Research Briefing | Apr 17, 2023

Electrification to drive climate mitigation in land transport

Using data from our new Industry Climate Service we examine the responses of the land transportation services sector to different climate change scenarios. The sector, which covers passenger and freight transport services via rail, road, and pipelines, sees a wide range of potential changes in output globally, ranging from -6.4% to +3.5% relative to baseline in 2050 in most scenarios. Only the Climate Catastrophe scenario, which envisages significantly higher global temperatures brought on by additional fossil fuel usage relative to baseline, sees sectoral output dramatically (-17.6%) lower.

What you will learn:

  • The carbon pricing component of the climate mitigation scenarios causes inflationary pressure, compressing real incomes and profits, which in turn weighs on land transportation output. This is because demand for this sector’s output is tied closely to consumption of goods and passenger transport services, which respond negatively to falling incomes. There is also a smaller response of sectoral demand to changes in investment, which follows varying trajectories in the scenarios.
  • Additionally, the land transport sector is heavily reliant on oil as the primary source of energy. This means that the sector’s input costs and competitiveness are particularly exposed to increased carbon taxation, further lowering output in the climate mitigation scenarios. However, much of the negative cost impacts are reduced over time due to substantial electrification in the sector and energy grids.
  • While some oil continues to be used in all scenarios, electricity use makes up 52% to 70% of global energy demand in the sector by 2050 in our climate mitigation scenarios, up from only about 2% today. Since electricity is much more efficient as a source of energy than internal combustion for mobility purposes, we expect that there will be a decline in global energy use by the transportation sector in our baseline forecast and in all scenarios that involve substantial electrification.
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