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.

 

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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?

Transport Energy Audit Standard : seeking your views

Implementing energy audit recommendations usually achieves significant cost savings. However the current Australian Standard for energy audits is based on auditing commercial buildings and is not practical for transport.

Transport operations have characteristics that produce variability in energy performance and make fleet energy use difficult to model:

–          Very high variation in routes, loading and traffic conditions;

–          Vehicle operators strongly influence energy performance;

–          Regulations, such as noise or load limits, provide constraints.

A new transport-specific standard, AS/NZS 3598.3 Energy Audits-Transport Sector, will be the first of its kind internationally. It is intended to help transport operators find the approach best suited to their business for assessing energy efficiency and reducing costs .

To develop a standard of practical value, the consultation process seeks additional expertise to address the specific data measurement and analysis needs of the road, rail, aviation and maritime industries.

You can contribute at the Standards Hub Website as referenced in the inside cover of the draft standard, available here.

Comments close on 10 April 2014.

Carbon Neutral Transport

Australia has its first carbon neutral trucking company! Congratulations to Transforce Bulk Haulage in Dubbo who achieved this feat by saving fuel to reduce their carbon footprint then buying carbon credits to offset the remaining emissions.

So what’s stopping other transport firms from going carbon neutral?

Market Incentives & Barriers

Any emissions reductions need to be profitable to motivate action. According to Carbon War Room, heavy trucking can achieve huge emissions reductions using simple technologies with proven savings that are available today. Yet there are three formidable market barriers to get over:

  • access to capital for high upfront costs;
  • good information operators can trust;
  • principal-agent split incentive problem, where in a fragmented industry often those with incentive to save fuel don’t have the cash or the control. This can occur where prime movers and trailers have different owners, where fleets are leased, where freight companies hire sub-contractors, and where customers contract dedicated trucking services with operators paying for fuel.

Shipping also has cost-effective measures to reduce emissions available now. A DNV report points to 16 technical and 8 operational measures, as well as adopting alternative fuels such as biodiesel and LNG. Similar market barriers apply for Shipping as for Trucking. For both transport modes, shippers appear to be at the heart of environmental improvements, for freight owners are more likely to have the power as well as the appetite to pursue environmental improvements above basic regulatory compliance.

Cleaner fuels

There is no single solution to finding a cheap clean diesel alternative. Emissions regulations and oil price volatility will encourage the switch from diesel to a mix of cleaner fuels that need increasingly costly and complex equipment.

For the maritime industry the viability of LNG and biofuels has a longer time horizon than for Trucking, which has its challenges to overcome. As it is, Shipping will struggle with the low sulphur fuel mandate in 2015 due to insufficient refining capacity to make the cleaner grade. Biofuel refining capacity is far below what the shipping industry would need to make the switch.

Information Sharing

Sharing better information on fuel- and carbon-efficiency opportunities will help break down barriers, especially when this improves transparency at an organisational or even a vehicle level. Here are some current initiatives:

  • The Green Freight Europe program addresses the information barrier in Trucking through collaborative learning, reporting and comparative benchmarking
  • Carbon War Room has a shipping efficiency website which rates 60,000 existing ships on their specific fuel efficiency performance, enabling benchmarking against like vessels.
  • Three major shippers are choosing only to charter the most fuel efficient ships available in a demonstration to ship owners that the market will reward investments in sustainable fleets. Such environmental leadership is supported by a vessel fuel efficiency ratings system that uses reliable data from a respected technical specialist.

Measuring emissions to improve the bottom line, reduce risk and discover competitive advantage is a developing science. The ‘art’ of good information sharing may lie in real-time data by company – or by vessel, vehicle or aircraft – so that full supply chain awareness of Carbon Efficiency and Carbon Productivity become the mantra throughout all transport modes.

Accessing Funds to Invest

Trusting good information is important but the key to widespread adoption of fuel efficient technologies and clean fuels is funding the up-front costs.

How can we better link those with cash and the desire to save environmental resources, with those who want to save money but have little capital to invest in improvements? Carbon pricing on Transport helps the business case to finance fuel efficiency improvements, and incorporating carbon offsets helps even more, as Transforce Bulk Haulage has shown.

One maritime proposal wants a new bunker levy to contribute to an international fund so that ship emissions above set reduction targets can be offset by purchasing carbon credits. But who wants another fuel levy that may only be passed along the supply chain anyway?

New developments in California may point the way for Road Transport. Clean Mobility Centres embrace alternative fuels and enable drivers to offset the carbon emissions from their fuel purchases at the pump. Offset dollars go to the Carbon Fund Foundation to directly fund clean air projects.

What if we could offset Transport’s greenhouse gas emissions at the point of sale for all goods and services? Just like booking an airline seat where you choose to pay a little extra to offset your share of the flight’s emissions, imagine if you could offset the transport emissions of any delivery or purchase?

Imagine creating a clear transactional link between the consumer or organisation at the end of a supply chain and the transport operator needing funds to invest in fuel saving measures with economic as well as environmental benefits. It might work like this:

  • consumer chooses to offset the transport component of the emission profile of any goods purchase by paying a bit extra
  • that offset spend goes to a Transport-specific carbon finance fund
  • the fund is accessed by transport operators to finance precisely measured emission reduction projects with real financial paybacks
  • a strong transparent measurement methodology where integrity of data is key underpins emission reduction valuations for the consumer (investor) and transport operator
  • web, mobile and social media technologies enable ‘one click carbon offsetting’ as well as ‘real-time climate friendliness’ tracking of personal emissions savings to inform consumers

Yes – It’s Possible

Transport operators need better access to capital so they can make fuel- and carbon-saving investments, and operators, their customers and ultimately consumers must be able to have faith in the integrity of the emissions savings. Challenging, yes, but the unleashing of such incredible capital liquidity through ‘one click carbon offsetting at point of sale’ may generate huge Transport footprint reductions.

Look at what Transforce has achieved with its fleet of 11 trucks in regional NSW through fuel savings measures that save them money, supplemented with carbon offsets to neutralise their footprint. Yet it’s a question of immense scale to ask:

How can this approach be expanded throughout the mosaic of Australian supply chains?

Clean Transport Fuels – What are the Real Options?

Australia’s carbon price is here, so how can transport operators gain from cleaner fuels?

As a retailer, manufacturer, miner or farmer, where in your supply chain can clean fuels bring real benefits, now?

Biofuels win under Carbon Pricing

Biodiesel and ethanol now have a carbon price advantage over other transport fuels. While gaseous fuels (LNG, LPG and CNG) have lower greenhouse gas emissions than diesel and petrol, on July 1st they copped a tax “double whammy”:

  • Gas excise duty now rises each year while biofuels don’t pay excise until 2021.
  • Gaseous fuels attract a carbon price; biofuels don’t.

But costs continue to rise

Biodiesel and ethanol are made from agricultural commodities and organic waste materials. Rising demand in many industrial uses is pushing up prices of these feedstocks, and some are caught in the “Food versus Fuel” debate. The promise of offsetting society’s dependence on oil is now staged against our ability to feed growing populations. As food prices rise around the globe, economic, environmental and social trade-offs are made in a complex arena. Government support for biofuels in Europe is weakening as new laws narrow the choice of feedstocks.

Our small demand in global terms competes for inputs with big biofuel producers overseas. Australia has only a handful of biodiesel and ethanol plants, and none are world scale. Soaring Asian demand  consumes feedstocks and raises prices, challenging the viability of Aussie producers.

On a positive note, one Queensland company already produces an ultra clean synthetic diesel  and says they can do it for only 20 cents per litre.  20 cents! Is that a typo?

Biofuel blends

In practice, biofuels gain only a small carbon price advantage over other transport fuels. That’s because biodiesel and ethanol need blending with regular diesel and petrol to comply with fuel quality standards and excise rules. This reduces their carbon price advantage by 80% in the case of a B20 blend (20% biodiesel and 80% mineral diesel) down to 1.2 cents per litre. Then the logistical challenges in getting blended products to end users can pretty quickly gobble that up!

Market Reality

Market entry remains the biggest challenge of all:

  • it’s hard to supply biofuels at a competitive price due to the infrastructure and volumes needed
  • business models face rising production costs and can’t rely on government support
  • many people just don’t trust biofuels
  • lack of demand means local plants can’t expand to world-scale
  • fuel retailers need to invest in storage tanks to offer alternative fuels at the bowser

Playing with the Big Boys

Despite volatile prices, oil-based transport fuels dominate the market. Major oil companies have supply networks, production technologies and retail models they have refined for more than 100 years. While a few officially support alternative fuels, their practical steps have been tentative at best.

Getting traction

There’s no silver bullet for introducing cleaner transport fuels – a portfolio of fuels is needed. Today, both biofuels and gaseous fuels are used successfully in various light and heavy vehicle applications. Depending on a vehicle’s work task – it’s payload capacity, speed, stop-start intensity, distance range and fuel efficiency to name a few variables – each fuel has its’ “pro’s and cons”. Thorough due diligence is needed, and the clean fuels industry could better educate and communicate the sweet-spots to end users.

Meanwhile, trials of cleaner jet fuels show that biofuels can be safe, reliable and are ready for use, but would not meet immediate demand if large airlines make the switch. Yet such trials are vitally important, especially with the support of engine makers who remain critical to clean fuels take-up. Truck manufacturers like Scania run ethanol trials in their own operations to prove new clean fuel technologies.

Test & Invest

Yet even with government support, some avid users and a few keen oil companies, all clean fuels have their own market entry challenges. Carbon pricing may help some clean fuels, but it will fall short of what’s needed.

To make real progress, all supply chain partners must work together to understand which clean fuels can help their particular situation. Only through collaborative testing can the right clean fuels be chosen for each supply chain. Then clean fuel producers must make their fuels available at retail and industrial points of use – reliably and cost-effectively.

So if you want to win from cleaner fuels, you’ve got to make it happen. Get with your supply chain partners to test and invest in clean fuels now.

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!

How will Freight Transport Customers Treat the Carbon Tax?

Australia’s carbon tax starts in 3 months time, and customers of freight transport services should have decided by now whether they will accept carbon-related price increases from their transport providers.

What signals are you sending or receiving in the marketplace?

Accept or Reject

Freight customers’ decisions will depend on the price sensitivity of their product, existing margins and profitability targets, and their assessment of transport providers’ ability to absorb these costs while maintaining service levels. Will it be a ‘black and white’ choice or are there shades of grey?

Firstly, shippers can play hard ball and reject any carbon cost pass-through. But what then will become of transporters who can’t absorb the new tax burden? It’s the small & medium-sized firms that will go to the wall first.

Alternatively, shippers may accept pass-through of the full carbon tax cost. Yet where is the incentive for transport companies to minimise their carbon use if the tax costs are directly recoverable from clients? Perhaps a discounted pass-through will allow equitable sharing of the carbon cost.

How Big a Cost?

Both the size of the cost and its relative impact on customers’ end product pricing further influences the decision. There’s two carbon cost penalties to consider:

  1. refiners’ direct permit costs are estimated to increase fuel prices by up to 1 cent per litre
  2. the 6+ cents per litre effective carbon price for rail/sea/air transport companies in July 2012 and trucking in July 2014

Assuming fuel represents one-third of total transport costs in a rise and fall contract mechanism and the retail diesel price is $1.50 cents per litre,  the 1 cent refining cost increase results increases transport prices by about 0.3%, while the 6+ cents per litre effective carbon price will raise transport prices by under 2%.

For some customers a 2% freight increase may be a small cost to absorb when considering the immediate sustainability of their transport service levels. For others the 2% freight cost rise may significantly affect their own competitive advantage. Regardless, relative market power will determine negotiation outcomes.

Of course, this is just one of the estimates being floated 3 months out. After the furore created by its announcement, a 2% carbon tax impact sounds too low, especially when some predict a doubling of transport costs. Its impact will vary by transport task, the proportionate weighting that fuel has in the total costs of each service and how well both fuel and carbon are managed by players in each supply chain. Herein lies a third approach to the “Accept or Reject” decision for shippers.

A Third Way – Collaborate!

Rather than a win-lose position of “Yes” or “No” perhaps “Yes…with Conditions” will allow freight customers to reduce their carbon cost exposure while retaining sustainable service levels. Sharing responsibility for improving fuel and carbon efficiency may be the win-win answer both shippers and transporters need to thrive in the new carbon economy. It will take leadership and innovative partnering, and it won’t be easy.

A lot of trust and an equitable “risk and reward” sharing of cost savings will be needed for transport operators to open their books. Transport is a notoriously competitive market where ultra-low margins mean that any small benefits operators achieve through better fuel management are prized cost-competitive advantages which transport firms will fight to protect. Trade secrets won’t be given away for nothing.

Yet only joint action can realise many of the energy- and carbon-efficiency improvements necessary to better manage carbon risks, whether they be process changes affecting multiple stakeholders or adopting new technologies. Transporters can’t do it alone.

Collaborative problem solving will be the best way to improve carbon and energy profiles along all supply chains in Australia’s new carbon economy. It starts July 1st.