Brother, can you spare a credit?
Carbon controls unfairly hit transport sector, Con-way executive says.
By Eric Kulisch
Climate change legislation under consideration by Congress could significantly raise transport costs and make it more difficult for freight companies to operate, according to a trucking industry executive.
The House recently passed a compromise bill to curb greenhouse gas emissions. Otherwise known as cap-and-trade, it would set a ceiling on emissions and then ration free emission allowances to various industries. Companies that exceed their carbon limits could try to get more efficient or pay for their emissions by buying credits from companies that emit less than their allotted amount. The controversial proposal faces an uphill battle in the Senate.
By putting a price on emissions the cost of things that rely on fossil-based fuels will go up. And the measure is pitting industry sectors against each other, depending on their carbon footprint and who pays for the pollution.
The trucking industry and other transportation sectors have gotten the short-end of the stick so far when it comes to allowances, said Randy Mullett, vice president of government relations for Con-way Inc., at a June 9 RAND Corp. panel discussion on freight infrastructure.
The transportation sector is responsible for roughly 28 percent of all U.S. greenhouse gas emissions, according to most estimates, and freight movement accounts for about a quarter of that amount.
Under the Waxman-Markey bill, 85 percent of the existing emissions are given away by the government as allowances and the rest are auctioned off. Oil refiners got 2 percent of the available credits, leaving petroleum users in the transport system to pay for most of emissions they make.
Mullett argues that the House should only have dispensed about 75 percent worth of emissions as credits to other sectors after factoring in the transportation component, meaning some groups got 10 percent too much credit at the expense of the transport industry.
Put another way, the entire rest of the economy contributes 73 percent of current greenhouse gas emissions but got 83 percent of the credits, according to his math.
Barring any changes in the legislation, the transport sector would have to buy most of the 15 percent in auctioned emissions plus the 10 percent in credits that other sectors reaped.
'We're subsidizing one of the other sectors of the economy. So they're going to get a windfall selling what they don't need,' he elaborated afterwards.
The freight sector, he noted, is especially handicapped compared to automobiles because there are few technological advances that can much improve engine efficiency for commercial trucks.
The climate bill 'has the potential to substantially raise the price of fuel in the United States. You start layering that on top of already rising logistics costs and it does impact our economic competitiveness internationally,' Mullett said of freight transportation in general.
The impact is similar to other factors that cause fuel prices to rise, except that the increase from a regulatory scheme is likely to be more certain and last for a longer period of time, he said.
Any decline of feed stock levels for low-sulfur diesel mandated for heavy-duty trucks or increase in oil prices would compound any price shock from carbon fees.
'We actually have the potential, in our sector, for fairly significant disruptions' that will create a lot of uncertainty as far as fuel prices and availability, Mullett said.
He suspects that the bill's sponsors had to work deals to cobble together enough votes from districts where mining, agriculture, manufacturing and other industries are prominent, and that the more fragmented transport sector got left out.
One way to deal with the situation is to use carbon pricing to insert efficiency into the system, said Charles Eisele, senior vice president of strategic planning for Union Pacific.
Railroads such as UP and other freight transportation providers should assign carbon caps to the delivered cost of goods, which would force shippers to try and minimize their carbon use and keep the price of their products down.
'That will naturally cause freight to migrate to the most efficient carbon mode,' Eisele said.
Railroads and barges can move large amounts of freight much further than trucks on the same amount of fuel, but are not as fast or easily available in all U.S. regions.
Eisele warned that if Congress improperly sets the carbon caps it 'could sub-optimize the supply chain.' Policymakers need to evaluate how the links in the system contribute to the overall carbon cost so that certain components, such as rail, aren't penalized the same as other modes.
Mullett said a portion of the money the government collects from the emissions auctions should go to improve transportation infrastructure, which suffers from bottlenecks in metropolitan areas and major travel corridors because of population growth and under investment. Congestion leads to idling cars and trucks spewing pollutants into the atmosphere.
'If we're really serious about using those dollars to positively impact the environment, then we need to plug some of those dollars back into the highway system to gain efficiencies, and it needs to go back into research and development.
'If we fail to do that, then cap-and-trade is simply a punitive tax to keep you from using the system,' Mullett said.
Future of Supply Chain
JUNE 21-22, 2023 • CLEVELAND, OH • IN-PERSON EVENT
The greatest minds in the transportation, logistics and supply chain industries will share insights, predict future trends and showcase emerging technology the FreightWaves way–with engaging discussions, rapid-fire demos, interactive sponsor kiosks and more.