The environment may be taking a backseat to the economy these days, but that doesn’t mean that the US and Canadian governments have abandoned any moves to ‘put a cap’ on greenhouse gas emissions.
In June, the US government’s House of Representatives passed the American Clean Energy and Security Act by a 219-212 vote. Under the cap-and-trade rules, high emitters will be given or will have to purchase carbon offset certificates. If the emitter doesn’t produce that much carbon, it can sell its certificates in a carbon exchange market to be established by the act.
The cap-and-trade portion of the act is just a small part of the bill and, for now, is directed at high carbon emitters, such as power plants and big manufacturers.
But, according to John-David Phyper, author of the sustainable supply chain book, Good to Green, by the year 2020, there will be a one-trillion dollar carbon market. So how fast does the transportation industry have to get on this bandwagon, if at all?
Today’s market in carbon trading is in its infancy, but consider that in 2008, said Phyper, investors in American and Canadian companies filed a record 57 climate-related shareholder resolutions, seeking emissions reductions and greater disclosure from companies on their strategies to address climate-related business trends.
In March of this year, the US Environmental Protection Agency declared carbon emissions to be a health issue, forcing reporting rules on some emitters.
In Canada, carbon taxes of one kind or another have already been deployed in Quebec and British Columbia. And there is a 2007 federal regulatory framework for greenhouse gas emissions aimed at 20% reduction in GHG from a 2006 baseline, with an absolute reduction of 150 megatonnes by 2020.
“If you operate a 100 tonne-plus emissions facility in Alberta, now you must report,” said Ian Mackinnon, president of Jomini Environmental. “If you drive your trucks through the state of Oregon and you emit more than 2,500 tonnes in a year, you will now be reporting to the state of Oregon. It’s essentially a fuel tax. The concern is that you may have to pay at both state and national level,” he said.
MacKinnon added that a market-based approach to managing greenhouse gas emissions is becoming more widely supported by governments and stakeholders as a cost-effective way to achieve climate change objectives.
“We sit on 22 committees and we’re writing the guidelines for the Canadian government cap-and-trade system. We’re working with the US government on programs that they are going through. We also look at operations and we can recommend technologies that have already been quantified. We can verify, one year out, the number of carbon tonnes that can be traded on a voluntary market, and eventully used in a regulated market. We work with the ISO 14064 standard in Canada as the backbone, as well as a couple of standards used in the US,” he said.
Jomini was also involved in drafting the Canadian government’s ISO 14064 Greenhouse Gases standard, a voluntary series of standards developed through an international consensus- based approach involving stakeholders from industry, government, non-governmental organizations and service professionals.
“ISO 14064 is designed to help organizations and governments in measuring, reporting and verifying GHG emissions. It has been approved as the national standards of Canada,” said MacKinnon.
Another major player in the mix is IPOG, an interprovincial protocol standards group comprising 93 companies and organizations representing more than 60% of all covered industrial greenhouse gas emissions.
IPOG is dedicated to the design of a domestic offset system that “ensures environmental integrity first and foremost, but also has the necessary flexibility for business solutions that leverage actions across the entire Canadian economy.”
In the voluntary markets, the European Union is currently trading some 70 billion Euros (CDN $110 billion) in carbon credits, at (CDN$20) a tonne. Voluntary trading in Canada takes place for about $10-15 a tonne, noted MacKinnon.
“We base our programs in Canada on intensity targets, so we’re not crippling growth. At $15 a tonne, people are looking at offsets to sell or offsets for their own business operations,” said MacKinnon of the voluntary market.
“While awaiting the final federal regulations for industrial emitters, (carbon) offsets are the only trading tool available to fill the market void in the current period. Environment Canada projects carbon prices to rise from $25/tonne in 2010 to $65/tonne in 2018. By 2012, there is an expectation for emissions trading in Canada to have evolved to a cap-and-trade system and for the Canadian market to link to a US counterpart scheme,” said Phyper.
Among the cap-and-trade schemes currently in existence, or in progress, across North America, there is the WCI, or Western Climate Initiative, which is a collaboration of seven US states and four Canadian provinces. In September of 2008, the WCI Partner jurisdictions released a cap-and-trade program design, which, when fully implemented, will cover approximately 90% of the economy-wide emissions in the member states and provinces. The program is scheduled to start in 2012, and emissions reporting to begin with 2010 emissions. The WCI Partner jurisdictions include: Washington, Oregon, California, Montana, Utah, Arizona, New Mexico, British Columbia, Manitoba, Ontario and Quebec. Together these states and provinces account for about 20% of the US economy and 76% of the Canadian economy.
The WCI recently sent comments to Environment Canada on the department’s own Offsets System Draft, stating that any harmonization attempts with other North American offset systems must enable recognition of Canadian offset credits outside Canada or on recognition of international credits within Canada, to avoid any price differentials “likely to have competitiveness impacts as well as border adjustments under the current version of the American Clean Energy and Security Act.”
The WCI went on to “encourage the federal government to adopt an offset limit that ensures emission reductions occur at Canadian entities covered by the cap-and-trade system.” As currently designed, the WCI is concerned that the project registration process may be onerous, requiring significant time and correspondence between Environment Canada and potential project proponents. Furthermore, the federal government intention to operate the system on a cost-recovery basis using fees may be cost prohibitive for project developers, said the WCI.
The US-based Regional Greenhouse Gas Initiative (RGGI), meanwhile, comprises 10 Northeastern and Mid-Atlantic states who intend to cap and then reduce CO2 emissions from the power sector by 10% by 2018. States will sell emission allowances through auctions and invest proceeds in consumer benefits: energy efficiency, renewable energy, and other clean energy technologies.
In the face of cap-and-trade policy and offset schemes, however, an already hard-hit transportation industry is expressing concerns about additional cost and regulatory burdens.
“If GHG reduction is the fight of our lives, there is so much more we can and should be doing today that does not involve increased taxes or complicated cap-and- trade systems. The industry’s economic goals and society’s environmental goals have never been more aligned,” said Canadian Trucking Alliance CEO David Bradley.
“We also need the federal government to come to the table more and to support enviroTruck. We’d like them to restore programs similar to the previous APU rebates initiative -that program worked with a modest investment from the Government of Canada paying big dividends. Truckers should also receive some of the same accelerated capital cost allowances that other industries receive when they buy environmental technology. They can also play a role in bringing all the provinces together to harmonize standards,” added Bradley.
Fear of what cap-and-trade policies could do to industry costs led the ATA (American Trucking Associations) to draft a letter to the House of Representatives Energy and Commerce Committee this summer detailing the trucking industry’s “strong reservations” about the Clean Energy and Security Act.
ATA said it believes that trading reform should be passed, implemented and enforced prior to the creation of new carbon commodity markets, and said that mobile sources, such as commercial trucks, should be addressed differently from traditional stationary sources under any proposed carbon reduction regulatory program.
G. Tommy Hodges, ATA first vice-chairman, told the Transportation Media Group, “I don’t know that we feel (as an industry) that we’re targeted, but not enough consideration has been given to the current impact and what that’s going to do to the economy. We feel it’s the wrong thing to do at the wrong time. The carbon resulting from various loads is not taken into account in the current bill.”
Provisions in the US’s proposed cap-and- trade program grant oil refiners 2% of the carbon allowances between 2014 and 2016 to help mitigate refinery greenhouse gas emissions, but the 2% allotment ignores carbon emissions from the combustion of petroleum production, which leaves downstream users like trucking companies exposed to sudden fuel price spikes, Hodges pointed out.
Hodges said there are fears fuel prices will go up anywhere from US88 cents a gallon on the diesel side. And another concern is when there are normal fuel interruptions because of fires and shutdowns.
“It just creates a whole lot of uncertainty and unknowns when dealing with projected costs. There’s a lot of dynamics to what happens within the trucking industry -one set of rules doesn’t meet everything. We’d rather see them come down with help and incentives to help meet fuel economy; to raise the productivity of a gallon of diesel. We’ve had mandates against industry for carbon output, we’ve reduced nitrous oxides and particulate matter, but we burn more fuel and it’s well past time to get a more efficient diesel burn from 5.6 to 6.2 to 10 miles a gallon. A 65 mile an hour speed limit would create 200 million tonnes savings in CO2. There are other ways to handle the problem,” said Hodges, who added that the trucking industry has been at the “forefront” of solutions, such as ATA’s progressive sustainability agenda that will reduce fuel consumption by 86 billion gallons and CO2 emissions by 900 million tonnes for all vehicles over the next 10 years.
Skepticism about cap-and-trade is somewhat justified for some. Noted MacKinnon: “The danger of ‘green washing’ is very real, and only 2% of products are really green. The beautiful thing is that the carbon market exists, but it will not be the panacea to environmental objectives or economic objectives,” he said.
And there are advantages to seeking out sustainable business practices, amidst the hype.
“You can make money by making smart business decisions,” said MacKinnon. “If you do not go out and shake the market yourself, the government will do it for you. If you think you’re going to fly below the radar because you’re not digging it out of the ground, you are wrong. It will affect everybody’s business and all options.”
And, stressed MacKinnon, businesses must be aware of any jurisdictional impacts where they do business.
“We advocate that if a company operates on both sides of the border, they should be able to work back and forth. We’ve put some position papers down in Washington with the goal to harmonize regulations between Canada and the US.”
Phyper said you either take the attitude you’re being beaten up or you reposition as a value-added company that will look to maintain costs and lower greenhouse gases.
“Voluntary trading is definitely in place – that’s cosmetic environmentalism -but that doesn’t ignore the big 800-lb. gorilla that you need to optimize logistics. At the end of the day, you need to change your business, and figure out ways to do things more efficiently.”
It remains to be seen what path the carbon markets and cap-and-trade policies will take, but making the most of your ‘carbon opportunity’ can result in a positive change, suggested MacKinnon.
“If I can make a positive change to what is traditionally done in my business, I have a carbon opportunity that can be measured. If I deploy something, it has to be measured to a life cycle to be recyclable. That’s the participation in the carbon market, that’s the ‘who says.’ The competition wants to see, how did you quantify? What did you do? That’s how you’ll score on the economic end,” he said.