How a demand-driven approach could accelerate zero-emission freight transportation

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Margi Van Gogh, Head of Supply Chain and Transport, World Economic Forum & Angie Farrag-Thibault, Project Lead, Clean Trucking Initiative, World Economic Forum

• By greening their supply chains, freight buyers could boost decarbonization efforts in the global freight transportation sector.
• Two key strategies involve pooling green demand through a buyers coalition and creating standards for multi-modal carbon credit frameworks.
• Industry players support such developments and several partnerships are now collaborating on new initiatives.

More than 1,000 companies have set Science Based Targets (SBT) to reach net-zero emissions by 2050. Indeed, in many industries it has become clear that Scope 3 emissions – those from supply-chain operations, including the transport of goods – can make up as much as 90% of company’s carbon footprints.

According to a recent World Economic Forum report produced in collaboration with Boston Consulting Group: “Addressing supply-chain emissions enables many customer-facing companies to impact a volume of emissions several times higher than they could if they were to focus on decarbonizing their own direct operations and power consumption alone – and achieving a net-zero supply chain is possible with very limited additional costs.”

The freight transport industry must grasp this significant demand-driven opportunity as a way to accelerate decarbonization efforts. The industry must leapfrog the hurdles to meeting time-bound net-zero goals, such as the lack of low-emission vehicles and infrastructure across entire global logistics networks. Otherwise, green products and services are often limited to certain corridor pilots and green lanes. As a result, there are fewer options for freight buyers to reduce their transport impacts, which limits market confidence in decarbonisation and stymies major capital investment in such green initiatives.

Enabling global supply chain decarbonization

Through the World Economic Forum’s Mission Possible Partnership (MPP) initiatives, we are advancing the opportunities for freight buyers to support industry decarbonization and reduce Scope 3 emissions.

For example, through Road Freight Zero, we are working with several leading brands on our first electric vehicle (EV) infrastructure de-risking initiative. This has the potential to save 140,000 tonnes of carbon dioxide (CO2) emissions per year and provide charging points for more than 6,000 trucks a day.

In the aviation sector, we have developed the Sustainable Aviation Fuel certificate (SAFc) framework through the Clean Skies for Tomorrow initiative. This will unlock funding to scale the SAF market and break through logistical challenges by establishing standards for carbon credit schemes.

Building on this momentum, the Forum’s Supply Chain and Transport Industry Action Group went a step further to explore how to continue to scale these efforts across the sector for freight buyers. In particular, looked at how to amplify the green demand signal through a green freight buyer coalition, as well as exploring the value of setting standards for book and claim carbon credit frameworks for all transportation modes.

What is our vision and how will it work?

1) Setting industry-wide standards for Book and Claim frameworks

Book and Claim supply chain models help avoid low-emission asset constraints by decoupling fuel from carbon credits. Freight buyers that invest in the sustainable aviation fuel market are issued with a carbon emissions reduction credit. The premium paid is directly invested in decarbonized solutions (that is, it is “inset” rather than offset).

There is no single standard to assess the quality and credibility of current Book and Claim frameworks being offered by transport operators. Any standardisation process could also ensure the credits are recognised by the Science Based Targets Initiative (SBTi) in order to count against Scope 3 emission reduction targets.

2) Creating a green freight buyers coalition

A green freight buyers coalition would facilitate the aggregation and scale-up of the commitment to buy green. If a robust demand signal is conveyed up the value chain, it informs asset owners’ investment decisions, while also indicating a proliferation in transport sustainability to other stakeholders, such as policy makers and financiers. Today, there are a handful of small-scale “buyers clubs”. This potential could be vastly enhanced with additional strategic support. The Renewable Energy Buyers Alliance is a great example of how this has worked in other industries.

We believe these two mutually-reinforcing enablers could be key to establishing a level playing field for the credible allocation of Scope 1 and 3 carbon credits across the transport value chain. At the same time, insetting investments, and aggregating green demand into clear and concrete procurement commitments could build financial interest and prompt policy-makers to incentivise investments in zero-emission vehicles and infrastructure in the longer term.

These two mutually-reinforcing enablers could be key to establishing a level playing field for the allocation of carbon credits. —Angie Farrag-Thibault & Margi van Gogh, World Economic Forum

Gauging industry support

Why do we believe this? As part of the exploration phase for these initiatives, we interviewed supply chain and transport companies, as well as key customers with ambitious decarbonization commitments.

We learned that major shippers are eager for their supply chain partners to provide reduced emissions services. They also recognise the need for investment. This could be in the form of a premium or longer-term contracts if key expectations are met, such as compliance with the SBTi. Also, that they will lead to overall enhancements in supply-chain sustainability and a reduction in the green premium over time.

During our transport industry interviews, we also identified four key criteria as critical to incentivising mass adoption: (1) creating a level playing field while maintaining competition between transport providers; (2) industry-wide backing; (3) cross-industry collaboration; and (4) other tangible benefits such as access to green capital backed by clear demand signal.

“We must use shipper pledges to maximise the demand signal toward asset owners, our own management and policy makers. Demand will drive supply!” said one freight forwarding company that we interviewed.

Building a strong alliance

We recognise the importance of collective action with the right partners to ensure the effective development and adoption of a green freight buyers coalition and an industry standard for book and claim frameworks. That is why we believe our collaboration with the Smart Freight Centre and BSR (Business for Social Responsibility), in partnership with the We Mean Business Coalition and the MPP, will bring this initiative to life.

We recognise the importance of collective action with the right partners to ensure the effective development and adoption of a green freight buyers coalition and an industry standard for book and claim frameworks. —Angie Farrag-Thibault & Margi van Gogh, World Economic Forum

The Forum will be responsible for mainstreaming this Sustainable Freight Buyers Alliance (SFBA) through its Industry Action Group for the Supply Chain and Transport industry, among others, as well as the Alliance of CEO Climate Leaders.

Our goal is to launch the SFBA Charter and corporate commitments at COP26 with these partners, while technical task forces further shape the operational activities of the Alliance into 2022. We encourage Forum partners to support this leadership initiative in its incubation and operation.

Additional support for the Industry Action Group for the Supply Chain and Transport Industry and this article came from Detlev Mohr, Ludwig Hausmann, Benjamin Weber, Spencer Liu, Benjamin Lin, Wendy Wu of McKinsey & Company.