rethink sustainability
How can long-haul transport lower its carbon footprint?
Emissions from the transport sector account for around 14% of global emissions.1 Passenger vehicles account for around half of these carbon emissions from transportation and are therefore a key focus of climate policies, including through vehicle electrification. However, while such personal transport accounts for half of transport emission, long-haul movement is responsible for the remainder, with aviation registering at 12%, trucks 29% and shipping at 11% of overall transport emissions. Finding solutions to reduce emissions from these activities is therefore essential to ensure the decarbonisation of the transport sector as a whole.
Although the goalposts are clear — to stick to the guidelines of the 2015 Paris Agreement greenhouse gases (GHG) related to transport must be halved by 2050 — heavy duty transport emissions continue to rise. The aviation industry has seen fuel burn per passenger-kilometre drop by half since 1990 but absolute emissions have risen 70% since 2005 and are not on track to reach net-zero emissions by 2050. Net-zero means any emissions released must be met by an equal amount taken from the atmosphere.
As with road transport, the challenge is achieving these targets without choking supply chains that are vital arteries for world economies. If we don't curb emissions aggressively, those from long-haul and heavy-duty transport will almost double by 2050.
The definition of what “aggressive" looks like varies — one country's aggressive is another country's anaemic — but a reboot towards increased renewable energy consumption in long-haul transport will need regulatory frameworks; technological innovations and investor awareness and consumer demand.
Leaning on technology
Carbon offsetting is popular, whereby long-haul transport companies compensate for carbon through reforestation or other means, but is increasingly being viewed as a stopgap solution at best. Instead, using fuels that spew fewer carbon emissions seems like an obvious target for research efforts.
The shipping industry is increasingly turning to liquefied natural gas (LNG), hydrogen and ammonia as alternatives to kerosene. LNG reduces carbon emissions by up to 30%2 but methane emissions (more than 30 times more potent a GHG than CO2) are a challenge. MAN Energy Solutions is working on an all-ammonia engine that is expected to deliver robust prototypes for how this fuel can be used in the future. Ammonia reduces carbon emissions by as much as 90%3 but the ammonia manufacturing process itself is carbon-intensive. The shipping industry is taking notice: Equinor is updating its fleet and test-driving alternative fuels like liquefied natural gas and ammonia.
Another fuel that is rapidly gaining traction, hydrogen, only releases water as emissions. Liquid hydrogen occupies four times as much4 volume as kerosene, which would decrease room for passengers and cargo.
Costs related to the production of hydrogen are still high, but are expected to fall over time, benefiting from improved technologies and a gradual expansion of use cases and economies of scale. In addition, for hydrogen to contribute to decarbonisation efforts, the production process of hydrogen itself must also be made carbon neutral. As of today, hydrogen is still largely produced from natural gas, contributing to carbon emissions (“grey” hydrogen). Capturing and storing such emissions would be a cleaner solution (“blue” hydrogen), but long-term solutions will likely depend on the ability to generate hydrogen using renewable energy sources (“green hydrogen”).5 The industry is also exploring other options using hydrogen: Synfuels, which are manufactured using carbon emissions from the air and hydrogen, are promising alternatives.
Biofuels are also part of the mix, particularly second and third generation biofuels produced from non-food crops that avoid competition for scarce land. Shipping company Maersk has announced its operations will be carbon-neutral by 2050. As part of those efforts it tested a fuel blend comprised of 20% biofuel (made from waste cooking oils) on one of its largest vessels from Rotterdam to Shanghai. Just that one 25,000-mile trip is expected to save 1,500 metric tons of carbon-based emissions - this is the equivalent to the greenhouse gases from almost 1,200 cars for one year. Energy company Neste has developed a sustainable MY Renewable Jet Fuel which reduces carbon emissions by 80% over its lifecycle compared to jet fuels. Low volumes of production are a constraint but the company estimates a capacity to provide over 1 million tonnes of the fuel by 2022.
At least for now, these alternative synthetic fuels are expensive but McKinsey predicts that could change for the better with greater production volumes and regulatory mandates to make the switch. However, it is important to highlight that biofuels must come from sustainable sources, as there is currently not enough land in supply to meet the carbon reduction and offsetting goals of all industries.
In addition to teeing up more efficient fuels, airlines are looking to reduce their carbon footprint by lowering the amount of extra fuel they carry on board and working on lighter materials for aircraft construction. Research on high-altitude long-endurance (HALE) aircraft, which have really long and narrow wingspans, has lessons for the aviation industry because these wings decrease fuel consumption.
Longer-term, electrification of aviation may provide a further, technological solution to reducing emissions. The weight of batteries acts a bottleneck in this application, limiting the range of aircraft, and possibly making this solution more applicable to short-haul than long-haul flights. However, demonstration models of hybrid and fully-electric commercial aircraft have emerged, and may enter the mainstream market in the 2030s or beyond.
Can consumers sway the discussion?
While technology is taxiing to take-off, movements such as Fridays for Future (global school strikes to increase awareness about climate change) and the Swedish flygskam, flight shaming, are spotlighting the role of the consumer in coercing industry to do better.
Consumer attitudes toward flying are playing a role. Increasingly people are opting for more sustainable travel options such as using the train, decreasing the number of flights taken and opting for holidays either within their home countries or to places, which can be reached by road or rail. More than half of 5,300 fliers interviewed by McKinsey before the COVID-19 pandemic said they were “really worried" about climate change — but it might not be enough to bring about systemic change on its own. Consumers can vote with their wallet but there might not be enough of a core nucleus yet to achieve any significant impact in the near term.
Governmental regulations lay the framework
If consumers alone can't make the industry change its habits, sensible governmental regulations and incentives can smooth the costs of doing the right thing. For example, 0.5 percent of aviation fuel used in Norway this year has to be sustainable, a target that increases to 30% by 20306. By 2040, all short-haul flights in the country aim to be fully electric. Canada taxes fuel used in domestic flights based on the amount of carbon emissions it releases.
The European Commission is looking to clear the path for adoption of alternative fuels as well. The legislative branch of the EU released ReFuel EU Aviation, an initiative to boost supply and demand for aviation fuels.
Then there are the industry-government collaborations like Getting to Zero, a project aimed at launching a commercial ship with net-zero emissions by 2030. Shipping and fuel companies such as Maersk and Shell along with financial (Citigroup) and government groups are backing the initiative.
There is an urgent need to innovate further. The aviation industry was given a small reprieve when the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) was adjusted to exclude 2020 data from the baseline, but the industry must still stabilise net CO2 emissions from 2021. Shipping companies are not yet included in the EU emissions trading system (ETS), which obliges factories, power plants and airlines to pay for their pollution. However, the EU executive plans to add shipping from 2021. It is also proposed to bring in binding targets for shipping companies to reduce the annual average CO2 emissions of all ships in operation by at least 40% by 2030, compared to 2018 levels.
What the future holds
Moving beyond long-haul transport, aviation can play a role in building a green future in other ways. Companies like Lilium, Volocopter and Uber Air are looking to decrease traffic congestion on the roads by taking to the skies with electric-powered small aircraft. A German start up, Lilium is developing an all-electric, car-sized short-haul aircraft that will take off and land vertically. The company expects consumers to request a flight just like they do a taxi, to travel between cities. The aircraft can fly for up to an hour. Volocopter is based on a similar premise.
Cargo demand dropped in the wake of the COVID-19 pandemic — global demand for air cargo fell by 15.2%7. Shipping saw a 20% drop in demand in April 2020 compared to the previous year. While aviation has been hit dramatically by decreased consumer travel as well, the pandemic has delivered an opportunity to reset the conversation about how to lower carbon emissions in the long-haul transportation sector.
Using technology and a regulatory framework in concert can help us realise a circular, lean, inclusive and clean (CLICTM) future and lower the carbon footprint of the shipping and aviation industries.
1 https://www.wri.org/blog/2019/10/everything-you-need-know-about-fastest-growing-source-global-emissions-transport
2 https://www.equinor.com/en/magazine/greening-our-shipping.html
3 https://www.ammoniaenergy.org/articles/man-ammonia-engine-update/
4 https://www.mckinsey.com/industries/travel-logistics-and-transport-infrastructure/our-insights/how-airlines-can-chart-a-path-to-zero-carbon-flying
5 https://www.iea.org/commentaries/the-clean-hydrogen-future-has-already-begun
6 https://www.mckinsey.com/industries/travel-logistics-and-transport-infrastructure/our-insights/how-airlines-can-chart-a-path-to-zero-carbon-flying
7 https://am.lombardodier.com/files/live/sites/am/files/news/AM_news/2020/February/Adapting%20to%20the%20inevitability%20of%20climate%20change/White%20paper%20(synthesis)_Investing%20in%20the%20Climate%20Transition%20a%20Synthesis_Retail_EN.pdf
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
Read more.
share.