Electric buses offer Latin American and Caribbean transport green and profitable future

Sponsored content: The Inter-American Development Bank is mobilising different divisions within the bank while working with public and private actors to drive the transition towards electric public transport

A new electric bus in Chile. (Photo: Ministerio de Transportes y Telecomunicaciones

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Electric buses are beginning to replace diesel fleets across Latin America and Caribbean cities with the aim of making public transport more attractive for commuters while meeting global climate goals. 

As part of a region-wide effort to align with the Paris Agreement objectives, generate growth, create jobs and ensure a just transition, local and national transportation departments and private operators are investing in and now delivering clean public buses.

As well as reducing greenhouse gas emissions, these efforts aims to improve quality of life for commuters as electric buses are significantly quieter, more comfortable, and will reduce deadly air pollution which afflicts urban areas.

In capital cities like Bogotá, Lima, and Santiago, there are very high concentrations of PM 2.5; tiny suspended particles which can cause premature death, respiratory diseases, and cancer. Electric buses on the other hand release zero tail-pipe emissions.

There are over 400,000 electric buses around the world – 98% run in China, while India, the US and Europe are also ramping up electric fleets. In Latin America and the Caribbean, electric buses currently number in the few hundreds but with enormous potential for expansion.

That’s why the Inter-American Development Bank has been working with public and private actors since 2017 to identify appropriate business models to mobilise investment in clean public transport.

Working through the NDC Accelerator Fund and the UK Sustainable Infrastructure Programme Fund, the IDB has been helping to develop a common approach to structure sustainable financial schemes to deliver electric buses in Latin America and Caribbean and mobilise the private sector.

The technical cooperation, Accelerating NDC implementation, unlocking clean buses in LAC, offers a ‘one-stop shop’ package that includes market assessment, technical support, financial advice, and training.

This integrated effort where various IDB Divisions (e.g. transport, energy, cities, capital market and climate change) and our private sector entity, IDB Invest, are participating is rare, but vital to be able to bring a full set of technical expertise to stakeholders.

Vast amounts of urban transport in the region are run by private operators where economic profitability is the determining factor. With large fossil fuel subsidies and a lack of disincentives like carbon taxes and/or tax cuts to electrify their fleets, mobilising the private sector is difficult.

One challenge is the heavy upfront costs of new electric vehicles and the lack of charging infrastructure. There is also little opportunity to access long term financing. One of the largest hurdles is the inaccurate perception that decarbonising multiple sectors of the economy, including transport and energy, will bring financial instability.

A lack of technical knowledge in the performance of electric buses, and low economic understanding in terms of lifecycle costs and maintenance, leads to the perception of risk. Private actors will often take the safe route to secure consistent profits.

The IDB is focusing on robust and tailor-made business models to target the individual challenges of each city. This requires a focus on identifying and structuring viable sustainable business models to help deliver electric buses, ensuring economic financial and fiscal sustainability and unlocking the potential benefits.

The clean bus technical cooperation has a triple-win approach. Imagine a Venn diagram – to find the hot spot between benefiting private operators, the state’s fiscal sustainability, and everyday bus users. With technical assistance and financial guidance, as well as now additional funding from the UK’s Sustainable Infrastructure Programme for continuous future support, that intersection can be met.

Overall this is about rebuilding confidence in public transport at a time when Latin America’s private vehicle fleet and related emissions is growing rapidly.

For citizens, new electric buses have air conditioning, Wi-Fi, and charging plugs for personal devices. They also reduce vibration and increase overall air quality. For private operators, it’s an opportunity to invest in new technology which will keep demand high and continue to make good profits. For the government, it’s a way of offering a quality service to citizens, protecting the public transport service from fossil-fuel price volatility and achieving global climate goals.

The IDB has participated in assisting with over 500 clean buses since the beginning of the project, in 14 cities, including Bogotá where the first-in-the-region bidding process by the Integrated Public Transport System (SITP) is taking place to increase the size of the electric fleet.

Along with the efforts of the Inter-American Development Bank, other partnering funds, and the leadership of public and private sectors in the region, interest in electrifying public transport in Latin America and the Caribbean is gathering pace.

Benoit Lefevre is an economist working as a senior specialist at the Climate Change Division of the Inter-American Development Bank and team leader of the clean bus technical cooperation. Maria Margarita Cabrera is the technical funds advisor in the Climate Change Division at the Inter-American Development Bank.