Energy Revolution – Part 8
A Shift to Rail Transportation Could See CO2 Emissions from Global Transport Peak in the Late 2030s
2nd of November, 2021 - torck capital management AG
In our last blog articles, we discussed potential pathways to net-zero emissions in the road, shipping and aviation sectors, which respectively account for 74.5%, 11.6% and 10.6% of transport emissions to meet the climate goals of the Paris agreement. The rail sector, in focus of today’s blog article, on the other hand, only accounts for 1% of transport emissions, while being responsible for 9% of global motorised passenger movement and 7% of freight, according to the IEA. The reason is that rail is the only transportation mode that is already widely electrified today. Globally, about three-quarters of conventional passenger rail activity is electrified and almost all urban (metro and light-rail) and high-speed rail networks are electric. This makes rail transport the most energy-efficient transport mode. The regions with the highest share of electric train activity are Europe, Japan and Russia, while North and South America still rely heavily on diesel (see Figure 1).
As global demand for transport is growing fast with passenger and freight activity expected to more than double by 2050, energy demand and CO2 emissions from transport will consequently increase. However, shifting passenger and freight transport activity from more CO2-intensive modes such as private cars, trucks and aircraft to rail could substantially reduce net energy use and emissions of the transport sector. The degree of electrification uniquely positions the rail sector to take full advantage of the rise of renewables in the power generation mix and to reduce the climate impact of the transport sector despite of the expected activity increase (see Figure 2).
The expansion of rail infrastructure requires a lot of investment. In this context, also the emissions from railway construction and maintenance must be taken into account when assessing new rail projects to reduce greenhouse gas (GHG) emissions. Consequently, high passenger or freight throughput (i.e. high infrastructure utilisation) is necessary for a new rail project to pay off, both economically and environmentally.
Between 2005 and 2018, rail infrastructure investment increased nearly threefold, with most of this growth in China. Especially urban and high-speed rail infrastructure have expanded rapidly over the past decade at continuous rates of 2.9% and 14.8%, respectively. This development has laid the foundation for low-emissions transport both within and between cities. While urban rail has clear throughput advantages against other transportation modes and provides a solution to both congestion and air pollution in cities, high-speed rail can serve as a low-carbon alternative to short-distance air travel. As an example, the opening of the Brussels-London Eurostar reduced the number of kilometres travelled by aircraft on that route by around 55%. Additionally, rail freight is the only alternative to long-distance inland road freight transport.
Yet, while rail is among the most energy efficient modes of transport for freight and passengers, it is often neglected in public debate. However, further investment into an expansion of electric rail infrastructure is required to get the transport sector on track with the IEA’s Sustainable Development Scenario (SDS). For as long as the challenges of current low-carbon technology options for the decarbonisation of aviation and long-haul road freight remain, rail will have to displace these harder-to-abate transportation modes to reduce sector emissions.
In the IEA’s “base” scenario, which assumes no significant new policy emphasis on rail, annual investment in rail infrastructure increases to $330bn in 2050. However, as more sectors move quickly to cut their emissions aviation and long-haul road freight will increasingly gain political attention as their share of global GHG emissions rises. Therefore, a more ambitious “high-rail” scenario, which amongst others assumes that all forms of transport pay not only for the use of the infrastructure they need, but also for the adverse impacts they generate, estimates that annual average investment may reach $770bn by 2050 (1.3 times as much as in the base scenario).
In the event of the “high rail” scenario, total energy demand for the rail sector in 2050 is 2.3 times as high as in 2017. Thereby, further electrification raises the share of electricity in fuel demand from 47% in 2017 to 73% in 2050 (see Figure 3). The track length of high-speed rail and metro tracks will respectively be extended by around 3.5 and 4 times. While the conventional rail network grows relatively slowly (36% between 2017 and 2050), the size of the existing network means that the extension in absolute terms will be twice as high as high-speed rail and metro together by 2050 (see Figure 4).
According to the IEA an “aggressive, strategic deployment” of rail could see CO2 emissions from global transport peak in the late 2030s. In contrast to other zero-carbon vehicles, such as battery or hydrogen powered vehicles, which all need to be ‘fuelled’ using electricity converted into another form of energy for on-board storage and converted back into electricity when required, electric trains simply supply electricity from the national grid to their motors. Considering the investments that are forecast to go into track expansion, considerable additional investments will thus be required for the expansion of national grids. The fact that rail is uniquely positioned to already take advantage of a rising share of renewables in the energy mix puts further pressure on their expansion as well to bring down emissions in the transport sector more quickly.
In most cases, electrification of tracks is the cheapest option to decarbonise rail transport and batteries can make up for shorter disruptions in the electricity supply. But as further electrification of rail networks is likely to come up against diminishing returns on investment, since highly utilised lines are the first to be electrified and the electrification of rail tracks requires high passenger or freight throughput to pay off, hydrogen fuel cell technology could become a viable alternative as fuel cell and hydrogen costs reduce. The technology is also suitable for long-distance freight trains that operate at low frequencies or in areas disconnected from the electricity grid, a common set of conditions in rail freight. Read more about hydrogen solutions in our last blog articles on the clean energy transition in shipping and aviation.
Continue reading with part 9 here.
About torck capital management
torck capital management is an asset management boutique based in Zurich. Well-established in the Swiss financial industry, our goal is for torck to become the leading boutique of choice for exponential opportunity investments. We aspire to both drive meaningful change with our investments and seize exponential return opportunities in times of market disruption. Our new “Energy Revolution Fund” – launched at the end of September 2021 – builds on the thesis that a worldwide clean energy transition will kick-start another “super cycle” of rising commodity prices, which was last seen in the early 2000s when China’s economic growth took off. With investments in hand-picked junior mining companies that ensure an adequate supply of minerals for the clean energy transition, we see the potential for our next exponential opportunity.
Follow our upcoming blog articles to learn more about how the clean energy transition will impact the demand for critical minerals and create a strong investment case for junior mining companies.