27 Feb 2024

Future fuels in ground and water transport

Column by NIB’s Senior Economist Ville Mälkönen and Associate Director, Sustainability Johan Ljungberg

The transport sector accounts for a quarter of global greenhouse gas emissions. Unlike in many other industries, where increasing generation of renewable electricity is spurring electrification in many segments, transport struggles with the dual challenges of reducing greenhouse gas emissions and meeting the growing demand for mobility. To address these challenges, the future of transport relies on new sustainable fuels and power sources.

Road traffic with lower emissions

In the quest for sustainable transport, biofuels emerged more than 25 years ago as a prominent bridge fuel in the transition to greener road transport. Biofuels are derived from organic materials, such as plants, algae or animal waste, and have the advantage of being renewable and potentially carbon neutral, depending on their production methods. The most common types are ethanol and biodiesel. These fuels offer a lower fossil carbon footprint compared than traditional gasoline and can be used as an additive to or substitute for fossil fuels using existing refinery and filling infrastructure. Use of biofuels is unlikely to become a long-term solution in all transport modes, as sustainably grown feedstock is scarce.

The shift towards sustainable and low carbon transport sector will be driven by a variety of actions, and the future mobility needs not only cleaner fuels, but also electrification. Especially in road transport electric vehicles (EVs) produce zero tailpipe emissions and are becoming increasingly affordable as battery technology improves. The affordability and environmental impacts of EVs will further improve as the intermittent production of renewable power increases and will allow users take advantage of off-peak power prices in increasingly volatile markets.

Meanwhile, the development of an extensive and user-friendly charging infrastructure is crucial to support this transition. The good news is that the development of a network of public and private charging stations is on its way in many regions.

NIB has especially supported the automotive cluster in Sweden, which includes companies such as Scania, Volvo Cars, SEEL, Northvolt, AstaZero, and RISE. These loans have financed for example projects for developing electric vehicles, battery labs, and battery manufacturing plants.

Waves for cleaner shipping

The maritime industry is moving toward cleaner and more efficient water transport. In 2023, the International Maritime Organizations1 (IMO) member states adopted the IMO Strategy on Reduction of GHG Emissions from Ships, with enhanced targets to tackle harmful emissions.

Making progress faces a variety of challenges. The main technical challenge is the high-energy density fuels that vessels require for long journeys. Traditional marine fuels such as heavy fuel oil and diesel offer this density but come with significant environmental impacts. Finding clean, energy-dense alternatives like synthetic methane (CH4), ammonia (NH3) or hydrogen for long-haul shipping is an ongoing challenge, as these fuels require careful handling and storage. To support innovative marine technologies, NIB is financing Finnish technology group Wärtsilä Corporation investment loan for the financing of the company’s research and development activities for accelerating the transition to marine decarbonisation and renewable energy.

However, electrification has become a viable option in shorter distances such as ferry and harbour operations. NIB has recently supported the decarbonisation of the shipping industry by financing for example ESL Shipping’s investment in electric hybrid vessels. The electric hybrid vessels reduce CO2 and harmful air emissions with the fuel mix consisting of low-sulphur marine gas oil, biodiesel, and a battery pack.

NIB continues to support projects that enable the shift towards cleaner and effective transport. Read more about what we are already financing here.

1 IMO is the United Nations specialised agency responsible for the safety and security of shipping and the prevention of marine and atmospheric pollution by ships. The IMO strategy states a common ambition of reducing greenhouse gas emissions from international shipping and eventually achieving net-zero GHG emissions from international shipping. As part of the UN family, the IMO is actively working towards the 2030 Agenda and the associated SDGs. IMO currently has 175 member states.