At a glance
- The transportation sector has a significant impact on global emissions, but technology innovations, policy changes and shifting behaviours can reduce this
- Government regulatory timelines and international treaties are adding some urgency to the process, with many firms committing to net zero emissions by 2050
- As part of this energy transition, it is essential that companies in this sector adapt their products to serve clients effectively while remaining commercially viable
The transportation sector is largely powered by petroleum-based fuels, and contributes about 25% of global greenhouse gas (GHG) emissions (Figure 1). Clearly, there is a need to move people and freight, but leading global economies are working to decarbonise the sector through technological innovation, policy change and greater efficiency.
Figure 1: Global CO2 emissions by sector, 2019-2022
Source: IEA, CO2 Emissions in 2022, March 2023. Note: transport includes international bunkers
Regional regulatory approaches
Many governments are taking action to accelerate the net zero transition for the transport sector, either by disincentivising the production and use of vehicles that emit GHGs, or incentivising that of low-emission vehicles and fuels. Policy approaches for transport can be divided into four main categories: emission trading schemes (ETSs), emission standards for vehicles, fuel standards, and low carbon technology incentives (Figure 2).
Figure 2: Approaches to decarbonisation
Innovation across air, land and sea
Aviation. Airlines are willing to pay for better quality and more fuel-efficient planes, with each generation of aircraft up to 25% more efficient than the previous1. For example, widebody airlines that once needed four engines for transatlantic flights now only need two due to improvements in power and efficiency. This reduces fuel costs and maintenance spends, the latter making up a large proportion of airlines’ costs. SAF will be a major part of decarbonisation pathways in the future, but significant barriers exist to reducing current high costs and scaling production2.
Additional aircraft technologies are also being tested. Airbus aims to bring the first hydrogen-powered commercial aircraft to market by 2035. This would produce only water as a by-product, and if the hydrogen is sustainably sourced could be a key solution. However, additional work is required in terms of technology and infrastructure.
Electric planes are perhaps not feasible for commercial aviation due to the sheer weight of the battery that would be required for effective propulsion, but could be utilised for smaller aircraft.
There are also operational efficiencies that can be exploited,
including identifying more straightforward flight paths, utilising artificial intelligence to reduce airport congestion, and ensuring pilots fly at optimal altitudes and speeds for efficient fuel consumption (Figure 3).
Figure 3: Aviation’s decarbonisation pathway
Source: Airbus, Decarbonisation, Towards low-carbon air travel for future generations, 2023
Rail. Rail produces 14g of carbon dioxide equivalent per passenger kilometre compared with 166g for cars and 261g for air travel3. The EU has set a target to increase rail freight’s modal share from 18% to 30% by 20304. A key part of this is ensuring adequate investment in rail infrastructure, as well as continued taxation on road vehicles.
Buses, cars and trucks. The focus for vehicle manufacturers is on the shift from traditional internal combustion engines (ICE) to battery electric vehicles (BEVs) and hydrogen fuel cell electric vehicles (FCEV). Different use cases require different approaches. For example, buses are used in inner cities with easy access to charging stations. Alongside the regularity of routes and the need for improved air quality in these areas, there has been a relatively quick transition to BEVs. Electric city bus sales recently overtook diesel in Europe due to stringent regulation.
BEVs are expected to be the dominant type of passenger car, and accounted for 29% of new car registrations in China6 and 22% across Europe in 20227. A key barrier has been building adequate infrastructure to combat “range anxiety”. Pricing has also been a focus point, with US car manufacturer Tesla slashing prices to encourage take up. As the production of these cars scales up, firms should see better efficiencies in production and input costs. Chinese players have been able to carry this out effectively, and in a market where customers’ purchasing decisions are easily swayed this remains a threat to big incumbents. FCEVs will also be part of the mix in car transport, but currently have high upfront/ running costs as well as a lack of refuelling infrastructure, which makes them a hard sell for consumers.
In truck markets the most important factor is the total cost of ownership (TCO). This generally works out to be roughly a third for the initial cost, a third for fuel and a third for road and maintenance. While the TCOs for ICE versus BEVs/FCEVs has not reached parity, firms are purchasing zero-emission vehicles (ZEVs) to meet their climate goals, and TCO parity is projected to be reached in most jurisdictions for daily mileages of less than 750 by 20308.
ZEV truck sales are approximately 3% of sales9, but the big players have set ambitious targets. Volvo Trucks is aiming for approximately 50% ZEV production by 2030. In Europe, BEVs are suitable for most use cases, with their standard range of around 300 kilometres covering most journeys.
The shift to electric vehicles also allows for a move to autonomous vehicles (AVs), which could potentially reduce truck TCOs further by reducing the costs associated with hiring drivers.
Longer journeys of 1,000 kilometres-plus could be suitable for hydrogen-fuelled trucks, with battery size requirements ruling out BEVs (Figure 4). Hydrogen combustion engines allow for the use of an ICE drivetrain, while FCEVs rely on battery drivetrains. FCEVs will be commercially available in the second half of this decade. The US market will likely see a larger uptake of hydrogen trucks due to the longer nature of journeys and a lack of infrastructure in remote or rural areas. However, TCOs are not expected to reach parity with BEV/ICE until the mid-2030s at the earliest10.
Figure 4: Volvo Trucks’ view on battery versus hydrogen ZEVs
Source: Volvo Trucks, 2023
Marine. Three ship types dominate international shipping’s GHG emissions: container shipping, bulk carriers and oil tankers. These have long lifespans of 25-30 years, so modernisation and better management of the existing fleet have been key considerations for emissions reduction. Large shipping firms have made progress by retrofitting exhaust gas cleaning systems, cold ironing (plugging into onshore power sources while berthed) and improving the shapes of bows and propellers.
Speed reduction, proper hull maintenance and efficient planning of voyages also reduce overall emissions. Implementing these measures across the global fleet could deliver 25%-30% carbon savings11, and is the primary route for the sector achieving the International Maritime Organisation’s 2030 decarbonisation targets12. However, the technological developments in alternative fuels and engines will be most impactful in the medium term, with the main focus being on ammonia, hydrogen and methanol.
Methanol and ammonia are anticipated to be particularly cost competitive as well as easy to store and transport. Last year, Maersk, a European shipping/logistics company, launched the first green methanol-powered ship on a journey from South Korea to Denmark. To meet the 2040 target of net zero emissions, the firm aims to transport a minimum of 25% of ocean cargo using green fuels by 2030. New ships will need to have dual fuel engine technology in readiness for when green fuel production reaches the appropriate scale. The adoption of zero emission fuels for ships will also require infrastructure development which is being achieved through industry collaboration.
Conclusion
Society will experience a big shift in both technology and
behaviour in the transportation sector to address the energy
transition and associated carbon emissions goals. Products
offered by firms will continue to see innovation aided by changes in regulation and the provision of appropriate infrastructure.
