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Source: BCG
Electrification is transforming transportation, turning gas-guzzling automobiles and light trucks into a clean mode of getting from point A to B. But electric-powered vehicles are only part of the answer if the transport sector is to achieve net-zero emissions by 2050. For areas where electrification isn’t a realistic option—especially hard-to-abate sectors such as aviation and shipping—low-carbon fuels will be essential.
Between biofuels, power-to-X fuels that depend on green hydrogen, and fuels that rely on blue hydrogen made from natural gas, we expect a $40 to $50 billion global market in low-carbon fuels to materialize by 2030, driven by early adopters willing to pay a premium to meet decarbonization pressures and benefit from regulatory incentives.1 To seize a slice of this market, players need to act now to secure access to resources, identify and develop new business opportunities, and gain a favorable position in the value chain.
STRATEGIC INSIGHTS PARTNER
A Sector Searching for Solutions
Transportation accounts for about 16% of global CO2 equivalent emissions, with only industry and power generation being bigger polluters. Curbing these emissions is a huge challenge; since 1990, transportation emissions in the European Union have worsened even as the performance of other economic sectors has improved. And despite increasing efforts from regulators to promote them, fossil-fuel alternatives currently make up just 4% to 5% of transport fuel consumption worldwide.
Several factors are behind transportation’s poor emissions record. Aircraft and maritime vessels require fuels with a high energy density—fuels that produce a large amount of energy per unit volume—which for most applications has ruled out the use of electric power in favor of fossil fuels. And in heavy road transportation, the cost of new charging infrastructure, limits on vehicle range, and excessive charging time have been major sticking points for electric vehicles.
Low-carbon fuels—in particular, biofuels and fuels based on blue and green hydrogen—offer a variety of potential solutions to these challenges. (See “Facts on Fuels.”) Hydrogen can be used as a fuel on its own, but fuels formed by combining it with other molecules have a higher energy density and can be more easily transported and stored. Additionally, some of these variants are interchangeable with fossil fuels; as a result, they can be blended with fossil fuels to reduce overall emissions or they can replace fossil fuels entirely, without requiring expensive changes to existing internal combustion engines, vehicle fuel systems, or fuel distribution networks.
