Transport infrastructure is crucial to economic development, social interactions and personal mobility. It is also well-understood that, in many markets, it is in need of evolution.
According to the International Transport Forum, governments globally face an annual transport infrastructure financing gap of between $244 billion and $944 billion between now and 2030. This gap is especially conspicuous when transport’s environmental impact is considered in light of the broadening sustainability movement.
“Today, the transportation sector accounts for more than one-third of global emissions,” says Jason Cheng, CEO and co-founder of Kerogen Capital and its dedicated energy transition platform, CelerateX. “Motorised transportation across land, sea and air still largely relies on fossil-based fuels and combustion engines, and the sector remains the largest contributor to greenhouse gas emissions. Pollutants from tyres, brakes and vehicle exhausts worsen air, soil and water quality, further compounding the issue.”
Statista figures should that transport contributed approximately 8.4 billion tons of CO2 last year, making the sector the second-largest source of emissions worldwide. Its CO2 emissions have increased by almost 80 percent since 1990.
There is unlikely to be an easy panacea, either. Any progress will need to take into account that the sustainable evolution of road transport is unlikely to follow the same path as that of aviation, maritime travel or rail infrastructure.
As Jim Wright, listed infrastructure fund manager at Premier Miton Investors, says: “The decarbonisation of transport is key because the sector is such a large contributor to emissions.”
However, it is not only in terms of sustainability that transport needs to get its act together. More fundamentally, many transport systems are struggling to keep up with demand. The International Energy Agency predicts global transport (measured in passenger kilometres) to double, car ownership rates to increase by 60 percent, and demand for passenger and freight aviation to triple by 2070. Regardless of whether it is via land, sea or sky, transport infrastructure faces some tough challenges.
Nevertheless, there remains much cause for optimism within the transport sector. According to Todor Ristov, senior portfolio manager of global listed infrastructure at independent wealth manager Van Lanschot Kempen: “It is not a question of if, but rather when, technologies such as the modernisation of high-speed rail or the uptake of sustainable aviation fuels (SAFs) come to be mainstream.”
But how long will this take and what does it mean for investors today? There is no one answer. Transport infrastructure is as broad as it is nuanced, things that must be considered in any discussion of its ongoing evolution.
Seeking the promised land
Much of this discussion understandably focuses on travel by road. Road vehicles are by far the greatest emitter of carbon emissions, with road transportation behind only coal-fired power as the biggest contributor of greenhouse gases.
The importance of road transportation to economic development – China’s vehicle stock, for example, is predicted to increase almost twenty-fold by 2030 – makes any discussions about the sector’s sustainable development complicated. It is nonetheless extremely pressing. The World Bank estimates that the cost of road maintenance in Africa, for example, will increase by 270 percent in the coming decades as a result of climate change. It is impossible to disentangle transport, economic development and environmental impact.
As for reasons for optimism, electric car sales experienced a 35 percent year-on-year increase in 2023, while investment in other electrified road vehicles, like buses and coaches, is, in Wright’s view, “underappreciated”, and more cutting-edge solutions, such as smart roads, are also being pursued.
Smart roads are those that have incorporated connected technologies for traffic management, intelligent lighting, improved maintenance and streamlined adoption of related solutions like autonomous vehicles. Predicted by market research firm SNS Insider to grow at a CAGR of 26.24 percent between now and 2032, smart road projects come with several benefits, including automation, safety and job creation.
“Smart roads will directly power personal vehicles on the road, making it unnecessary for vehicles to be equipped with batteries, which have extremely wasteful manufacturing pipelines, or other unsustainable fuel sources,” predicts Raphael Farray, founder of maglev smart roads developer Takurus. “The maglev smart road will also have a longer lifetime before it needs to be repaired because of its prefabricated structuring.”
Although scaling this technology could present a challenge, with Farray citing “zoning and government regulations” as potential barriers, there are many reasons for optimism around the evolution of road transport. The Quantum Machines Unit at the Okinawa Institute of Science and Technology in Japan, for instance, is exploring the potential of maglev cars, while similar technology has also been tested in China.
After road transportation, the other method most commonly used to travel over land is, of course, rail. Here, maglev technology is similarly energising investors, although “as of now, there are only six operational maglev trains globally, located in China, South Korea and Japan”, Ristov admits. “[But this is expected] to increase in the future.”
Boosting the prevalence of sustainable innovations across rail cannot come soon enough. As a mode of transportation, it is significantly underutilised, accounting for just 9 percent of global motorised passenger movement and 7 percent of freight shipping.
This is despite its green credentials, which already outshine those of rival travel methods, with electric locomotives responsible for 70 percent of all passenger kilometres and 48 percent of freight kilometres. For rail, therefore, a sustainable future largely depends on accelerating current trends. Revolution may not be necessary, but more people need to get on board.
Making waves
It is not only transport by land where pioneering advancements are on the agenda. Although the number of people travelling by sea remains relatively small compared to other modes of transport – 31.7 million last year according to Statista – freight is another matter. The UN Trade and Development organisation reports that around 80 percent of all goods are carried by sea.
International trade is almost entirely dependent on transportation by sea. And this, unfortunately, is almost entirely dependent on fossil fuels, with greenhouse gas emissions rising 20 percent over the past decade.
“The majority of the sector still operates vessels running on conventional fuel such as diesel or marine gas oil,” notes Carl Sjölund, partner at global investment firm EQT Partners. “Electrification via batteries is today the most common and viable green alternative for sea transportation but it is only optimal for shorter and lighter tonnage vessels, less so for freight and long distances.”
“Significant investments may also require subsidies or other forms of government support to incentivise activity in the early phase of the transition”
Carl Sjölund,
EQT Partners
Even so, the industry is increasingly exploring green fuel alternatives that are viable for heavier vessels operating across longer routes, with green hydrogen, green ammonia and biofuels emerging, albeit the supply is currently scarce. An example of ideas around sustainable development being turned into action for maritime transportation can be seen across Nordic Ferry Infrastructure’s fleet, where hydrogen-run ferries are expected to become operational in 2026. “In addition to investing in next-generation fuel technology, the company is also working on using energy storage and autonomous technology to support the acceleration of the green transition,” Sjölund adds.
Even considering ambitious new projects such as these, making the future of maritime transport a reality depends on more than just the green agenda. Ports are in dire need of improvement, with the European Sea Ports Organisation claiming that the modernisation of seaports across the continent faces an investment shortfall of €80 billion over the next 10 years. Sustainability will form an important part of this, of course, with €20 billion earmarked for developments around the energy transition, but other areas, including the expansion of port basins, quays and terminal connections are in need of capital too.
“There must be collaboration among all relevant stakeholders, including the sea transportation operators, government, transportation authorities and investors to enable the green transition and the scaling of fuel alternatives,” Sjölund says. “This requires investing in the technological development of new, efficient alternative fuel solutions. Often, these types of significant investments may also require subsidies or other forms of government support to incentivise activity in the early phase of the transition.”
Pie in the sky?
Transport by air may face the biggest challenge of all. According to EU statistics, aviation generates 13.9 percent of transport emissions and although road transport emissions are greater on the whole, decarbonisation efforts for air transport are more difficult to get off the ground. “When I think about my portfolio, decarbonisation is going to be toughest in the aviation sector,” Wright says. “Realistically, we are a long way away from the widespread use of SAFs in the sector.”
SAFs are derived from a number of sources, including waste oil and fats, green and municipal waste and non-food crops, and while their environmental credentials are heralded as potentially ushering in a new sustainable era for air travel, uptake is limited. “SAF is roughly four to six times costlier than jet fuel currently,” Emily Foshag, portfolio manager at Principal Asset Management, admits.
Possible ways of increasing the industry’s adoption of SAFs are being trialled. Airport regulators have an opportunity to support airlines in overcoming the cost barrier and some regulators in Europe are already offering financial incentives to use SAFs as a result. Adoption doesn’t necessarily require the complete abandonment of existing fuel supply lines either. “There is increasing investment in blending SAFs with traditional kerosene-based jet fuel, which still helps to reduce greenhouse gas emissions,” Ristov says.
“SAF is roughly four to six times costlier than jet fuel currently”
Emily Foshag,
Principal Asset Management
Moreover, the greater adoption of SAFs is not the only avenue being explored by the sector. Simply increasing the efficiency of journeys could improve customer satisfaction, lower costs and reduce emissions all at the same time. “By the end of December 2025, European airspace is expected to operate under ‘Free Route Airspace’, a system designed to allow an airline to fly the shortest and most direct route, rather than the less direct, pre-defined corridors traditionally used,” Foshag says. “Once fully implemented, an estimated 20 million tonnes of CO2 should be avoided.”
Direction of travel
There is no straightforward way to evaluate transport’s path towards net zero or its evolution more generally. Some sectors appear closer to achieving sustainability than others, but obstacles can be found across the board. “The transportation sector continues to lag behind other sectors, due to difficulties with infrastructure buildout, consumer adoption, high technology costs, and other limiting factors,” Cheng notes.
Greater access to capital will help and is a more pressing need in some sectors than others. While EVs have received significant private sector backing – over $275 billion across 2022 and 2023, according to the IEA – “SAFs face a steeper climb”, Forshag acknowledges. Even here, though, the obstacles are not insurmountable.
It is true that outside-the-box thinking, from new business models to, as Farray suggests, technological innovations such as digital twin simulations may be necessary to revolutionise an industry with over a century of history behind it, but difficult is not the same as impossible.
Investment figures indicate the shift to cleaner transport is underway across most of the almost 70 member states that make up the International Transport Forum. There are plenty of reasons for optimism, therefore, but as Wright says, green innovations “must be practical” to achieve adoption.
We may not have achieved this in some sectors yet, but there is widespread belief that we will get there.