outputs Innovation Environmental & social indicators Innovation External costs Passengers *km Average passenger distance Passengers cost per km Tonne*km Average freight distance Freight cost per km Employment Investments Gross value added Production value Total factor Labour productivity Vehicle sales By mode By category Source: Krail, et al., Table 5: Opportunities and barriers for the competitiveness of the European transport sector in each scenario Unlimited Increasing competition from emerging countries, especially in the automotive and maritime sectors Weak competitiveness of European transport industry in most promising technologies in this scenario: Hybridsand EV Decreasing modal share for collective means of transport (i.e. rail sector, especially freight); Alternative fuels for aviation Passivity & collapse Reduced mobility Decreasing modal share for the rail sector, especially freight. Loss of high skill jobs in the transport sector (.e. aviation and automotive) Increasing competition from emerging countries (automotive and maritime sectors) Conventionally-fuelled cars High European dependence from most external sources of fuel, including E85 and CNG Scarcity of raw materials Lack of financial resources to improve transport infrastructure Lack of political will to deal with transnational/global problems (i.e. climate change, security) Responsible Growth New business models (i.e. shared economy) Strong competition from developing countries, particularly from shipbuilders and automotive sector (EV, FCEV, hybrids) Managing increased demand for public transport Low carbon and sustainable fuels, especially in for the air mode Scarcity of raw materials