Carbon trading: How does trucking fit in?
There is one famous adage from Thomas Edison I recall that somewhat reflects the message I wanted to deliver in this column: “Opportunity is something that is missed by most people because it arrives dressed in overalls and looks like work,” he said.
In other words, upon first glance, opportunity often presents itself as a bug, not a feature.
I’m sure that’s what many of you were thinking when the province of Ontario recently announced it would establish regulations that will govern carbon emissions.
The carbon trading rules, expected to be finalized in 2016 and come into force in 2017, will no doubt be similar to those introduced in Quebec, British Columbia, California and other jurisdictions that are a part of the Western Climate Initiative.
So, what does that mean for truckers in the province of Ontario? The bad news first: There’s no doubt when the rule kicks in, you’ll pay more for fuel. The number being tossed around is two to three cents per litre.
Why is that the case when there’s no actual carbon tax being imposed? Well, a carbon trading system imposes a similar cost on fuel makers and distributors.
Fuel production and its carbon intensity will result in a compliance tax of sorts, which will be applied to the individual companies involved in fuel manufacturing and distribution – the lower the carbon intensity of their manufacturing process and product, the lower the compliance tax.
If a fuel manufacturer or distributor hits its target, the tax is zero. If it doesn’t, it will pay the tax. The bigger the compliance gap, the more they pay.
It is fully expected that fuel makers, at least in the short- to mid-term, will not be able to meet their carbon trading compliance targets, resulting in compliance fines, which of course, will are expected to be downloaded in the form of higher fuel costs for the consumer.
Understandably, that’s a bitter pill to swallow for many operators, who – on top of other escalating operational, equipment and permit/fee compliance costs – already pay a sizeable portion of their fuel bill towards government taxes and frankly, have seen very little benefit in return as only a fraction of those funds have been reinvested into infrastructure over the decades. And now, we’re being asked to fork over even more.
I’ll save you the ‘Investing in a greener environment is investing in the future’ speech. While I believe it to be true in a broad sense, who knows whether this specific program will actually pay such dividends in the real world?
That being said, is there any possible good news – a silver linings opportunity dressed in sullied overalls? Perhaps.
To be clear, individual trucking companies will not be asked to comply with carbon targets. Enforcing individual targets on trucking companies would be an administrative nightmare; something no jurisdiction has ever attempted. Nor does the Ontario Trucking Association (OTA) expect the province of Ontario to be the first canary in the coalmine – if you’ll forgive the carbon-laden metaphor.
There could be, however, legitimate opportunities for individual trucking firms to build a market advantage under a provincial carbon trading system. All trucking fleets are constantly examining ways to reduce their fuel usage. That has a huge impact on the bottom line. Secondarily, it also reduces their carbon footprint. The less fuel burned, the less carbon emitted. It’s that simple.
So, what if the provincial government were to create a voluntary system where carriers could employ a government-approved software system that captured and audited your fuel savings over a pre-determined base year and then measured and compared how many tonnes of carbon was saved each operating year thereafter? Your company could then exchange these annual carbon savings into annual carbon credits.
The non-compliant energy companies and others regulated by the carbon policy would be very interested in purchasing these credits from trucking companies who’ve amassed them via quantifiable carbon-cutting practices and technologies.
The companies can use the purchased credits to offset their inability to hit the annual carbon compliance targets. It’s a simple matter of economics; purchasing the credits you make available is cheaper for these firms than paying the compliance penalties.
It’s true that over time, compliance credits probably won’t continue to make sense for larger, sophisticated manufacturers as they discover new ways to make less carbon-intensive products, which is the ultimate policy objective of a carbon trading system.
But, in the short- to medium-term at least, there’s no reason why trucking companies who are aggressive in reducing their fuel usage shouldn’t benefit from this system, offsetting their higher fuel bills.
OTA will be exploring these possibilities with the government over the coming months and will report back to the industry. In the meantime, brush off those overalls.
Steve Laskowski is senior vice-president of the Canadian Trucking Alliance and Ontario Trucking Association. He has been involved in various files including environmental and cross-border matters, domestic and international taxation of trucking activities and intermodal relations.
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