Davey Jose, Thematic Analyst, Disruptive Technologies, HSBC
Cut the muck from trucks
The transport sector is second only to electricity generation in terms of carbon output, responsible for 15 per cent of global greenhouse gas emissions.
Heavy goods vehicles (HGVs) generate 25 per cent of global transport CO emissions. This means haulage firms and HGV manufacturers are under pressure to cut carbon and play their part in combatting climate change.
Road freight is typically classed as a ‘hard-to-abate’ sector alongside other transportation like aviation and shipping, where reducing emissions will be challenging, because there are currently few economically viable technological alternatives to fossil fuels.
According to the International Energy Agency (IEA), tailpipe CO emissions from trucks and buses have grown at a rate of 2.2 per cent annually over the past 20 years, with trucks accounting for 80 per cent of this increase.
There are, however, three avenues through which HGV emissions could be reduced in the future.
In the short term, HGV emissions could be reduced, but not eliminated, by increased use of natural gas. This is a mature technology and already in widespread commercial use. The fuel is cheaper than diesel in some instances.
For example, in the US, which has significant natural gas resources, 53 per cent of its natural gas supplies power freight trucks. The US has 175,000 natural-gas heavy goods vehicles (NGVs). Europe has 11,500 and China has 350,000, including buses.
But how green are they? While natural gas is less emissions-intensive than diesel, only renewable natural gas or biofuel is deemed ‘green’. But biofuel is costly at present and often requires a lot of land to produce, which can have broader environmental costs.
Electrification of HGVs is an economic possibility for the first time due to the declining costs of battery systems. The world already uses electric power for 250,000 light-duty vehicles on top of a global passenger electric vehicle (EV) fleet of more than 5 million. However, existing charging stations used for passenger EVs may not be sufficient to power heavier and more energy-demanding electric trucks. Nevertheless, companies are working to develop both vehicle technology and charging infrastructure.
The third option, hydrogen, may be the most promising in the long run. Like batteries, it is based on an electric drivetrain, but instead of a battery, it uses hydrogen to power a fuel cell engine. The high energy density of hydrogen makes this technology more attractive compared with batteries for long-distance transport.
A key issue holding back hydrogen has been the lack of production and refuelling infrastructure. Another factor is that today 96 per cent of hydrogen is generated from processes that emit CO , and zero carbon ‘green’ hydrogen production is expensive. Carbon capture utilisation and storage technology has the potential to reduce some CO from the generation process, creating lower-carbon hydrogen – or ‘blue hydrogen’.
Commercial and policy momentum to encourage and develop cheaper green hydrogen and to build related infrastructure for HGVs is slowly increasing. By 2030, the IEA suggests that the cost of producing hydrogen generated from renewable electricity could decrease by 30 per cent, making it more economical. Europe is targeting 45,000 fuel cell electric vehicle HGVs by 2030 and 450,000 by 2040.
Some fear that the economic disruption caused by the COVID-19 pandemic might slow green investments. However, with the environment, health and job creation for equitable economic growth at the very front of society’s mind, HGV-related transport transition projects have gained visibility and attention in a number of different markets, particularly in Europe, Australia and China.
- Disclosure and disclaimer
The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Davey Jose
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