How can Freight Buyers minimise carbon tax in their supply chains?

Moving freight around Australia will soon attract carbon tax.  You can reduce this new cost in 2 ways:

  1. Use less fuel
  2. Use cleaner fuel

While they control fuel use, transporters need their customers’ help to manage carbon liability. Moving the discussion past who carries the carbon tax burden, the question now becomes: How can Freight Buyers minimise carbon tax in their supply chains?

Carbon Tax = More Fuel Tax

Carbon tax on Transport will be applied through the fuel tax system. Fuel tax is a consumption tax, and fuel tax credits are needed to ensure that fuel tax is not burdened on transport businesses, but rather the final consumer. This is consistent with Australia’s tax system more broadly, where consumption taxes are intended to apply to final consumption rather than business inputs.

If transporters pass on carbon tax (that is, reduced fuel tax credits), Freight Buyers wear the cost; and if carbon tax is not passed on, their transport partners may become unviable. So, as a consumption tax based on Freight Buyers’ demand for transport services, carbon pricing gives Australian shippers a clear incentive to make their supply chain buddies improve fuel efficiency and switch to cleaner fuels.

How Transporters improve Fuel Efficiency & Switch Fuels

Using Less Fuel requires efficient equipment and efficient operations. The Australian government’s Energy Efficiency Exchange reviews a wide range of fuel saving measures for rail, road and air transport. If you total the high side of the energy savings estimates, you’d think that 50% fuel savings or more are there for the taking. But it’s never that simple. The success of each measure depends on its operational setting and many only deliver long term results if adopted systematically. For instance, vehicle eco-driving improvements which promise 10% fuel savings need all drivers to have specific training in expected behaviours, backed up by regular refresher training and constant performance management to always maximise fuel savings.

When it comes to Cleaner Fuels, so-called ‘drop-in’ fuels such as ethanol, biodiesel and renewable diesel are the easiest to introduce because they can use existing fuel delivery infrastructure (with some adaptations). And these Biofuels offer great opportunities for immediate reductions in carbon tax due to their zero rating for carbon emissions under the Clean Energy Future laws. Gaseous fuels like LNG and CNG, however, need capital investment in new engine technologies as well as dispensing equipment and infrastructure to create a reliable and extensive supply network.

Ultimately, Transport firms who thrive under carbon pricing will be those using a myriad of actions that lead to lower carbon and energy use.

How Freight Buyers can help

Freight Buyers across the retail, resources, construction, manufacturing, energy and agriculture sectors increasingly insist on low carbon transport. The next step is to think of carbon tax as a shared liability with joint commercial incentives to improve productivity and fuel efficiency. They can help their transport partners by measuring, co-investing and even “opting-in” to manage carbon in their supply chains:

1. Measure

At minimum, an accurate picture of baseline energy use and greenhouse gas emissions is needed. Partnerships can collect,  analyse and verify such data to develop emission reduction plans. Supply chain carbon profiling is the starting point to reduce risk and gain competitive advantage in a low carbon economy.

2. Co-invest

When Freight Buyers invest time and money in fuel use projects, more knowledge and resources can earn a bigger bang for everyone’s buck:

  • Operational changes can boost productivity dividends from investments Transporters have already made. Changing operating hours so delivery vehicles can avoid peak commuter traffic is one. Another is making greater use of High Productivity Vehicles such as B-Double trucks through local road permit applications as well as site works expanding physical access and storage capacity at load and delivery points to allow ordering in larger load sizes.
  • Commercially, Buyers can specify low emission and fuel efficient technologies in their tenders and contracts. Paying a freight price premium supported by contract commitments allows transporters to secure finance and recover the higher capital costs of advanced emissions technology. Large Freight Buyers can even boost their transport partners’ negotiating power with technology suppliers through joint procurement contracts to reduce unit prices.
  • Capital investment can overcome barriers to adopting new technology which the carbon price – by itself – is unlikely to impact. Supporting R&D trials of latest technologies in local conditions will improve joint understanding. This may require funding which shares risks and puts some ‘skin in the game’ with all stakeholders sharing the rewards. LNG and Biofuels, for example, need to be conveniently available. Large freight users could install LNG or biodiesel refuelling stations at their Distribution Centres, which are hubs for regional & interstate linehaul and urban delivery vehicles. This would complement the emerging LNG and Biofuels distributor networks to speed-up trucking industry adoption of cleaner fuels.

3. Opt-In

What if large Freight Buyers could “Opt-in” to emissions trading so they could directly manage their transport carbon liability?  Freight contracts that pass-on carbon property rights would allow Freight Buyers to manage the carbon tax liability for all the transport services they consume, opening up international linkages and domestic offsets on greater economies of scale than only the largest transport firms could contemplate. It may help achieve the economic goal of any emissions pricing regime: To achieve targeted environmental improvements at the lowest marginal cost to society.

Collaborate to Win!

Intelligence on carbon and energy use within supply chains will improve decision-making and is the first step on the path to gaining competitive advantage in a low carbon world. Shared understanding of carbon and energy reveals business opportunities and manages risks. “Without conducting the study,” says one company MD who has done just that, “I have no doubt we would have targeted projects in areas with less potential for both environmental and financial return.”

Cross functional teams of Freight Buyers, transport operators and other stakeholders can develop more powerful business cases for reducing carbon use. Such teams challenge conventional wisdom by asking:

Are we doing everything right to minimise fuel and carbon use, everyday, on every truck, train, ship and plane?

There is no silver bullet; a portfolio of initiatives is needed. It takes more work to be energy-efficient. Efficient operation requires experimentation. And many measures will only deliver consistent, long-term results if businesses adopt them systematically.

Freight Buyers who want their transport providers to do it all alone will miss out on the substantial opportunities that arise from supply chain co-operation.  In the new low carbon economy, the opportunity cost of not collaborating is competitive disadvantage. Stay tuned!

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Published by

davecolemanblog

Helping business apply green transport practices & technologies for profit & strategic value. Save money on fuel and grow with green demand – that’s what Clean Transport Action is all about. The road to zero carbon transport isn’t straight, flat or easy to navigate. With many routes to choose depending on where you start and what you’re driving, there’s lots to manage and keep up with. If you’d like a roadmap to set your direction or help to get moving, let’s talk. David Coleman Clean Transport Action davidcoleman@westnet.com.au +61 455 777 551

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