Insights
Clean transportation – benefits, challenges & opportunities
Introduction
Clean transportation, which includes electric vehicles (EVs), hydrogen-powered vehicles and other environmentally friendly modes of transport, is increasingly seen as a key solution to addressing climate change, reducing air pollution, and improving public health. As governments and industries work towards decarbonising the transportation sector including that of haulage and mass transit systems, the benefits and investment opportunities in clean transportation are becoming more apparent but are not without challenge.
Benefits of clean transportation
Reduction of greenhouse gas emissions
The primary benefit of clean transportation is its potential to significantly reduce greenhouse gas emissions, which are a major contributor to climate change. Electric vehicles (EVs), for example, produce no tailpipe emissions, helping reduce carbon dioxide (CO2) emissions in urban environments where traffic is dense. A study by the International Council on Clean Transportation (ICCT) highlights that EVs emit 40-60% less CO2 compared to traditional internal combustion engine vehicles over their lifetime (ICCT, 2020).
Improved air quality
Transport is a leading source of air pollution, contributing to particulate matter, nitrogen oxides and volatile organic compounds. Clean vehicles produce fewer pollutants, leading to improved air quality, especially in urban areas. According to the World Health Organisation (WHO), better air quality can prevent respiratory diseases, heart conditions and premature deaths (WHO, 2021).
Energy independence
Clean transportation, particularly the adoption of electric and hydrogen vehicles, will reduce dependency on fossil fuels. As countries transition to renewable energy sources like wind, solar and hydroelectric power, the transportation sector can contribute to energy independence and security by relying on domestically produced electricity or hydrogen.
Sector alignment with United Nations Sustainable Development Goals (SDGs)
The UN SDGs are interconnected and clean transportation plays a vital role in advancing a sustainable, inclusive and climate-resilient future across the globe.
SDG 3: Good health and well-being
Through the reduction of air pollution and vehicle emissions, clean transportation improves public health, particularly in urban areas, where transportation is a major contributor to air quality issues and respiratory diseases.
SDG 7: Affordable and clean energy
Clean transportation naturally supports the transition to renewable energy sources and the reduced dependence on fossil fuels. It promotes the use of clean energy for vehicles as well as associated infrastructure.
SDG 9: Industry, innovation and infrastructure
Clean transportation drives innovation in the development of electric vehicles (EVs), sustainable fuel technologies and smart infrastructure. It encourages the building of resilient, sustainable and green infrastructure.
SDG 11: Sustainable cities and communities
The sector contributes to the development of sustainable cities by reducing air pollution, traffic congestion and greenhouse gas emissions. It also enhances the accessibility to affordable mobility within and outside of urban spaces.
SDG 12: Responsible consumption and production
The clean transportation sector promotes more sustainable practices in manufacturing, resource use and product life cycles, particularly through electric vehicle production, recycling of materials and reducing waste.
SDG 13: Climate action
A key focus of clean transportation is in reducing greenhouse gas emissions and mitigating climate change. Transitioning to electric vehicles, cleaner fuels and efficient transport systems directly addresses climate action goals.
Challenges facing the adoption of clean transportation
Charging infrastructure
The availability of charging stations is critical to the widespread adoption of electric vehicles. While some countries and regions have made significant strides in building out charging infrastructure, many areas, especially rural ones, still lack adequate charging facilities. The expansion of this infrastructure requires substantial investment and coordination between governments, private enterprises and utility companies.
Battery technology and sustainability
Batteries are central to electric vehicles and other clean transportation technologies. However, the current battery technology poses challenges in terms of energy density, cost and environmental impact. Extracting raw materials for batteries, such as lithium and cobalt, can have significant environmental and social consequences. Developing sustainable battery technologies and recycling systems is crucial for minimising these impacts.
High initial costs
One of the major barriers to adopting clean transportation is the high upfront cost of electric vehicles. While the total cost of ownership may be lower over time due to savings on fuel and maintenance, the initial purchase price remains a significant hurdle for many consumers. However, prices are expected to decrease as technology improves and economies of scale are realised.
Investment opportunities in clean transportation
Vehicle manufacturing
As the global demand for electric vehicles continues to rise, companies involved in the production of EVs stand to benefit. Key players are already capitalising on the shift, but smaller manufacturers and startups are also entering the market. Investors have opportunities to support the development of new models, as well as companies focused on vehicle efficiency, automation, charging solutions and technology.
Infrastructure
The expansion of EV charging infrastructure and upgrades to mass transit infrastructure represents a promising investment opportunity. Companies that design, install and operate charging networks are positioned for growth. Furthermore, partnerships between electric utilities and charging providers offer potential for scalable solutions to meet future demand. Governments are also raising cash to deploy into significant national public transport infrastructure.
Battery technology and recycling
Investing in companies that focus on sustainable battery technologies or recycling is another growing sector. Companies working on solid-state batteries, which promise higher energy density and safer performance, are attracting significant interest. Additionally, businesses that specialise in battery recycling could play a key role in reducing the environmental impact of widespread EV adoption.
Hydrogen economy & sustainable fuels
Hydrogen-powered vehicles and infrastructure are emerging as a clean alternative for sectors that are harder to electrify, such as heavy-duty transport and aviation. Investment in hydrogen production, storage and fuelling infrastructure offers long-term potential, particularly in regions with abundant renewable energy resources for green hydrogen production.
Mobility
Opportunities also lay in upgrading public transport to provide cheap and reliable travel options but also within more affordable means of personal mobility, such as electric scooters, motorcycles and bikes which are depended upon by many developing countries.
Example investment opportunities*
- Aptiv PLC – Develops EV sensors and software for autonomous and safer driving.
- Eversholt Funding PLC – UK rail group owning a passenger fleet comprising of 2,691 vehicles, of which 1,954 are electric-powered and 236 are bi-mode.
- Network Rail Infrastructure Finance PLC – UK government agency for transport, using bond proceeds to build out national rail infrastructure.
- Westinghouse Air Brake Technologies Corp: Rail technology company focused on sustainable freight and passenger transport networks.
- Yadea Group Holdings Ltd – Manufacturer of electric bicycles, motorcycles and scooters.
- Valeo SA – Supplier of electrification technology for automotives; for example heat pumps for hybrid vehicles, radar sensors and components for electric motors.
- Japan Railway Construction Transport and Technology Agency – Investment proceeds used to invest in Japan’s public transport infrastructure.
- Motability Operations Group PLC – The UK’s largest provider of mobility solution for people living with disabilities and adapted cars. Seeking to electrifying their fleet.
*Investment opportunities quoted are examples only. There is no guarantee investment portfolios offered by Path Financial will include all or any of these now or in the future.
Conclusion
Clean transportation presents significant environmental and health benefits but challenges such as high costs, infrastructure needs and technological limitations remain. However, the sector’s growth is inevitable and opportunities for investment in manufacturing, technology improvements, charging infrastructure, battery technologies and hydrogen solutions are abundant. As governments and industries continue to support clean transportation, it is poised to reshape the global transportation landscape in the coming decades.
- International Council on Clean Transportation (ICCT). (2020). Electric Vehicle Emissions. Retrieved from https://theicct.org/
- World Health Organisation (WHO). (2021). Air Pollution and Health. Retrieved from https://www.who.int/
RISK WARNING
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.