Driving for a world without emissions
In a drive for a net-zero world, the decarbonisation of the transport sector will be essential as it accounts for almost one quarter of global emissions. The challenge will be particularly difficult in some of the harder-to-abate sectors such as shipping, road freight, and aviation, accounting for 13% of global CO2 emissions. Structural factors like high energy dependency, relatively long asset lifespans, and the complexity of electrification make decarbonisation a complex challenge. Working closely with industry leaders, Deloitte has collaborated with Shell to explore industry insights on how to accelerate transport decarbonisation, the challenges to zero emissions and what the industry as a whole can do to achieve the ambitions.
Decarbonising Shipping: All Hands on Deck
Shipping is considered to be the backbone of our economy, accounting for about 80% of the volume of global trade, but also 2% of global CO2 emissions. Never more so than during the Covid pandemic have we understood the importance of shipping to maintain the supply of essential goods. Shipping is a capital-intensive industry characterised by large, long-life assets, and a high dependence on a global supply of energy-dense fuels. Conventional marine fuels are low cost, considering they are literally the bottom of the barrel. These characteristics make decarbonisation complex and expensive.
The industry is currently exploring several alternative fuels, including hydrogen, ammonia, methanol, and biofuels, but shipping leaders have indicated that they all have commercial and technical limitations. LNG is considered as a transition fuel, though critics point out that LNG will be insufficient to meet decarbonisation targets, carries the risk of methane emissions in the supply chain, and distracts the industry from investments in zero-emission fuels. Hydrogen and ammonia have significantly lower energy density than conventional marine fuels, requiring either new technology, more frequent refueling stops, or compromised cargo space to store fuel. Methanol may also play a role as it offers simpler handling and lower investment costs and can be produced from renewable sources, such as biomass, and eventually synthetically with CO2.
There is a growing view that now is the time to act if the industry is to meet the set targets. To reach them, many shipping leaders believe that the first net-zero ships will need to start entering the global fleet by around 2030—and that creates a real sense of urgency.
Decarbonising Road Freight: Getting into Gear
Road freight is the most flexible mode of transport, and the primary mechanism to bring goods to our shops and homes. It is the largest of the transport sectors in terms of emissions, currently accounting for around 8% of global CO2 emissions, the majority of which comes from medium and heavy freight trucks. In order to achieve the goals of the Paris Agreement, absolute emissions from road freight will need to decline almost 60% by 2050, despite a possible doubling of road freight volume over the same period. Therefore, the sector will need to realise an emission intensity reduction of over 80% in less than 30 years. More pressingly, the sector’s emission intensity should decline by around 30% before 2030, an unprecedented challenge.
The two viable low-emission or zero-emission technologies for road freight are battery electric vehicles (BEV) and hydrogen or fuel cell electric vehicles (FCEV), with different applications varying per duty cycle. BEV have an advantage on short or medium distances with enough breaks for charging and overnight idle time. Typical application areas already today are light commercial vehicles, often used for last-mile deliveries in urban areas, or milk runs to supermarkets. FCEVs are more viable on long distances with fewer breaks, which allows truckers to operate 24/7, and multi-day trips with heavy-duty vehicles.
Both technologies will start entering the global fleet at scale in the coming decade, with BEV expected to start in the mid-2020s and FCEV toward the end of the decade. Increasing regulatory and market pressure, such as low-emission city zones, are likely to accelerate the shift toward low- and zero-emission trucks.
Decarbonising Aviation: Cleared for Take-off
Aviation helps foster cultural exchange and provides global access to goods and services, but it is also a source of around 3% of global CO2 emissions. Due to continued global economic and population growth in the upcoming decades, aviation volume and emissions are expected to more than double by 2050. The global nature of aviation makes it a complex sector to regulate and there is no silver bullet to decarbonisation. Nevertheless, roughly half of the industry players have committed to achieving net-zero emissions by 2050.
Sustainable aviation fuel (SAF) and carbon offsets are two available options to reduce emissions in the next 20-30 years. Bio-SAF from certain feedstocks is already mature, but production is relatively low (<0.1% of global fuel consumption). A major barrier is price, as bio-SAF is double the cost of fossil fuel, and up to eight times if synthetic SAF is produced, which uses carbon capture or direct air capture in combination with green hydrogen. Carbon offsets can play an essential role in funding the early stages of decarbonisation but need to be made more transparent and verifiable.
At the same time, the sector must work to continue improvements in aircraft and operational efficiency, and develop alternative propulsion technologies, such as batteries and hydrogen. These technologies offer an additional possibility of zero-emission flying, but changing to them will be much harder than switching from kerosene to a SAF drop-in solution due to higher weight or volume requirements.
Structural differences explain why certain technologies are more or less likely to contribute to decarbonisation per sector.
First, the incentives to decarbonise differ. The aviation business is highly consumer centric, which implies transition costs are more likely to be absorbed by demand coalitions. Regulatory incentives are easier to implement in a few large ports in the shipping sector, compared to the global nature of the aviation sector, which makes it inherently difficult to regulate.
With regards to the feasibility of decarbonisation, technology barriers are likely to play a large role in the shipping sector as there is currently no alternative technology, whereas SAF provides a viable low-emission alternative to kerosene in the aviation sector if scaled. Clarity on roles and decision-making may form a barrier for the many fragmented owners in the road freight sector.
Lastly, the speed of decarbonisation is impacted by the ease of asset and infrastructure replacements. Long-life assets in shipping are difficult to change, and the same applies to aviation if alternative propulsion technologies (in contrast to drop-in SAF) are needed. Infrastructure replacement will be a major challenge for the fragmented road freight market with many charging or fueling stations required along global highways.
Market demand, regulation, and legacy infrastructure are common barriers to decarbonisation across industries.
Societal pressure on the hardest-to-abate sectors to reduce CO2 emissions is mounting, and governments and companies across the globe are starting to act on the goals set by the Paris Climate accord. Whilst some sectors are reaching their inflection point, others will need significant further effort and investments to become carbon neutral, especially taking into account that some sectors are growing. Technology solutions have emerged and are mature enough for implementation but need substantial investment and scaling to reduce costs and build rapport in their respective sectors. As the hardest-to-abate sectors account for 13% of global CO2 emissions, the road to full decarbonisation will be a difficult one. However, as society and the sectors themselves are now realising, the time to act is now.