The environmental footprint of human activities, including transportation, is multifaceted and complex, driven by greenhouse gases such as CO2 and CH4, and pollutants like PM2.5 and NO2. While rail transport is inherently more efficient and environmentally friendly compared to road transport, it still significantly contributes to GHG and air pollutant emissions, primarily due to the widespread use of diesel.
The complex path to rail decarbonization
The urgency to decarbonize is clear, but the question of how to achieve this goal is complex. While certain energies seem to be prioritised today, the future decarbonized rail market will be characterised by the heterogeneity of greener alternatives related to the wide variety of applications and use cases. The challenge lies not only in choosing between full and partial decarbonization but also in navigating a complex landscape of propulsion technologies – each option, whether electrification, hydrogen, batteries, or biofuels, presents its own unique set of advantages and drawbacks. Decarbonizing the rail sector is essential, but the real question lies in understanding the true economic costs involved in this transformation.
Understanding the total economic cost of rail decarbonization
Historically, the TCO (Total Cost of Ownership) has been a primary decision-making tool. However, TCO alone only tells part of the story. It neglects the hidden costs that are borne by society, not just the railway operator. To make well-rounded and informed decisions, it's essential to move beyond traditional cost assessments. In order to accurately identify the true economic costs of rail decarbonization, our research proposes a comprehensive methodology for the TSC (Total Social Cost). This includes both the TCO and the TEC (Total External Cost). By doing so, we not only consider the direct costs related to the acquisition and operation of rolling stock but also integrate the externalities - these are often hidden, indirect costs that impact society.
The TCO includes investment costs and operational costs. Investment costs cover the acquisition of rolling stock and infrastructure, potential subsidies, and the residual value of rolling stock at the end of its service life. While these amounts can be substantial, they can be amortized over the long term. Operational costs, which are recurrent, include expenses for energy, track access, maintenance, labour, insurance, and taxes. Our analysis spans the entire lifespan of the rolling stock and incorporates prospective scenarios, including changes in energy costs and track access charges. We use the WACC (Weighted Average Cost of Capital) of a rail operator to update our results.
The TEC encompasses externalities - hidden costs associated with environmental and social impacts. These include air pollution (emissions of fine particles and nitrogen oxides), noise pollution, accidents, well-to-tank emissions, and climate change. We assess the environmental impact by considering the GWP (Global Warming Potential), enabling us to calculate the present value of emissions over time.
Comparing decarbonization options
We demonstrate the value of TSC analysis through a real-world regional case study. In this study, we compared four decarbonization options: a single-mode electric solution, a dual-mode electric-hydrogen solution, a dual-mode electric-battery solution, and a single-mode biofuel solution.
When evaluating these alternatives across different cost categories, not all solutions prove to be equally advantageous. From an operational cost perspective, considering the lifecycle of the rolling stock, the dual-mode electric-battery option emerges as the most favourable, followed by the biofuel option. The all-electric option has a relatively high cost, largely due to the significant fees paid to the infrastructure manager for rail track usage. Unlike the other alternatives, this option includes a notional charge that allows the operator to be billed for the electrification of the line based on their usage rate of the newly electrified section. It also includes the cost of electric energy, which, unlike diesel, hydrogen, or biofuels, is not directly borne by the carrier.
The dual-mode electric-hydrogen alternative exhibits a particularly high total cost of ownership, primarily due to the substantial investment required in rolling stock. From an external cost perspective, the electric and dual-mode alternatives demonstrate a clear advantage due to the near elimination of atmospheric pollutants and greenhouse gas emissions during operation. Although to a lesser extent, the use of biofuels also significantly reduces external costs compared to the reference solution.
The role of abatement cost in evaluating decarbonization
A critical metric in our analysis is the abatement cost, which evaluates the economic efficiency of different decarbonization alternatives. It calculates the expense incurred to reduce CO2 emissions by one ton, offering a clear comparison of the financial viability of each option. A lower abatement cost indicates a more economically advantageous solution.
Our analysis highlights a negative socioeconomic abatement cost for all decarbonization alternatives, emphasising the medium to long-term economic benefits for society of decarbonizing. The dual-mode electric-battery alternative offers the lowest abatement cost, despite its substantial initial investment, striking a balance between economic costs and socio-environmental benefits.
The dual-mode electric-hydrogen alternative presents a higher socioeconomic abatement cost due to higher initial and operational costs. However, it shows promising long-term potential, particularly in terms of reducing greenhouse gas emissions. The single-mode electric alternative also demonstrates a negative abatement cost, underscoring its economic viability, although its abatement cost is higher than that of the first two alternatives. The biofuel alternative, however, produces mixed results. While its abatement costs are relatively low, it has a significant environmental impact in terms of air pollution and greenhouse gas emissions. Additionally, its total cost of ownership is comparable to that of diesel, which limits its economic appeal.
However, the choice of the most suitable alternative strongly depends on regional priorities, budget constraints, and specific rail infrastructure characteristics. The network architecture and market structure of the studied geographic area also play a crucial role in determining the most appropriate decarbonized option. Therefore, a detailed analysis by geographic area and use case is essential to provide precise and relevant recommendations.
Towards a comprehensive decision-making approach in rail
To effectively assess the competitiveness of decarbonized rail alternatives, the rail industry must adopt a more comprehensive approach by incorporating the TEC alongside the TCO in decision-making processes. This ensures that hidden societal costs are accounted for in evaluations. Additionally, it is crucial to consider the regional context, as the optimal decarbonization alternative will vary depending on the architecture of the rail network, market structure, energy resources, and public policies.
Decision makers should prioritise long-term environmental and social costs over short-term financial considerations. The concept of a double dividend underscores that decarbonization efforts can yield significant environmental benefits while also creating economic opportunities through green jobs and innovation. By integrating these key takeaways, rail decision-makers can fully understand the true cost of rail decarbonization, enabling rail industry stakeholders to make more informed and sustainable decisions.