The transport sector is responsible for 37 per cent of global CO₂ emissions and is more reliant on fossil fuels than any other industry.¹ As the world’s population increases, demand for transport will grow; for net zero to remain a realistic goal, radical changes are needed across road, rail, shipping and aviation.

Many of these changes are already technically possible thanks to innovations such as sustainable aviation fuels (SAF), electric vehicles, hydrogen-powered rail and methanol-based fuels that replace marine diesel fuels on ships. But technology alone will not be enough to transform transport. With petroleum-based fuels still accounting for 95 per cent of the sector’s energy consumption,² large-scale decarbonisation will not happen without support for clean fuels across the entire transport ecosystem. What is stopping them from taking off?

Sustainable transportation comes at a price

Although global capacity for renewable energy is increasing,³ the pace of change is still far too slow. This is partly because of a lack of enabling regulatory frameworks combined with a lengthy permit-granting process that can involve multiple jurisdictions and several complex layers of review and approval.

Another barrier is the lack of supporting infrastructure, which means that supply is unable to meet growing demand. For example, SAF needs specialised production and storage systems that are not yet widely available.⁴ The expansion of electric vehicles, meanwhile, is hampered by a global shortage of precious metals and charger components⁵ as well as challenges with vehicle-grid interoperability. Electromobility is difficult to scale up without clear, coordinated plans for grid expansion, and a backlog of grid connection requests is a major bottleneck for new electrification in both the US and Europe.^{6, 7}

Cost is also prohibitive. Gas, oil and coal benefit from long-established production methods and infrastructure. But most sustainable technologies lack economies of scale. At the same, the wide variation in carbon pricing around the globe means the playing field between fossil fuels and low-emissions technologies is not always level. As a result, lenders and investors are hesitant about supporting new fuels and infrastructure, and potential first movers are often discouraged by the extra cost of more sustainable products and services — the so-called green premium. For example, a switch to green e-methanol would increase bunker costs by 340 per cent, and in aviation SAF can reduce CO₂ emissions by up to 80 per cent but is three times more expensive than conventional jet fuel.^{8, 9}

This creates an imbalance of supply and demand, which increases the green premium on sustainable fuels and technologies. Some renewable energy sources, such as wind and solar, have a low premium or no premium at all in certain regions. However, most other clean technologies remain prohibitively expensive as long as the environmental cost of carbon emissions is not adequately priced into conventional fuels. And the green premium is likely to increase as the pressures of inflation and the cost of living crisis continue.¹⁰ Some customers will be willing to pay that premium, but others will balk at the extra cost during an economic downturn.

Policymakers and the private sector are getting on board

To incentivise long-term development, it is vital that policymakers help create an enabling environment for sustainable transport investments. This will require coordinated policy efforts from governments and regulators, explains Harald Wimmer, partner and global automotive leader for PwC Germany. “The establishment of the ecosystem requires an orchestrator that is grounded in traditional industries and well connected with the public sector, governments, regulators and legislators,” he says. “This will help create global standards and facilitate localised adoption while reducing uncertainties for all parties by coordinating efforts.”

The US’s Inflation Reduction Act includes several measures designed to encourage a sustainable transport ecosystem. It is investing $1bn in replacing heavy-duty vehicles with clean, zero-emission vehicles, training and developing workers and supporting zero-emission infrastructure such as charging and fuelling stations.¹¹ It also offers tax credits to reduce renewable energy costs for businesses, non-profits, educational institutions and local organisations.¹²

The EU, meanwhile, has introduced its own legislation to incentivise investment: the Net Zero Industry Act, which promises a reform of the electricity market to make sure that consumers benefit from an increase in renewable energy.¹³

The private sector can also play a role in mitigating the risk of renewables with offtake agreements, which secure fixed prices for energy before it is produced. German logistics company DHL, for instance, has announced a big offtake deal with biofuels producer Neste, which will supply 320,000 tonnes of SAF over a five-year period.¹⁴ Long-term contracts like these can help to stabilise the renewable energy market by providing consistent supply and demand.

No action, no future

So investment in sustainable transport depends on potentially challenging cross-industry collaboration. But decarbonisation is essential to the sector’s long-term survival.

“We need to keep in mind that what is commonly viewed as cost is actually an investment in the ability to remain relevant,” says Wimmer. “It brings access to future returns on investment, and allows us to replace value that is going to disappear.”