Trucking, Carbon Footprint & the Economics of Cap and Trade

GUEST COLUMNIST

 

Eric Taub

 

CEO / Co-Founder

Verus Carbon Neutral

 

 

Whether you believe in human-induced (anthropomorphic) climate change or not, legislation to control green house gas emissions is going to significantly affect the trucking industry in the next couple of years. Trucking companies across the United States will soon have an obligation to measure and control their carbon emissions under Cap and Trade regulations, and that obligation will have a significant financial impact on their performance.

 

The term “Cap and Trade” has frequently been bantered around but many businesses don’t understand what it means or how it works. In simple terms, Cap and Trade rewards companies that are able to reduce their carbon footprint and punishes those that don’t.

The “Cap” is a percentage reduction versus prior years. For example, if your company reduces its 2012 emissions by more than 6% (the 'Cap) compared to a base year of 2005, then you have created Carbon Offsets (the reward) for reducing emissions. Those offsets can be traded and sold to companies whose operations exceed their specific Cap and therefore must purchase offsets (the punishment) to bring themselves into compliance. Here's a specific trucking example:

 

The average tractor-trailer in your fleet travels 10,000 miles a month and at 5.2 MPG creates around 235 metric tons of CO₂e a year.  That means that your fleet of 300 trucks in total generates 70,000 metric tons of CO₂e in a year. Assume that since your baseline year you have reduced fleet size or total emissions (from improvements in idling, mpg, etc…), thereby shrinking your carbon footprint.  If your baseline year performance was 87,500 metric tons of CO₂e, your company has created 17,500 metric tons of Carbon Offsets.  Your reward for achieving ‘Green Trucking’ status would be over $25,000 at current prices or around $47,000 at the four-year average price.

 

Even though Caps and Offsets are currently not enforced in the U.S. , there are many companies in our country voluntary participating in a Cap-and-trade system hosted by the Chicago Climate Exchange (“CCX”). They are selling or holding the offsets they’ve created by reducing their carbon footprint.

The price of CO2e offsets change every day with the market. So far prices have remained low relative to the European Exchange because the majority of emission reductions are voluntary ( California and the Northeast have recently instituted a mandatory Cap and Trade, limited to utilities).

Offsets do not need to be sold right away and can be held as assets that may appreciate over time. More importantly, if your company will be reducing below its 2005 level it can sell options today for these future offsets. That is money paid to you today for a future obligation.

The US is rapidly moving to a mandatory market. In order to qualify, a trucking company would need to measure their historic and current carbon emissions and then join the CCX in order to monetize emission reductions. The CCX, created in 2003 is comprised of over 100 corporations, municipalities and universities; including big names like IBM, Dell, Ford, Dow and DuPont. Each member makes a legally binding commitment to reduce their carbon footprint by 1.5% each year for four years (2007-2010) based on the average of 1998-2001 or 2000 (whichever is greatest).

So a 6% reduction might sound tough to reach but for some the change in the economy has made it easier. Under Cap and Trade your carbon footprint gets smaller if a lack of business causes you to shut down plants, reduce shipping or otherwise reduce greenhouse gases.

Since there are current and future prices for reductions, a trucking company can look at the return on investment from different fuel efficiency strategies and calculate if they can be done for free or, better, for a gain. If we add in grants from the EPA and money from the stimulus package, it is possible to improve your bottom line and be “Greener”.

 

Why do you care about “Green Trucking”?  Because your customers care. Whether it is Wal-Mart, Whole Foods or US Steel, big companies are looking at their supply chain emissions.  Also, members of the CCX have a better understanding of how to best prepare for a world where CO₂ becomes a bigger commodity than soy beans.

 

Currently, there are seven Cap and Trade bills pending, some of which have bi-partisan support (one is co-sponsored by Senator Specter who recently became a Democrat). The most important and imminent is the Waxman Markey Bill. President Obama has made it very clear that he supports Cap and Trade. Finally, the EPA has recently moved to regulate CO₂e as part of the Clean Air Act (a George H. Bush legacy). The EPA set a level of 25,000 metric tons of CO₂ as a starting point. The EPA is the stick in this situation. No one wants the EPA to enforce a limit on Carbon emissions.

 

To get a base line of where your CO₂e emissions levels are and whether there is technology is coming from you must measure your carbon footprint. Without a metric that tells you where you are, it is difficult to determine if you are on the creating offsets for sale or creating liabilities.

 

Cap and Trade regulations are coming.  Knowing how to measure, reduce and account for your company’s carbon footprint will soon become a legal and financial necessity.

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Eric Taub is CEO and Co-Founder of Verus Carbon Neutral; a carbon footprint audit and offset organization.  Before founding Verus Carbon Neutral, Eric was a partner and portfolio manager at Juno Management of Atlanta. His career has taken him to London, New York, Mexico City and Chicago. Eric's experience includes several years as Senior Vice President in portfolio management at Wachovia, Managing Director at SunTrust, Director of Emerging Markets at Bank of Montreal, and certification as a Chartered Financial Analyst. He received his MBA from New York University and undergraduate degree from Tufts. A master of carbon emission management strategies—balancing risks against opportunity—he has a deep understanding of the global emissions market. Eric is an expert at identifying and capitalizing on what our new green economy holds and how to best position organizations for success.

Comments

[Wayne]

Are the credits a one time payment or do you qualify for each year you meet your requirements?

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