Rail Sector Tops Transportation Industry in Terms of Climate Risk, Report Finds

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The rail sector of the transportation industry is best positioned for long-term climate target successes while aviation carries the most risk, according to a new report on transportation climate risks.

The rail sector, which accounts for 1% of the total carbon dioxide emissions from transportation, is the least exposed to ESG risk because it is the most energy efficient in the industry, according to the report.

Still, rail can continue to make improvements with more electrification of rail networks, such as in the United Kingdom where 40% of the railways are electric. Also, the sector can further advance decarbonization by replacing diesel with alternative fuels. Battery operated and dual powered locomotives are among the advancements being made in the industry.

Fitch Ratings is adding to its Climate Vulnerability Scores across all corporate sectors to help investors and financial institutions understand the future implications of climate risks. The transportation report looks at airlines, shipping, rail, road freight and road passenger vehicles.

Fitch gives an analytical view of corporate exposure to a rapid low-carbon transition between 2025 and 2050 drawing on the UN Principles of Responsible Investment Inevitable Policy Response Forecast Policy Scenario, which reflects policy, market and technology trajectories to produce long-term forecasts.

In addition to rail, the report finds passenger transport to also be low risk, especially with improving technologies and continued adaptation of fuel cell and electric vehicles. Regulation’s such as the EU’s Clean Vehicles Directive that requires one third of publicly acquired vehicles, including buses, to be low emission by 2030.

The maritime shipping and road freight sectors have above-average risks throughout the outlook.

The report finds that shipping is a fragmented sector with fewer binding regulations than other transportation fields, and coordination is needed across the value chain and infrastructure to make improvements. The International Maritime Organization (IMO) has a goal of reducing greenhouse gas emissions by 50% and carbon intensity by 70% through 2050.

Fitch says the sector can make improvements with more efficient operations and machinery, hydrodynamics that could reduce fuel usage by up to 15% and the use of alternative fuels, such as liquefied natural gas that emits up to 25% less carbon dioxide.

Road freight can also improve its risks through advanced vehicle technologies, alternative fuels and electronification.

Switching to biofuels and hydrogen could reduce emissions by 20% through 2050, according to the International Road Transport Union. While electronification is advancing for passenger cars and light-weight trucks, it still needs improvement for heavier vehicles and long-haul transport, according to the report.

Still, the IRU sees battery electric trucks accounting for more than half the fleet by 2045. Fully electric road systems can help the transition, according to Fitch, but that requires significant infrastructure investment.

There are growing efforts to make improvements, such as one at California ports and another by WattEV, to improve heavy truck efficiency and charging infrastructure.

The airline industry is at the most risk, according to the report. Carbon emissions from global aviation grew by nearly 4% each year over the last decade and accounted for 2% of the world’s total emissions in 2019.

Without improvements, the report says, aviation could be responsible for a quarter of the world’s carbon emissions by 2050.

The report says that airlines need to improve operations, such as adding more fuel efficient aircraft, sustainable aviation fuels and carbon offsetting. Carbon offsetting, Fitch says, could result in up to 60% of the emissions improvements needed to hit airline sector 2050 reduction targets.