TruckExec

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.

-------

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.

Top 10 Trucking Critical Issues

In October, the American Transportation Research Institute issued results for their 2008 annual survey of Top 10 Critical Issues for the Trucking Industry.  The results are provided in the table below along with the results from the previous 3 years.

Comparing annual results provides the following insights:

1. The 'Economy' debuted as a critical issue for the first time in the 4 year history provided by the study.  Of even greater significance is the fact it debuted as critical issue #2.
2. 'Fuel' and 'Driver Shortages' were in the top 3 concerns for all 4 years.
3. 'Government Regulation' continues to move up as a critical concern for the Industry.  In 2008, it was ranked as #4.

Full survey results can be viewed at the following link:  ATRI 2008 Top 10 Critical Issues for Trucking.

--  Joe White -- TruckExec Publisher / CEO CostDown Consulting

Green Policy

Let’s be honest.  For most of us our Green Policy is motivated by the green color of money, not the re-greening of our planet.  The reduction in CO2 emissions as a result of industry fuel conservation efforts is a benefit derived primarily from our financial, not environmental, concerns.

Nothing wrong with that.  As executives, we have fiduciary responsibility to our stockholders and/or owners, and social responsibility to the communities in which we operate.  Reducing fuel consumption serves both of those purposes.

However, the time will soon come when our shippers demand that we have a broad, comprehensive Trucking Green Policy; one that goes well beyond the single focus of fuel conservation. Unfortunately, most truckers today are a far distance from having such a policy.

To illustrate the gap, ask yourself this:  “How many of the truckers that have joined SmartWay recycle bottles from their Coke machines and paper from their printers?”  When the motivation to make change shifts away from financial gain, we tend to lose interest in the environmental opportunity.

Developing a comprehensive Green Policy will take time and in some areas involve additional costs. Most of us will probably agree that Shippers will eventually require all carriers to have such a policy, so developing and easing into 'Green Trucking' now might be a good strategy.

Here are some example areas that could be considered for your Green Policy:

·         Recycling – bottles, paper, batteries, metals, fluids. Take discarded electronics to approved recyclers – not landfills.

·         Waste Reduction Policy

·         Energy efficient fixtures, appliances

·         Water Conservation – low flow fixtures, minimal use training

·         Storm Water Audit and Policy

·         Company Car Policy based on high mileage or hybrid vehicles

·         Vendor selection based on environmental factors

·         Employee education on resource conservation