Transport: A Climate Risk Hotspot in Infrastructure Portfolios

Off-Track: Transportation and Climate Change

Transportation struggles to break free from polluting past

Whereas the energy transition is truly underway, this year passing the historical milestone of wind and solar surpassing coal in power production globally^[1], 95 % of the world's transport energy is still coming from burning fossil fuels, despite the innovations made in the field.

Transportation accounts for about 23% of total man-made CO2 emissions worldwide in 2025 according to the UN, up from 16.5% five years ago, and is now a higher contributor to climate change than energy. Road vehicles are the primary culprit, accounting for nearly 75% of transport’s GHG emissions^[2]

The picture looks very different between the Global South and the North. Cities in Africa and Asia are gridlocked with cars and motorbikes making the air thick with fumes whereas in Europe cars have been subject to ever higher taxes and restrictions, reducing their use. Oil’s contribution to society has been principally for cars and trucks with petrochemicals now beginning to take a greater share. There have been markedly different approaches to the environmental harms of transportation. In many oil-producing countries in the Middle East, Africa and South America, decades of fuel subsidies have encouraged car use and scant attention has been paid to emission standards whereas one of the earliest legislative acts from the EEC (European Economic Community) was the 1970 Directive relating to measures to be taken against air pollution by emissions from motor vehicles.

A study published December 2024 in Lancet Planetary Health^[3] found that long-term exposure to air pollution increased deaths by 1.5 million deaths per year in India, when compared to conditions if India met the World Health Organization’s recommendations for safe exposure. Traffic is the largest contributor (37%) to urban air pollution in India. A study done in 2019 discovered that 4.5 million tons of excess nitrogen oxide (Nox) pumped out by car exhausts can be linked to an extra 38,000 premature deaths worldwide. This is on top of the 3.7 million deaths caused by air pollution worldwide each year.

Air pollution is the largest environmental threat to human health worldwide.[4] Transportation account for 66.6% share of total U.S. petroleum consumption by major end-use sectors.

Shipping is a growing source of greenhouse gas (GHG) emissions, analysed at 1,075 million tonnes five years ago. Without drastic action, emissions from global shipping is estimated to rise 130% on 2008 levels by 2050.

The sharpest growth in emissions among all sub-sectors is in aviation. In 2023, aviation accounted for 2.5% of global energy-related CO2 emissions, having grown faster between 2000 and 2019 than rail, road or shipping[5]. It is one of the most carbon intensive activities and has been less burdened by carbon action than the other transportation sectors.

Imperative for Action

Legislation on emission control in vehicle engines has steadily tightened over the years to tackle air pollution but transportation in respect to climate change has not been addressed with any of the same urgency as with the energy sector. Transport emissions have grown at an annual average rate of nearly 1.7% from 1990 to 2021, faster than any other end-use sector (IEA, 2023a). There is urgent need for transformative action that will accelerate the transition to sustainable transport globally.

For several years now the UN and scientists across the world have raised the alarm about the multiple accelerating effects of climate change. Antonio Guterres, the secretary-general of the UN, has warned in the starkest language about the situation, saying we are in “code red” and that “we must close the emissions gap before climate catastrophe closes in on us all.” The world’s transport is still depending on fossil fuels and that is a breach of the goal to limit climate change to 1.5°C. It has been recently established that we are far from the Paris Agreement goal of limiting global warming to well below 2°C.

Aside from the problem of transportation’s contribution to climate change, the momentum of climate change will have perilous effects on transportation systems. Transport infrastructure is highly vulnerable to climate change induced risks of excessive heat, wind and flooding. These incidences of climate change, which are growing in intensity and occurrence, pose an array of risks including for asset owners and the financial sector when infrastructure assets are severely damaged.

The UK, a notably moderate climate, is experiencing regular disruptions to rail, road and air travel from flooding, storms and high winds. In October 2024 floods caused by climate change in Valencia caused devastating damage, resulting in hundreds of fatalities and widespread destruction of infrastructure like roads and bridges. In other parts of the world more used to severe storms, typhoons and hurricanes are hitting with ever greater force, crippling infrastructure. Repairs to roads, bridges and other transport assets following hurricane Helene in North Carolina in 2024 are estimated at approximately US $5 billion. Another $7bn has been needed for reconstruction costs in the Philippines following typhoon Haiyan in 2013 in addition to the government’s initial estimate at $559 million[6]. Haiyan highlighted the fundamental need for resilient infrastructure due to the fact that aid efforts were severely hampered by poor road, air and sea connections.

Extreme heat has become commonplace in the Middle East with adverse and dangerous effects on transport systems such as rail track buckling, road deformation, and runway surface deterioration. It also impacts operations by causing equipment overheating, requiring airlines to limit take-off weights.

It will take steep investments to ensure that transport infrastructure is upgraded to become climate resilient but significant sums are spent on maintaining and fixing existing infrastructure that is not fit for purpose. World Bank estimates suggest that the overall net benefits of investing in resilient infrastructure in developing countries could amount to $4.2 trillion over the lifetime of new infrastructure—a $4 benefit for every dollar invested in resilience.

Urban sprawl is a phenomenon that has grown in magnitude over the past 30 years. Over 55% of the world’s population lives in urban areas, a proportion that is expected to increase to 68% by 2050. By 2030, 10 new cities will reach megacity status^[7], where populations exceed the 10 million mark, bringing the number to 43. This shows the pressures that will bear on infrastructure and the critical importance that infrastructure is resilient and clean. Strategies must be in place to develop transportation infrastructure cleanly. Over a billion people still lack access to an all‑weather road and this need will to some extent be met.

According to a Mckinsey report,^[8] road and rail infrastructure is not ready for the future of mobility as the majority of government transport infrastructure budget is spent on maintaining or replacing aging existing systems. What is lacking is a vision to implement the connectivity, automation and sustainable solutions that exist.

Core Technical Strategies

Electrification is the preferred method for decarbonising transport, and every country has an electric vehicle (EV) policy. Some transport modes can be completely electrified, such as rail and most urban public transport, with a very high reduction of GHG emissions.

Biofuel introduces a biodegradable component, is used in blends, and in some countries has been used for decades. Brazil has used bioethanol from sugarcane since the 1970s, as has the US from corn. Sweden invested in the 1980s and has one of Europe’s largest networks for E85 and biogas-fuelled vehicles. Bioethanol is produced from corn, wheat, sugar beet, rye and barley; biodiesel is produced from oil from rapeseed, soy or palm oil. Biofuel is primarily deployed in blends for compatibility reasons, with vehicles requiring little or no modification.

Carbon taxation is the core strategy being applied to the shipping and aviation industries but is facing hurdles such as US resistance to the shipping tax. The industry’s Net Zero Framework[9] suggests an average carbon price of just under $200/tCO2 starting in 2025 will be needed for the shipping sub-sector to reach net zero by 2050.

The international adoption of CORSIA, the Carbon Offsetting and Reduction Scheme for International Aviation, occurred in 2016 when the International Civil Aviation Organization's (ICAO) member states adopted it as a global market-based measure to address CO2 emissions. Starting in 2019, airlines began reporting their emissions, and from 2021, they became subject to offsetting obligations for emissions growth above 2019 levels[10].

Implementation Capacity – key enablers and barriers

As the future is electric for vehicles, most car makers now only make electric models. Targets for EV adoption have not however been fulfilled, stalled by concerns over range, cost, and adequacy of charging infrastructure.

Whilst it has proven a very successful model for logistics fleets, it is not appropriate for long-haul transport due to battery size. Alternatives for heavy vehicles have been used such as bio-LNG, a mix of biofuel with Liquified Natural Gas.

Biofuels have been kept in check on sustainability grounds, for fears of causing deforestation, diverting land that could be used for agriculture or exploiting land rich in biodiversity. Second generation biofuels, produced from non-food crops such as jatropha or flax or hemp, avoid these problems and would therefore make a better solution but these, like innovative third generation applications such as algae cannot be upscaled at present.

The United Nations’ International Maritime Organisation (IMO) was expected to vote on the 16th October 2025 to adopt its Net-Zero Framework, which would levy an estimated $10 billion a year on the shipping industry by taxing carbon emissions. However, the United States upped its efforts to derail its adoption by pushing for last-minute procedural changes and threatening smaller countries with retaliatory tariffs thereby adjourning the process[11]. In April, 63 countries voted yes (including the EU27, Brazil, China, India, Canada, UK, Korea and Japan) versus a minority opposition from 16 states.

Aside from some frontrunners, the use of zero-emission shipping fuels has yet to begin but zero-emissions fuels will need to meet 5–17 % of maritime shipping needs in 2030 and 84–93 per cent by 2050 (Emissions Gap Report 2022 – The Closing Window.)

Sustainable aviation fuels are required to meet 13–18 % of aviation fuel needs in 2030 and 78–100% in 2050, requiring a significant increase in uptake.

Sector-specific Trends

The number of electric vehicles globally rose by more than 25% in 2024 with a trend of new car sales being electric (new car models are mostly electric). China has embraced EVs completely and 70% of the global figures are attributable to China. Air pollution had become so serious in China’s big cities by 2018 that it necessitated drastic action. This year BloombergNEF predicts another 25% jump as the cost of  lithium-ion batteries falls and production of more affordable EV models become available. China remains the leading market, followed by Europe at 17% of sales and the US at 7%. Emerging markets are ramping up due to sales from Chinese automakers.

Another trend is the shift that has taken place in cities away from car use towards lower-emitting modes such as public transport and cycling.

In aviation, as of 2024, 126 States have volunteered to participate in CORSIA’s first phase (2024‐2026) on a voluntary basis. Critics however say that the forecasted emission reductions (~1.3-1.7 Gt CO₂ over 2024-35) represent perhaps 15-21% of the sector’s emissions in that period, meaning ~80-85% of emissions growth or remaining emissions are not addressed by the scheme.

Ammonia-powered shipping is an innovation taking place in the global shipping industry.

Ammonia, NH3, does not contain carbon and therefore will not release any CO2 into the atmosphere. Compared to other zero carbon fuels, ammonia is preferable due to the relative ease of storage and handling, cost, low explosivity, scalability and superior volumetric energy density. Hydrogen as a fuel source needs ammonia as a storage carrier for its liquid form.

The routes to net zero are complex and fraught with complications. For example, electrification is not entirely contributing to GHG mitigation if it is sourced from fossil fuel produced electricity. Green ammonia has high toxicity and corrosivity and is very costly.

The EDHEC’s Climate Institute’s ClimaTech project examines dozens of strategies for how transport asset owners can overcome risks associated with the transition to low carbon assets and to physically resilient assets.

Example Output – Transport Sector

This data and analysis is provided by EDHEC Climate Institute©. The use of this data is governed under EDHEC Climate Institute© terms of use.