Organizing Action – Credible Accounting and Reporting for a Voluntary Carbon Market in the Freight Sector
Sophie Punte, Founder and Board Member, Smart Freight Centre
COP26, held in Glasgow in November 2021, particularly stood out to me. Governments, business and civil society announced ambitious commitments, standards and initiatives. One of these was President Biden’s launch of the First Movers Coalition of 30 companies sending a strong market signal by committing to purchase or use low or zero-emissions technologies across different sectors, including aviation, shipping and trucking.
I am curious to find out how companies can follow through on their commitments and what else is needed to make climate action work in practice. I set out to speak with Alan Lewis, Technical Director at Smart Freight Centre, with whom I worked closely for the past ten years on climate action in the freight sector, to zoom in on the role of accounting and reporting in voluntary carbon markets for freight.
Why is it difficult for companies to reduce emissions from freight transportation?
Most companies that need freight transportation have outsourced this to transport service providers. This means that both their freight transport emissions, as well as opportunities to reduce those, can be outside their direct control. This leads to little scope for influence.In addition, up-front costs for solutions such as electric trucks, biodiesel or sustainable aviation fuels (SAF) are higher than fossil fuel-based transport. The reality is that most freight customers currently have no interest in voluntarily paying a cost premium for low emission transport services. In the meantime, policies are being developed, however not at pace with market developments to create a level playing field for all carriers. This makes it impossible for progressive freight carriers to bear these costs while remaining competitive.
So pooling demand for low emission technologies is not enough?
It helps, but it’s not enough on its own. We need companies that demand low emission transport services to also reduce the cost burden for their carriers. Luckily, several companies that have made commitments through the First Movers Coalition, Sustainable Freight Buyers Alliance, or EV100+, or set targets through the Science-based Targets Initiative, are willing to do so. The opportunity now is to create a voluntary carbon market where the deal is: if companies that buy freight transportation voluntarily bear the extra costs for low emission transport services, then they get to claim associated emission reductions to meet their targets.
What is needed to make this voluntary carbon market happen for freight?
Carriers have many assets and also many companies as customers. This makes it difficult to link, for example, a specific electric truck or a ship using biodiesel to a service provided to any one customer unless the customer has a dedicated contract. Therefore, a process is needed that permits the carrier (or solution provider) to calculate and separate the lower emissions due to the low emission solution or service. This would also permit the customer to pay extra and report the lower emissions as theirs, even if that lower-carbon solution was not, or only partially, used to transport their goods. The technical term for this is ‘book and claim’, which refers to a company that, as customer, chooses a low emission solution that has been “booked” into an emission tracking registry and claims the attributes of that low emission service as its own..
I suppose you need good accounting and reporting methods for this.
Yes, you need to make sure that methods used are consistent with the Greenhouse Gas Protocol for corporates in general, and transport-specific accounting and reporting methods that align with the GHG Protocol like the GLEC Framework and the ISO 14083 standard.
Is this working?
Unfortunately, not right now. The GHG Protocol restricts the emissions that can be claimed by a customer to those that are calculated for the specific transport service as used by this customer, so removing the flexibility for the book and claim solution. There are several real-world examples where this has already prevented leading companies to invest in solutions (see Box 1). In practice, many carriers have unknowingly been applying a ‘book and claim’ approach for several years already; now that use of book and claim solutions has come to prominence, a strict application of the existing accounting would put a stop to this, meaning we could actually take a step backwards on investments in climate action!
Why are these accounting rules so rigid?
There are legitimate concerns about carbon voluntary carbon markets. The first concern is double counting. In the past there have been abuses in the electricity system, particularly where the emission reductions associated with low emission products have been double counted. An example of this is where the same renewable electricity is included in the grid average emission factors that are used by ‘regular’ electricity customers. The second concern is additionality, for example, not all agreements to use hydro-electric power resulted in additional capacity. Other investments in electric vehicles or green electricity buildings are using green electricity that is already in the grid and do not always lead to investing in new renewable energy capacity. Permanence is another concern, for example, when emissions are offset by planting trees that are subsequently cut down. The primary concern with voluntary carbon markets though, is that companies set ambitious targets but then plan to reach these for a large part through offsetting rather than real reductions within the company’s value chain. At COP26 we saw a huge pushback for offsetting, which also triggered the development of the Core Carbon Principles for high-integrity carbon credits and the VCMI Claims Code of Practice for companies wanting to engage with voluntary carbon markets.
Do you believe these concerns can be addressed?
Absolutely. At a minimum we should experiment with small scale applications to work out how we can both mobilize investments in low emission transport solutions as well as prevent practices that undermine the credibility of voluntary carbon markets. Let’s figure out how we can make use of clever IT systems and blockchain, which are real game changers because it will be easier to keep track of the solutions implemented and where associated emission reductions end up. In addition, we must work out where flaws or abuses of the system are likely to happen within the freight sector and create specific rules for those situations. We have addressed this in the book and claim framework for transport emission accounting that Smart Freight Centre recently published that resulted from a partnership with World Economic Forum and seven multinational companies.
I can think of several rules that we should introduce right away to improve the integrity of voluntary markets within the freight sector (see Box 2).
Finally, do you think companies will support you in this?
Yes, I’m optimistic. Several of the companies that made demand commitments also issued a parallel Supply Chain and Industry Statement in support of the development of one industry standard for book and claim carbon credit accounting for all modes of freight transport. Our book and claim framework for transport GHG emission accounting, allocation and reporting is one step towards development of a voluntary carbon market for freight transport decarbonization solutions. Industry knows it needs strong accounting rules, they now need the help from civil society and governments to embed these into accounting standards and policies to make them work for business in practice. This will allow industry players to overcome the significant barriers and transition smoothly to a situation where low emission transport services are commonplace.
