Freight Transport needs a Finkel clean energy target

As another Australian energy policy neglects Transport, our highest energy using sector, we now await the outcomes of the climate change policies review to arrest the sector’s rising emissions intensity and declining fuel security.

Under our Paris Agreement commitments we need to halve per capita emissions and a two-thirds reduction in emissions intensity of all economic activity, so for the freight and passenger transport sectors to contribute their shares, ambitious, effective and integrated government policies at many levels will be critical. To reach the required emissions reduction trajectory, one estimate is that one billion tonnes CO2-e needs to be reduced from the Australian economy by 2030. With Transport contributing about 18% of Australia’s current annual emissions (93 of 527 Mtco2e), its share would be 180 million TCO2e reduced by 2030, roughly 12 million tonnes pa.

emissions by sector

Source: Australia’s emissions projections 2016, Commonwealth of Australia 2016

Current Policies Inadequate

Under the Emissions Reduction Fund transport methods, only three projects have been contracted to deliver a total of 1.2 million tonnes CO2-e contracted over 7 years, averaging 170,000 TCO2-e p.a., about 1.5 per cent of the average required annual mitigation for the transport sector, and 0.6 per cent of total ERF funds committed in the five ERF auctions held to date.

combinedresultsVolumeofAbatement April 17Source: Clean Energy Regulator June 2017

Greater mitigative action from the sector is needed, and quickly, because the long lives of transport vehicles such as trucks, buses, trains and ships, and their enabling infrastructure, means that decisions made over the next few short years may lock-in emissions-intensive transport equipment for decades.

Use of low carbon transport fuels such as biodiesel, natural gas and ethanol has declined significantly in recent years, due to a variety of factors including low oil price, technology performance and a lack of refuelling infrastructure and supply chain development, and the continued closure of local refining capacity means imported fossil-based fuels are relied upon for freight transport more than ever. An assessment of transport energy productivity growth, like those undertaken for other critical networks in the electricity, water and gas sectors, would better inform climate change policy development for transport generally, showing productivity growth or deterioration trends in network efficiency and its impact on national productivity and emissions.

New Policies & Infrastructure

Enhanced incentives and support are needed to dramatically improve emissions reduction activities in a sector that will grow 25% in the next decade. Freight transport needs policy leadership and strategic vision with clear objectives for energy use and emissions reduction with a single source of overall responsibility to integrate programs at all levels.

Significant freight infrastructure capacity building projects that dramatically improve the business case for shifting freight to less emissions-intensive modes should be of the highest priority to change business-as-usual growth in road freight and its consequences for greenhouse gas emissions, congestion, air pollution and road safety. Initiatives could include increasing rail payload capacities and more dedicated rail lines between ports and hinterland intermodal terminals, while re-building capacity for domestic shipping will need strategic investment in dedicated coastal shipping terminals for intermodal and roll-on/roll-off cargoes and regulatory change that currently limits is use.

Key policies required to effectively and sufficiently encourage emissions reduction in freight transport include:

  1. Establish an explicit carbon pricing mechanism
  2. Make the ERF more financially attractive for transport projects
  3. Encourage mode shift with full cost-reflective road pricing, specific mode shift incentive schemes and including key opportunities under the ERF land and sea transport method
  4. Fuel-efficiency standards for light commercial and heavy vehicles
  5. Incentives for accelerated retirement of older rail and heavy road vehicles
  6. Measure productivity and productivity growth in the transport energy network
  7. Freight transport efficiency remains one of the largest opportunities for additional initiatives under the National Energy Productivity Plan, and the 2XEP Freight Roadmap details a list of 70 initiatives that could also be included in the NEPP or other existing policies for government and industry to action together. A key for these will be piloting the use of the Australian Standard for Transport Energy Audits, a world-best practice standard developed by an Australian government-industry partnership that will underpin many emissions reduction measures.

Taking a Finkel-like approach by establishing clean energy targets and a single point of responsibility for their achievement are critical first principles for freight transport to help Australia reach its emission reduction goals for 2030 and beyond.

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How to lift energy productivity in Freight Transport

A Roadmap to double energy productivity in Freight Transport by 2030” is now released for comment, and yours will be most welcome.

Urgent action is needed to generate more economic value from the energy used to move freight in Australia, as congested cities increasingly constrain productivity across the economy. Decisions made today can lock-in energy-intensive freight transport activities for decades.

Published by the Australian Alliance for Energy Productivity using extensive consultation with leading transport businesses, industry associations and government stakeholders, the roadmap aims to agree actions and priorities for both industry and government under the National Energy Productivity Plan (NEPP).

Transport is now Australia’s largest energy user, and with the freight task to grow 25% over the next decade, it will have ever-greater influence on congestion, climate change, air pollution and economic productivity across all sectors. The transport sector has some of the most cost-effective opportunities for energy and emissions savings, yet as the NEPP 2016 annual report notes, raising energy productivity in freight and commercial transport relies largely on voluntary action, and little progress is being made.

The Roadmap considers trends that will shape future energy use in the sector, including increasing urbanisation, a shift to renewable energy, vehicle electrification, connectivity and intelligent transport systems, automation and business model transformation. It gauges the extent of improvements possible via known technologies; it highlights the uncertainty expected from various levels of disruption that is coming; and it identifies measures to help the transition to a much more energy-productive freight sector.

Key suggestions will be incorporated into its final version, so please check it out and contribute your ideas.

 

Shipping’s Growing Carbon Gap

sinking_container_ship

On the face of it, Shipping is the most efficient of freight transport modes. Intermodal shipping containers kick-started rapid growth in trade globalisation 60 years ago, and container ships, tankers and bulk carriers have been getting bigger ever since. Carrying more freight with less fuel on a tonne-mile basis, shipping has the highest energy productivity of all transport modes.

Yet looks can be deceiving. While international shipping contributes 2.4% of global greenhouse gas emissions, business-as-usual could see this explode to a whopping 18% by 2050. As trade growth increases demand, today’s fleet burns the dirtiest transport fuels, and a new report shows the market doesn’t reward ship owners who invest in the latest fuel- and carbon-efficient technologies.

When you consider the scale of the sector’s emission reductions that need to start now to contribute to the COP 21 Paris Agreement target of 1.5°C to 2°C global warming, there’s clearly an enormous decarbonisation gap that threatens to strand shipping assets in a nightmare of devaluations if potential regulatory policies come into play. Current freight flow stoppages due to Hanjin Shipping’s bankruptcy show the disruption shipping company failures can cause.

Markets don’t reward efficiency

The UCL Energy Institute report paints a sad 10-year picture of free-market myopia that finds the latest fuel efficient ships have no better market performance in terms of revenue or usage than vessels with decades-old technologies.

So why wouldn’t cheaper-to-run ships be used more than old ones? Well, today’s record-high shipping capacity drives a low freight rate market, so owners of highly efficient ships must match reduced market rates while passing on fuel savings to charterers, who get the win-win all to themselves.

OK, with fuel prices low the past few years I can understand fuel efficiency has less profile now, but back when capacity was less, charter rates higher and fuel through the roof the report shows it still didn’t seem to get much consideration from charterers. And operating speeds were found to be slower for the more efficient ships, when I would’ve thought the opposite. If fuel cost is barely being considered, maybe its significance in vessel operating cost structures isn’t as big as you’d think, especially in the charterers’ or cargo-owners’ total end-to-end cargo delivery costs.

Market inaction breeds future risks

Shipping customers doom themselves to higher costs over the long term by not incentivising efficient newbuilds and retrofits now.

Current regulation such as the Energy Efficiency Design Index will take forever to have much effect, so if the International Maritime Organisation can’t show improvement in the industry then a UN/State/regional-level carbon price may be forced upon it.

The RightShip GHG Emissions Rating system aims to fix information barriers but the information’s importance needs to influence charterers so they demand GHG ratings or validated fuel efficiency numbers from owners before contracting. Charterers and brokers need to understand the value/net benefit in whole-of-contract-life cost terms, and clearly now only Cargill, BHP Billiton, Rio Tinto and others who use the RightShip ratings system do.

But do these customers actually pay a premium for the good GHG Rating ships they’re using? Their market power allows them to screw rates down as well as anybody. Given GHG Rating users handle 20% of world trade, the report shows no benefit is flowing through to ship owners in better rates or utilisation, leaving little incentive for new fuel efficiency investments or substandard vessels to leave the market.

Who will lead change?

Community expectations to close the decarbonisation gap will come to bear on shipping from governments, investors and from within.

While further regulation may be justified, a mandatory efficiency standard will be difficult to apply to old vessels. Ultimately it might take a carbon price passed directly to charterers supported by voluntary Energy Efficiency Operational Indicator and Existing Vessel Design Index measures with in-service validation and benchmarking to force and help charterers change their decision-making.

Investors increasingly vote with their wallets to make boards respond to green preferences that are rationally based on financial sustainability and managing risks in a zero carbon future.

Owners of efficient ships must better promote their value proposition that reduces costs, positions for green demand and lowers regulatory risk for customers and the industry. Cargo owners, charterers, brokers, ports, banks, industry associations, suppliers and employees can all influence fuel efficiency improvements in the shipping fleet.

The oversupply of ships that helped take down industry giant Hanjin Shipping can only be fixed by scrapping old inefficient vessels, and the shipping market must take the lead now for its long term benefit.

Clean road transport game plan

Enjoyed reading Prime Mover magazine’s recent sustainability report series. Signing the COP21 Paris accord certainly does accelerate the need for a commercial road transport industry game plan to lead Australian business and government policy responses or we’ll be left wondering what happened post-2020. The language has changed: “low carbon” ambitions of last century are obsolete; specific, measurable “zero carbon” goals are in.

With an old truck fleet averaging 14+ years of age, half our technology is last century too. Fuel is such a critical and volatile cost; why the lack of fleet renewal in Australia? Especially when new fuel-efficient trucks promise substantial operating cost savings and liquid capital markets offer the cheapest interest rates in memory. Perhaps it’s the difficulty accessing capital when thin profit margins produce long paybacks on capital intensive equipment?

To help operators buy new trucks, government funds are available from the Clean Energy Finance Corporation and the Emissions Reduction Fund, but there’s been little take-up. If these programs don’t suit the industry, we need to understand what policies will work and advocate accordingly. Without effective government assistance we’ll continue falling further behind the rest of the world. Reducing fuel tax credits for trucks over 13 years old and using the money saved to help operators buy new trucks is a great idea.  

The US SuperTruck program shows the critical role government can play, not only in R&D but also supporting market adoption of new technologies at scale. The USA has many policies that may work here: fuel efficiency standards; standards for renewable and low carbon fuels; vouchers to help buy efficient trucks; co-investment in alternative fuel infrastructure and vehicle technology; and a Smartway partnership between government and industry that tests, benchmarks and informs operators on green transport technologies, so successful there’s now similar programs in Europe, Asia and Brazil. Meanwhile the enormous carbon reductions possible through biodiesel use in Australia have previously been constrained by perverse government policies. While Scania and Volvo show biofuel blends all the way up to B100 are technically viable, fuel tax credits only apply up to a B20 blend limit.

The commercial road transport industry needs targets. Aviation is the first transport sector to set a global goal, aiming for carbon-neutral growth after 2020. Key to this is a target of 1.5% fuel efficiency improvement each year, currently being over-achieved at 2.9% p.a. While emerging technologies featured in Prime Mover’s report may help a clean energy transition in the future, fuel efficiency remains the best action we can take now using current technologies. Key to this will be using the growing daily flood of data coming from each modern truck.

Transport is Australia’s largest energy user, so action in the road freight sector will be critical to achieving the Paris COP21 zero carbon goals. Doubling energy productivity, using clean fuels and offsetting residual emissions is the way forward. Carbon neutral engine oil is a brilliant start; zero carbon transport is the new goal. Making it happen, to use Prime Mover’s June editorial theme, is now the challenge. Creating a game plan with the industry’s green and clean solutions for input to the 2017 Australian climate policy review, rather than taking the policies we’re given, will take collaboration and leadership, and the time to start is now.

The Elephant Not in the Room

There was a renewed feeling of optimism at this week’s Emission Reduction Summit in Melbourne, with the COP21 Paris agreement providing a platform of global commitment and inspiration for the “Who’s Who of Climate Change Action” in attendance. Yet as we dined on delicious carbon neutral seafood washed down with carbon neutral fine wine, my thoughts turned to the elephant that wasn’t in the room.3rd Australian Emissions Reduction Summit.png

Transport recently surpassed electricity as the largest energy user in Australia, its emissions growing faster than any other sector. Freight will progressively exceed passenger transport energy use as Australia’s freight task grows faster than the economy, expecting to double the 2010 freight task by 2030 and triple by 2050.

Transport is notoriously difficult to decarbonise. Overwhelmingly and increasingly dependent on imported fossil fuels as local oil production drops and refineries close, the low oil price has the biofuels industry on its knees. Gas remains pre-commercial for long-haul trucking, rail and deep sea shipping, with no application to aviation. Our truck and bus fleet is one of the oldest in the OECD, with the average truck 14 years old and the average train locomotive more than 21 years old. Road consumes three quarters of transport energy yet we have no energy efficiency standards for cars or trucks, let alone trains, ships or aircraft.

Unsurprisingly, Transport has some of the largest and most cost-effective opportunities for improving energy productivity across all sectors of the economy.

Aside from the major airlines and a single rail operator, the rest of this vast, diverse sector was notably absent from the Summit conversation. No car or truck makers, no trucking companies, no fuel companies, no public transport agencies and no industry associations.

It’s little wonder there’s only a handful transport projects accessing the Emissions Reduction Fund and Clean Energy Finance Corporation incentives. Understanding the rules and jargon is like learning a foreign language, and it’s all risk with little reward, so the transport sector is just not engaged with the carbon reduction community, despite the financial support it offers.

Nevertheless, energy costs remain a significant and volatile input cost that is often the difference between winning and losing for most transport companies. So how can we better address this elephant of a sectoral opportunity that will be key to achieving net zero emissions?

What does a COP21 goal of net zero emissions mean for Freight Transport?

Business leaders are calling for a goal of net zero emissions to be set at the UN Climate Change Conference COP21 in Paris this week. With 7% of global emissions coming from international freight transport, and growth in globalisation expected to increase such emissions nearly fourfold by 2050, the response from the logistics industry will be fundamental to meeting that goal. Yet for Freight Transport to achieve zero carbon, a key constraint is having good information all supply chain players can trust.

The Volkswagen saga shows how gaps in emission measurement standards or their application can shatter our faith in claims regarding emissions or fuel performance. Transport operators make a variety of statements about their environmental credentials, but how can freight buyers compare options with confidence?

A new non-profit, the Smart Freight Centre, is leading a collaboration of the world’s biggest shippers and transport companies to create a transparent, universal method of calculating logistics emissions along supply chains so people can make better decisions on how to move freight in the greenest way.

Data Drives Emissions Down

Transporters act in various ways to reduce energy use and emissions intensity across all logistics sectors to save money, reduce risk and meet growing customer demands for green transport services.

Good information is crucial for transporters to understand the real costs and benefits of potential emissions savings opportunities. It can be difficult to isolate gains produced by a single initiative given the amount of variables that affect fuel economy. Uncertainty about the environmental performance of alternative fuels and engine technologies is compounded by the lack of reliable case study information on their effectiveness for each transport mode. The integrity of external information sources relies on what exactly was measured, how and by who, and how the data applies to a specific task, the equipment configurations and local conditions.

In response, a growing number of collaborative groups are assessing technologies and practices that enable low carbon transport and share information on what works and what doesn’t.

Measuring the Whole Supply Chain

At a broader level we must consider a supply chain’s end-to-end profile. Measuring emissions from a train, truck, plane or ship is one thing, but allocating shares of those emissions to each freight item carried gets complicated across all legs of multi-modal freight movements criss-crossing the globe.

Online retail is creating exponential growth in single-item deliveries direct to homes and workplaces from worldwide sources. Growing consumer demand takes priority over the efficiencies of traditional logistics models, where bulk shipments via distribution centres to retail stores provide economies of scale for more energy- and emissions-efficient freight. Light commercial vans are the fastest growing traffic category in many countries, yet vans are second only to aircraft in energy consumed per tonne kilometre and generate over four times more CO2 per tonne-km than the average 44 tonne truck. This restructuring of supply chains affects the environmental footprint differently across geographies and logistics sectors.

Increasingly, freight buyers need to better understand the sources of logistics emissions along their supply chains, where freight can account for 25% or more of a product’s lifecycle emissions.

One Common Standard

The Smart Freight Centre hosts a collaboration of business and associated stakeholders creating a global framework for logistics emissions accounting. In 2014 they established the Global Logistics Emissions Council (GLEC) to develop a universal and transparent way of calculating logistics emissions across global multi-modal supply chains so that shippers and logistics providers can include carbon footprints in business decisions, alongside costs, time and reliability when selecting modes, routes and carriers.

GLEC will harmonise existing methods and address gaps to devise an assurance standard in freight logistics emissions that enables more accurate and reliable benchmarking and realistic emission reduction strategies. Its’ framework builds on:

To better understand how it will operate for both shippers and logistics service providers in real world supply chains, a series of case studies is underway to gauge the practical availability of data and how it can be used to optimise low carbon freight movements. By simplifying a complex business with a common standard everyone can use to compare green logistics options, people can confidently use good information to reduce both environmental impact and cost.

Towards Zero Carbon Transport

Achieving net zero transport emissions requires using less fuel in tonne-kilometre terms (a key energy productivity metric) and using the cleanest fuels that suit particular freight tasks. The unavoidable residual emissions can then be neutralised by purchasing carbon offsets based on precise and trustworthy emissions measurement.

As global freight emissions rise, a harmonised method for emissions accounting becomes increasingly necessary. Supply chain players large and small must have good emissions information to maintain competitiveness and prepare for the complexity of a carbon-constrained world.

Consultation workshops in the USA, Latin America, Europe and Asia are inviting public comment on the GLEC Framework, so download it to learn more. If you think about how this tool can improve your freight decision-making, you can help develop a logistics emissions methodology that assists Freight Transport to realise the net zero emissions goal.