The mobility revolution

investment viewpoints

The mobility revolution

Kristina Church - Senior Investment Strategist for sustainable investment

Kristina Church

Senior Investment Strategist for sustainable investment

Mobility – the way people and goods move – sits at the heart of our economy and lifestyles. A mobility revolution is already underway and represents a USD 2 trillion annual investment opportunity. 

Transport currently accounts for 14% of all global CO2 emissions (or 9.2 Gt CO2e each year) and is one of the few sectors where emissions continue to rise yearly. A transition to net-zero transportation is vital and yet to fuel economic growth, demand for freight and personal transportation is rising sharply, particularly in developing countries, which risks setting transport even further from a net-zero target.

This could be a pivotal moment for transportation, not least due to the impact of the COVID-19 pandemic. We believe our transport system is currently WILD (Wasteful, Idle, Lopsided and Dirty ). Transport needs to shift to a CLIC (Circular, Lean, Inclusive and Clean) model, whilst still enabling, and even driving, a recovery in economic growth and mobility This will require a concerted effort by policymakers, consumers and corporates to ensure circularity in vehicle manufacturing and afterlife, leaner usage of mobility options and cleaner transportation modes, whilst also ensuring that transportation options remain inclusive for all.

Despite the urgent transition needed in transport, the latest report from the Transition Pathway Initiative (TPI) found only 35% of transport companies are aligned with even the least-ambitious Paris-aligned benchmarks and less than one-fifth have reduction plans aligned with a path to keep global warming at 2°C or below. 

The COVID-19 crisis presents us with a unique opportunity to revolutionise our transport sector and transition to a more sustainable model. We estimate CO2 emissions may fall 4-8% in 2020 and road transport emissions c14%, as a result of COVID-19 travel restrictions. The pandemic has driven a dramatic drop in all transportation as many countries have imposed restrictions to public movement. In many cities, for the first time in years, roads are traffic-free and air pollution has fallen more than 50%.The TomTom traffic index showed that in 2019, the average person spent an extra 87 minutes in traffic than in 2018 but in 2020, cities with COVID-induced travel restrictions have seen congestion drop by up to 85%. Air travel has fallen close to 90% in many regions. Travel restrictions have impacted freight and hurt global supply chains.

The COVID-19 crisis presents us with a unique opportunity to revolutionise our transport sector and transition to a more sustainable model.

But to reach the 1.5C target of Paris Agreement, total greenhouse gases (GHG) must fall 7.6% per annum by 2030 and transport emissions almost halve by 2050. Before the COVID-19 pandemic, the average personal car sat idle in parking spaces for 96% of the time; the rise in online deliveries, ridehail and air travel was fuelling greater air pollution and urban congestion; and internal combustion engine vehicles (ICEs) were the predominant source of propulsion. 

With lockdowns beginning to ease, and signs of a resurgence in air pollution in some regions,
the big question now is whether we will see a return to business-as-usual for transportation and a return to emissions growth in a post-COVID world. It is vital that the global economy moves to ensure a more sustainable style of personal transportation – whether that be how people commute to work or how they travel for leisure and longer trips. It is also critical to transition towards more sustainable transportation of goods, given ever-rising pressure on global supply chains and increasing appetite for on-demand delivery.

However, the danger is that a disorderly recovery results in newer, dirtier transportation habits , such as increased use of personal vehicles versus public transport for hygiene reasons. In our view, the crisis is more likely to prove a catalyst for further acceleration, rather than a hindrance to progress. Electric vehicle penetration is close to a tipping point and technology improvements mean that life-cycle emissions are now lower for battery electric vehicles (BEV) than combustion
engine cars (ICE). Sustainable raw material sourcing and end-of-life battery recycling options are also becoming much more widely available.

One of the major challenges we face is the need to decarbonise harder-to-abate, long distance and heavy-duty transport, not just personal road transport. Short-haul, heavy-transport can largely be electrified. However, long-haul travel is comparatively hard-to-decarbonise via electrification, primarily owing to current limits on battery weight and capacity. Here, technology developments will be required to make decarbonisation solutions (such as ammonia, synfuels and hydrogen) more accessible and cost-effective. 

We expect new habits to be formed, old habits to return but we hope that policy support will encourage all transport modes to grow more sustainable. We see the post-COVID Transport Revolution offering opportunities across Technology, IoV, Infrastructure, Mobile Payments, Green Buildings, MaaS, biofuels, hydrogen, the electric vehicle supply chain and emerging, cleaner transport modes such as micromobility. We also see risks for some incumbent business models such as car ownership, combustion engines, air travel and oil demand.

At Lombard Odier, we have sustainability as a core conviction and believe the sustainability of transport is a cross-cutting theme across multiple industries and sustainability challenges. We believe a transport revolution is underway to untangle the complex web of emissions from economic development.

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This could be a pivotal moment for transportation, not least due to the impact of the COVID-19 pandemic. We believe our transport system is currently WILD (Wasteful, Idle, Lopsided and Dirty). Transport needs to shift to a CLIC (Circular, Lean, Inclusive and Clean) model, whilst still enabling, and even driving, a recovery in economic growth and mobility.

 

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