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.

 

Advertisements

Extra money to buy new trucks

Announcing a new service that unlocks government funding to buy new efficient trucks.

We can now help mid-to-large trucking companies access government incentives to invest in more efficient transport vehicles by reducing finance costs and paying cash from carbon credits.

Unique Opportunity

With no up-front costs, we can qualify fleet renewals for:

–             a 0.7% finance rate discount monthly

–             cash payments from carbon credits annually

Funded by the Clean Energy Finance Corporation, the finance discount lowers lease payments for the life of the lease and comes off your market interest rate.

The more fuel efficient your new vehicles are compared to those they replace, the greater the carbon credit cash bonus becomes, paid from an established Emissions Reduction Fund project annually for up to seven years.

Easy, Low Risk & No Fees

It’s an easy, low risk process with no up-front or ongoing charges that gives truck buyers extra cash on top of the fuel savings and other benefits that new trucks provide.

And it shows customers you are achieving real, measurable, government-backed environmental improvements as an innovator in your industry.

Why leave money on the table?

Don’t miss out! Contact me today to see how much funding is available for your new truck purchases in 2017 and beyond.

David Coleman

davidcoleman@westnet.com.au

0455 777 551

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.

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.