Are you ready for Intelligent Transport Systems?

Melbourne’s ITS World Congress 2016 was a mind-blowing experience for someone getting up-to-speed with the latest in a fast-changing field.

With 12,000 delegates from 73 countries, this annual event tracks the rapid progression in Intelligent Transport Systems (ITS), where leading players show how new transport technologies are disrupting business models across the globe.

No longer science fiction or 5-10 years away, ITS is already here, and not just in big cities like London, Singapore and San Francisco. Smaller places like Milwaukee, Ohio and Estonia are showing that Intelligent Transport Systems can be applied anywhere for those willing to collaborate and share value in new ways.

Visions of Transport’s Future:

ITS offers a vision of seamless transport of people and goods by connecting all elements of multimodal transport – passengers, freight, vehicles, information and communications technologies and infrastructures – in a digitally integrated system.

The National Transport Commission believes five disruptive technologies will change transport systems over the next 25 years:

  • Automation
  • Connectivity
  • Big Data analytics
  • The sharing economy
  • Zero emission vehicles

They see fleets of driverless vehicles providing on-demand shared passenger and freight transport services with a dramatic reduction in private vehicle ownership and the number of vehicles on our roads. Government reliance on fossil-fuel-based revenues to fund transport infrastructure is in jeopardy from relentless fuel-efficiency gains even before electrified vehicles (EVs) emerge, inevitably needing ‘user pays’ road pricing based on when, where and how people use roads.

Then there’s Gartner’s three key emerging digital technology trends for the next 5-10 years:

  • Transparently immersive experiences, such as brain-computer interfaces, augmented and virtual reality;
  • Perceptual smart machines, where radical computational power enables machine learning, artificial intelligence, autonomous vehicles/drones and smart robots;
  • The platform revolution, allowing organisations to connect with new business eco-systems that exploit internal and external algorithms to generate value, including quantum computing, Blockchain and Internet of Things (IoT) platforms.

Add to this picture a series of global Megatrends: urbanisation; online retail with free, fast shipping globally; decarbonisation and green finance; mobile connectedness; and social media, to name a few, and you get an explosion of new business models enabled by technology and collaboration that change the very nature of how people and freight move today.

What will this mean for Freight?

How will freight movement be transformed, and how will transport operators need to change their traditional thinking? Some opportunities include:

Smart GIS:           Geographic Information System (GIS) mapping provides content and context about everything, where everything that moves or changes is measured and reported real-time to networks in geospatial frameworks. Advanced space/time analytics enable Big Data visualisation for supply chain design using simulations, enabling new types of collaboration across networks of individuals and organisations using shared-information services. Daimler, BMW and Audi now jointly own the HERE map technology business whose map data is used by four out of every five cars in world today.  Daimler has made it an open platform to encourage innovation to optimise use of infrastructure, with interesting possibilities for its truck brands.

Automated & connected vehicles:            Supervised autonomous driver assistance systems; truck platooning; restricted-access route choice systems using infrastructure sensors to manage and monitor compliance; Truck drivers become Operators that are advised what to do, where to go and how fast to drive by voice-guided navigation and live sight augmented reality, which may help attract drivers to the industry. That’s if the vehicle isn’t driverless, as many road, rail, water, air, port, terminal and warehouse vehicles and equipment will be, always in the most fuel-efficient driving mode. Uber Freight’s self-driving truck acquisition, Otto, recently partnered with Volvo to complete its first shipment of Budweiser beer.

Freight matching:             Uber has released its freight platform that matches trucks with the right load wherever they are, aiming ultimately for a self-driving freight system. Both uShip and Australia’s yojee run online freight marketplaces, while Convoy has contracted 10,000+ regular scheduled shipments per year for Unilever in addition to on-demand deliveries.

Urban freight:    Better use of infrastructure capacity will take serious private-public collaboration. Technology helps negate barriers: EVs are quiet and safe to help extend off-peak deliveries; vehicle routing systems provide real-time congestion and cargo updates to combine with loading dock/zone scheduling to optimise flows; consolidating loads via matchmaker systems maximises equipment utilisation for fewer empty or under-utilised trips; and what about last-mile deliveries with e-trikes or robots?

Container optimisation platforms:            Melbourne start-up Opturion routes containers between wharf, container yards and transport yards using multi-source data sets to maximise efficiency within vehicle, cargo, site and route constraints.

Clean energy:  Rapid advancements in light and heavy electric truck technology combined with battery energy storage and renewable power present a ‘chicken & egg’ dilemma for developing charging infrastructure networks. Nikola isn’t waiting for public investment in refuelling networks for its zero-emissions heavy duty hydrogen electric truck, planning instead to build a network of hydrogen refuelling stations fed by its own solar farms that produce hydrogen from water using electrolysis.

Insurance:           Revolutionised to reduce costs, both through significantly safer vehicle operation and Telematics providing location, time and driver behaviour data to enable precise estimation of underwriting risk for lower insurance costs;

Then there’s some that don’t fit simple categories: Hyperloop One/DP World high-speed electric container transit system (possibly underwater); Blockchain crypto-technology to track financial payments, cross-border trade and freight flows; and the physical internet intended to replace current logistics models entirely with an open system routing freight using the principles of the Digital Internet.

Together, these technology-enabled business model advances offer greater asset utilisation, cheaper freight movement and happier, better-served customers.

Technologies need Collaboration

The key lesson for me is these technologies rely on collaboration to design, develop and apply into the community. Sharing knowledge and proprietary data via open access platforms is fundamental to a term used widely at the ITS World Congress – Collaborative-ITS.

Freight transport is a fragmented, diverse sector, with four modes of road, rail, sea and air transport connecting networks of transport yards, sea ports, airports, intermodal terminals, warehouses and customer distribution systems. Austroads found generating interest from industry for its urban freight improvement project very challenging, because individual freight operators believe there’s little they can do to make a difference, while for their customers freight is only a small business cost.

Yet there’s plenty of examples around the world that may inspire action here.

  • Singapore is leading the way with Big Data networks. To optimise every mile of road on their small heavily populated island, the Land Transport Authority has smart sensors installed everywhere to collect transactional real-time movement information which is shared at a rate of 400 million downloads per month. They aim to enable mobility on demand services via driverless vehicles, sharing and electrification services while doubling its rail network to reduce reliance on privately-owned vehicles. What impact on collaborative freight management will this open source information sharing platform have?
  • With no room to expand, Hamburg Port optimises its infrastructure by connecting IoT sensors to collect and share data with all port stakeholders via mobile devices. Real-time delay updates prevent more widespread disruption within and outside the port. Smart sensors communicate truck parking availability; connect multimodal interfaces between ship, road, rail and movable bridges; and connect truck drivers to traffic lights to prioritise cargo movements.
  • The US state of Iowa’s Department of Transport conducted a supply chain design model for all products moving in the State at a zip code level using bill of lading data in a massive public and private sector data gathering and analysis exercise. Finding a clear need to better consolidate freight, with a private partner it’s developing the Cedar Rapids Logistics Park with intermodal cross-dock rail/river/highway access which will return a benefit of US$26.53 for every dollar invested.

Disruptors are coming from outside the transport industry, blindsiding traditional players. Partnerships with and between outsiders such as Google, UBER and Tesla abound, moving smart/shared concepts forward using technology. Amazon is building its own logistics business, buying branded truck trailers, leasing freight aircraft and building warehouses (opening 23 globally in Q3 2016 alone) to “control its own destiny” as well as serve other retailers and consumers. Even within the traditional players, disruption is underway. Deutsche Post DHL now makes its own electric vehicles enabled by open automotive standards, bypassing auto-makers to deal directly with their suppliers to build new tailor-made delivery EVs that they may even sell to other logistics providers.

Freight’s intelligent future

Future freight transport is automated, connected, shared, safe and clean. It’s all about data. Epic advances in volume and speed to generate, process and store data will fundamentally change goods movement.

Data overload and digital fatigue already hold back many from embracing new analytical capabilities that can create value for customers. Yet it’s riskier to do nothing or use Digital simply to protect existing business models.

We can continue to work around inefficiencies we see in the freight transport system every day, or join with progressive people to embrace an ITS future. To solve systemic challenges, we can do more together than we can alone.

 

#cleantransport

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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.

Think the emissions scandal is all about Volkswagen? Think again.

The Volkswagen emission scandal is rocking the corporate world and it’s just the beginning. The CEO is gone, the workforce shamed and Germany’s flagship industry is a national embarrassment. But if you think it’s all about Volkswagen, think again, because it seems the system has been open to gaming by vehicle manufacturers for years.

Dodgy Test Regime

A new article from the The International Council on Clean Transportation (ICCT) exposes systemic flaws in the European vehicle testing regime. Poor regulatory oversight allows vehicle manufacturers to exploit tolerances in vehicle test procedures with impunity. By showing better fuel consumption and emissions ratings, the market rewards them as consumers vote with their wallets to save fuel costs and reduce environmental impacts. It results in a perverse incentive for manufacturers to spend as much of their efforts perfecting the test as they do improving efficiency of the vehicle itself.

Vehicles are tested in laboratories and on special test tracks to assess their various performance characteristics, including fuel consumption and CO2 emissions, to show the vehicle meets legislated minimum performance standards and support marketing claims. Volkswagen vehicles are now found to be compliant under test conditions but not in ordinary use, with software installed to let the vehicle pass the test yet operate in service with much higher emissions.

Clearly illegal and unethical, Volkswagen is deservedly copping the brunt right now, but the scandal reveals a culture among vehicle manufacturers who can potentially ‘game’ a system that has holes in it so great you could drive a B-Double truck through, completely legally of course. The integrity of all European vehicle fuel consumption and emissions claims are now in doubt because benchmarks can be set on test tracks with downhill slopes with favourable cambers to improve performance and specially-prepared tyres hardened in an oven beforehand to provide the least rolling resistance during the test. Hardly real-world driving conditions. You can’t blame manufacturers for using the most economical drivers, tuning vehicles to suit a track of their choosing and any other methods to give the best test score, because the score influences sales. The point is, however, vehicles cannot repeat these high standards when used by you and me on public roads.

We don’t accept wind-assisted track and field times for world athletics records because it’s a not a true measure of human capability. Likewise, we shouldn’t accept these vehicle performance figures.

The ICCT found the gap between test figures and real-world in service performance is ‘ever-growing’ – from 10% in 2002, to 35% in 2014 and is on track to be 49% by 2020. What confidence can the public – private consumers and businesses alike – have in a score that could be 50% out?

Implications for Australia

Australians are vehicle technology takers, relying on the standards of Europe, USA and Japan to drive fuel and emissions efficiency improvements. Without our own minimum fuel efficiency standards we become a dumping ground for the world’s noncompliant vehicles. With Canada, China, Brazil and Mexico implementing their own minimum fuel efficiency standards, this gap is growing too. As an island continent there’s no secondary market for used vehicles, so the impacts of inferior fuel and emissions performance of “hand-me-down” technology will be felt in Australia for years.

Data is the key constraint in this aspect of the road vehicle industry. People rely on the integrity of performance claims in sales brochures, and expect the protection of regulatory oversight. Buyers of passenger cars can check the Green Vehicle Guide to compare vehicles, yet the ICCT suggests green vehicle ratings are based on desktop review of now dubious test calculations.

Trucking companies already have difficulty believing the fuel efficiency claims of manufacturers because Australian conditions are so different to the test tracks of Europe and America, so large transporters invest in their own R&D by testing trucks themselves before purchase because they know the value of getting their fuel figures right before committing to substantial investments with huge running costs over a truck’s life driven by fuel usage and volatile fuel prices.

Small and medium transport companies may not have the resources or skills to test new vehicles properly before buying. There’s no green vehicle guide for heavy vehicles. The closest offering is the NSW government’s Green Trucks Partnership which brings together vehicle users and manufacturers to test various fuel saving technologies in real-life Australian applications with independent reporting on benefits achieved against claims made by technology proponents. The information is shared in case studies on the Green Trucks website.

Australia needs its own standards

Transport is the second largest user of energy in the Australian economy after electricity and is growing faster. Introducing minimum fuel efficiency standards is one of the easiest, cheapest and most effective ways we can save energy costs, reduce carbon and air pollution emissions, and improve fuel security. Australia must take charge of its destiny and develop its own minimum fuel efficiency standards for light and heavy road vehicles. We can learn from Europe’s woes and stringently test vehicles prior to service then follow the USA’s lead and actually test each vehicle type once in service to validate real world performance. Regulation without enforcement provides only a false sense of security and blind faith in marketing claims which, as Volkswagen has shown, fail under scrutiny.

Emissions Reduction Fund – A Transport Opportunity worth Taking?

I stand corrected. Last year I described the Direct Action replacement of the previous government’s carbon pricing mechanism as offering transport companies nothing, yet in the first Emission Reduction Fund (ERF) auction in April, transport group AHG was awarded a $2 million contract to reduce its emissions.

For the $1.89 billion (75%) of ERF funding remaining, Reputex predicts almost $100 million could go to transport projects.

Can you benefit from the ERF or will your competitors?

Opportunity for Transporters:

The Emission Reduction Fund uses approved ‘methodologies’ for calculating emission reductions that get compensated by contracted ERF cash payments over an agreed term. Two methods apply for the Transport sector – an Aviation method and a Land and Sea Transport method, which provides for crediting emissions reductions from road, rail and sea transport, and mobile equipment such as mining and agricultural vehicles.

The Land and Sea Transport method allows for one or more of the following activities in an emissions reduction project: replace or modify existing vehicles for better fuel efficiency; use cleaner fuels; swap freight to lower-emitting transport modes; and changing operational practices to reduce the intensity of vehicle emissions.

The ERF also allows for aggregation of projects under one umbrella, so that multiple sources of carbon abatement can be brought together under one contract to introduce economies of scale, reduce transaction costs and help manage performance risk. Aggregating may be particularly useful in the Transport sector to help thousands of small and medium size operators be part of the ERF action.

The next auction date is not yet set but you can be sure that AHG-inspired Transport bids are likely to come from industry giants such as Toll, Linfox, Asciano and Qantas. In July so far the number of new project registrations across all sectors has surged with more and more companies getting ready to bid.

Challenges:

There are however some challenging aspects of the ERF program to be met. Projects must deliver new abatement that has not begun to be implemented. So if you’ve just signed that purchase order for new vehicles, it’s too late to access ERF funds. If you are considering buying some new fleet your timing could be right. You need to show how ERF funds help get that decision over the line.

For example, the smallest allowable bid size is removing 2,000 tonnes of carbon per annum, which in transport fuel efficiency terms means saving 740,000 litres of diesel. When you consider this week’s national average retail diesel price of $1.35 cents per litre, the efficiency gain will be worth $1 million in reduced fuel costs. Using the average carbon price paid in the first auction of $13.95 per tonne, a successful ERF bid would provide an additional $27,900 to assist the project.

Measurement of vehicle fuel use is key to supporting any bid. Three years of good data on your existing vehicles’ fuel use and service history is needed to provide a baseline used to assess future emission reductions and contract payments.

Competition from other sectors may provide the greatest challenge for Transport companies interested in the ERF. More methodologies are being developed all the time to expand the scope beyond existing carbon farming projects that made up 98% of the successful first auction bids, as the government aims to increase competition from high emitting industrial sectors that may supply lower cost abatement at reduced prices per tonne. This goes back to my premise last year: most ‘low hanging fruit’ emission reduction projects in Transport are gone and remaining opportunities have long financial paybacks. The sector’s early action on emissions reduction over the past two decades and consequent current high marginal cost of abatement puts it at a competitive disadvantage against large players in high emitting sectors.

What to do now?

If you want to secure funding in the next auction:

  • Consider any capital expenditure or continuous improvement projects that reduce emissions which may fit the Transport method criteria
  • Talk to a specialist carbon advisor, especially an auditor and potentially an aggregator
  • Decide strategy for your structuring your projects and how to bid at auction
  • Apply to register your project

Applications take up to 90 days to be approved by the regulator, and only approved applications can bid at auction. There’s likely to be one more auction in 2015, with as little as 6 weeks’ notice from announcement.

So if you want some government funds to improve your carbon footprint, which can bring cost savings and green marketing opportunities as well, the time to act is now.