Carbon abatement costs for renewable fuels in hard-to-abate transport sectors

Abstract

Renewable fuels can help to reduce carbon emissions from transportation. To inform planning decisions, this paper estimates carbon abatement costs of replacing fossil fuels with renewable hydrogen, ammonia, or Fischer–Tropsch e-fuel in Norwegian freight transport across long-haul trucking, short-sea shipping, and medium-haul aviation. We do this by applying a holistic cost model of renewable fuel value chains. We compare abatement costs across transport sectors and analyze how policy interventions along the value chains – such as carbon pricing, subsidies, and de-risking policies – impact carbon abatement costs. We estimate abatement costs of 793–1,598 €/tCO₂ in 2020 and -11–675 €/tCO₂ in 2050, depending on the electricity source, transport sector, and type of fuel. A 1 €/kg reduction in the cost of hydrogen - e.g. through a subsidy - lowers present-day carbon abatement cost by 95 €/tCO₂ for hydrogen-powered trucking, 133 €/tCO₂ for e-fuel-powered shipping, and 143 €/tCO₂ for e-fuel-powered aviation. We further show that reductions in the weighted average cost of capital materially decrease abatement cost, particularly for renewable hydrogen due to its relative capital intensity.