An electric bus in downtown Montevideo, Uruguay. Credit: Inés Acosta/IPS

By Brianne Watts
NEW YORK, Feb 10 2023 (IPS)

Latin America’s (LATAM) transportation sector produces the largest share of regional emissions and is a large source of air pollution, making transforming transportation technology systems key to energy transition and decarbonization. In particular, electrifying public transportation systems across the region through a transition to electric bus (e-bus) fleets will reduce fossil fuel demand and greenhouse gas (GHG) emissions.

While there are obstacles in the transition to e-buses, Latin America is well-positioned to address these challenges and take the lead in switching to zero-emissions public transit through innovative financing models, incentives, and public policy, which will contribute to reducing emissions while supporting more sustainable economic growth. Several countries and cities in Latin America are already leaders on this front and the region has innate advantages to expanding these networks.

Why Latin America Is Uniquely Poised to Benefit from Public Transit Electrification

Transforming transportation in LATAM will reduce fossil fuel use, contributing to decarbonization in the region. Unlike most of the world, the majority of Latin America’s electricity comes from renewable energy, while more than 95% of the energy used in its transport sector comes from oil and petroleum products.

Transforming transportation in LATAM will reduce fossil fuel use, contributing to decarbonization in the region. Unlike most of the world, the majority of Latin America’s electricity comes from renewable energy, while more than 95% of the energy used in its transport sector comes from oil and petroleum products.

The LATAM transport sector accounts for 15% of the region’s GHG emissions and was responsible for 8% of total global emissions in 2019. Furthermore, a 2018 UN report estimated that air pollution causes 64,000 premature deaths in the region every year, a figure it predicts could increase by 75% by 2050. These deaths were mainly caused by transportation emissions.

Recognizing the need to change, governments across the region have taken steps to clean up the transportation sector. Nationally Determined Contributions (NDCs) in 27 of the region’s countries prioritized transport, though only a handful specified renewables-based transport.

There has been a lot of focus on private electric vehicles (EVs) and raising emissions standards, but electrifying municipal bus fleets allows for less extensive infrastructure development—focusing charging infrastructure in centralized bus depots—and does not rely on consumer demand for cleaner private vehicles.

Latin America already claims the second highest e-bus fleet globally, with estimates of over 3,700 units across at least 10 countries, up from 2,000 e-buses in operation in 2020. While China dominates the electric bus market, several qualities unique to Latin America offer opportunities to expand its fleet.

The region is home to a highly urban population, with 80% of residents living in cities—a figure that is on the rise. These demographics have contributed to LATAM boasting the highest global per capita public transportation use.

Global bus rapid transit system data shows that systems in Latin America carry, on average, 600% more passengers per day than European systems and nearly twice the number of Asian systems.

LATAM also has a history of embracing transit innovation. One report pointed to the early adoption of electric trams, cable cars to serve dense, hard to reach settlements, propane taxis, and other new transportation technology. The region has “relatively sophisticated transit authorities” and some of the developing world’s best transit systems, suggesting data collected from existing networks “can support the efficient deployment of new electric buses.”

Cities Leading the Transition

The significant portion of emissions and pollution generated by transport is strong motivation for national and municipal governments in Latin America to invest heavily in electric buses. Colombia and Chile have committed to making 100% of public transportation system vehicle purchases zero emission by 2035. The capitals of these countries are emerging as leaders in the race to electrify city buses.

Bogotá has a fleet of nearly 1,500 e-buses, the largest outside of China, accounting for over 16% of the city’s entire public bus fleet. Santiago has the second largest e-bus fleet in LATAM. One 2019 analysis forecast that by 2025, over 5,000 electric buses will be delivered to Latin American cities annually.

The region is receiving support from international partnerships to expand electric bus networks. In 2019, the Zero Emission Bus Rapid-deployment Accelerator (ZEBRA) Partnership was launched, financed by P4G – Partnering for Green Growth and the Global Goals 2030, and co-led by C40 and the International Council on Clean Transportation.

ZEBRA’s mission is to work with cities in the region to secure political commitments, develop zero-emission bus fleet deployment strategies and business models, and secure financing for bus projects in order to “accelerate the deployment of zero-emission buses in major Latin American cities.”

Falling Costs, Innovative Financing, and International Support Can Drive Investment

One of the biggest obstacles to scaling up the deployment of e-buses is the high up-front costs of units. As U.S. interest rates continue to rise and the U.S. dollar appreciates, public financing of the units will pose a risk in countries that already have large amounts of U.S. dollar-denominated debt. However, lifetime costs of units are dropping and potential economic slowdowns could increase demand for public transport, while innovative financing solutions can enable LATAM countries to transform their bus systems.

E-buses are quickly becoming a cost-effective alternative to diesel counterparts, as acquisition, operation, and maintenance costs drop, and fossil fuel prices rise. A 2021 report estimated e-buses and associated charging infrastructure have up to two- to three-times, higher up-front costs compared to diesel alternatives. However, lower-cost battery technology, efficiency improvements, and low maintenance costs have already caused the purchase price to plunge.

One estimate found that “‘total cost of ownership’ over a vehicle’s lifetime should soon approach parity with internal combustion engine alternatives.” Santiago’s electric buses cost about one-fourth the cost per kilometer to operate compared to diesel buses. The falling costs and emission reduction benefits these buses bring make them economically advantageous in the long run.

In the meantime, cities throughout the region are using innovative models and public-private financing arrangements to expand e-buses fleets. One popular method is “unbundling” ownership and operation.

This model allows private firms to buy, own, and maintain the fleets and related equipment, while municipalities sign long-term contracts to operate the fleets. The advantage of this model is that it allows each party to perform the task for which it has a comparative advantage, allowing the owners to collateralize their assets and local governments to avoid extensive financing risks and the accumulation of debt. ZEBRA is financing this model of e-bus projects and related infrastructure throughout the region through a commitment of more than $1 billion.

Policies to Promote Change

To spur the inclusion of e-buses in Latin America’s energy transition, local and national governments need to develop and implement cross-cutting policies that incentivize this technology and enable it to thrive.

First, governments should codify goals of switching to 100% zero-emission bus fleets, following the examples of Chile and Colombia. These goals should include clear and ambitious target dates for purchasing and operating e-buses and for infrastructure improvements needed to support this transition.

Second, it is important to specify zero-emission technology (such as electric buses) in these goals, as ambiguous language like “low carbon” and “clean transport” creates loopholes allowing for fuel-efficient combustion technology. Transportation authorities also need to partner with utilities to expand charging infrastructure, ensure the grid can handle the additional load, and ensure that clean sources of electricity are used to charge the e-buses.

At the same time, governments should craft financial incentives for private bus owners and operators to switch to electric buses. The current average age of both public and private transport fleets in many LATAM countries is relatively low, increasing the risk of stranded assets. This cost, along with the upfront costs of a new electric bus, could inhibit the switch away from combustion-engine buses.

When São Paulo adopted a law to make all privately owned buses (which comprise the city’s entire bus fleet) zero-emission by 2037, many operators complained that they did not have the financial and technical resources needed to comply. They feared raising fares to pay for electric buses could hurt ridership.

Targeted subsidies, tax incentives, and insurance schemes that reduce the costs and risk of replacing higher emitting buses with e-buses will not only speed up the transition and contribute to meeting NDC targets, but will also signal the governments’ commitment to this technology.

New Opportunities for Growth

Because LATAM already leads in renewable energy use for electricity generation, transportation sector electrification is key to the energy transition. In a region known for extensive bus use, a switch to e-buses in public transportation will signal that LATAM governments are committed to furthering meaningful decarbonization.

LATAM is already home to several bus-manufacturing powerhouses, including Mexico and Brazil. Chile and Argentina are home to large lithium reserves. The region has the skills and resources to develop production capacity in electric bus manufacturing and battery manufacturing, which could create green jobs, support technological development, and strengthen regional value chains.

While cost and financing present challenges, targeted policies, public-private financing, and financial incentives can turn Latin America into a leader in public transportation electrification, reduce fossil fuel use, and present opportunities for sustainable economic development.

Brianne Watts is a Foreign Service Officer at the U.S. Department of State, currently pursuing a Master of Public Administration in Economic Policy Management at Columbia University.

The views expressed in this article are those of the author and not necessarily those of the U.S. Government.