Setting Targets for Reducing Carbon Emissions from Logistics Operations: Principles and Practice

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1 Setting Targets for Reducing Carbon Emissions from Logistics Operations: Principles and Practice Professor Alan McKinnon Kühne Logistics University, Hamburg BAQ 2012 Conference Hong Kong 6 th December 2013

2 Emission of Greenhouse Gases from Freight Transport / Logistics Estimated that logistics accounts for 5.5% of total GHG emissions Source: World Economic Forum / Accenture 2009

3 Stages in the Development of a Decarbonisation Strategy for Logistics carbon commitment measuring and reporting logistics CO 2e footprint Identify decarbonisation measures set target for CO 2e reductions evaluate CO 2e and cost impacts of decarbonisation measures devise implementation plan and schedule exploit / monitor benefits Target-setting is a key element in the process feedback

4 Reasons for Establishing a Carbon Reduction Target Sets clear goal for the company Motivates management and staff Provides benchmark against which carbon reductions can be measured Demonstrates company commitment to carbon reduction May yield some marketing benefit Differences between carbon reduction targets and other business targets - Alignment with external industry and government targets - Visibility declaring targets for Corporate Social Responsibility (CSR) and marketing reasons Review of logistics service providers CSR statements (Piecyk and Bjorklund, 2012) 112 logistics providers 22 with a CSR statement 21 declare Scope 1 and 2 GHG emissions All the CSR reports contain information on actions and initiatives aimed at reducing the climate change impacts of the logistics service offered.

5 Differentiating Carbon Reduction Targets for Logistics Operations Bottom-up or Top-down

6 Imposition of corporate carbon reduction targets Often based on targets set by government, trade bodies or competitors Top-down approach Problems with the Top-Down Approach to Targeting 1. Not based on an analysis of the potential savings lacking credibility 2. Often fails to recognise differences between companies: inherent carbon intensity of their logistics operations base-line against which emissions are reduced 3. Ignores wide inter-functional differences in the potential and cost-effectiveness of carbon abatement

7 Inter-functional Differences in Potential CO 2 Reductions and Marginal Abatement Costs Business Functions F1 F4 Marginal abatement cost per tonne of CO 2 saved F4 F3 F2 F1 tonnes of CO 2 saved

8 Imposition of corporate carbon reduction targets Often based on targets set by government, trade bodies or competitors Top-down approach Bottom-up approach Analysis of potential carbon saving and methods of achieving it against businessas-usual trend Problems with the Top-Down Approach to Targeting 1. Not based on an analysis of the potential savings lacking credibility 2. Often fails to recognise differences between companies: inherent carbon intensity of their logistics operations base-line against which emissions are reduced 3. Ignores wide inter-functional differences in the potential and cost-effectiveness of carbon abatement

9 Tonnes CO2 Reduced Examples of analyses of the potential savings from carbon reduction measures Estimated CO 2 Savings from Various Sources DB Schenker s Land Division (Sweden) Switch to biofuel 0% 5% 10% 15% 20% 25% New vehicle technology Optimised vehicle size increased vehicle fill Modal split minimum maximum Smarter city logistics % reduction in CO2 emissions Carbon Reduction Trajectory for Large UK Road Freight Fleet Impact of Carbon Reduction Measures over Target Period 30,000 25,000 20,000 15,000 10,000 5, Alternative Refrigeration System Dual Fuel vehicle 2 Dual Fuel vehicle 1 Electric vehicles Double Decking of Trailers Reduction in Leakage of Refrigerant Gases Bio-diesel blend 2 Biodiesel blend 1 Aerodynamics - option 2 Aerodynamics option 1 Telematics Year

Carbon intervention modelling tool http://www.fta.co.

10 Carbon intervention modelling tool 11

11 Reducing energy consumption (relative to distance travelled) Reduce carbon content of the energy consumed Reduce distance that vehicles travel 12

12 Use of beta version of the software to capture company data to refine default values

13 14

14 Marginal Abatement Cost Curve for Road Freight Interventions UK Royal Mail

15 Differentiating Carbon Reduction Targets for Logistics Operations Bottom-up or Top-down Absolute or Intensity

Examples of Carbon Reduction Targets Set by Major Logistics Providers company normaliser time period % carbon reduction target Deutsche Post / DHL

of warehouse space 2007-2020 30% DB-Schenker Tonne-km 2006-2020 At least 20% UPS UPS Transportation Index 2010-2017 5% UPS Airlines Global Pounds of CO

Express) not specified 2007-2020 45% Maersk Line not specified 2007-2020 25% NYK unit of transportation from vessels 2006-2013 10% Derivation of UPS

16 Examples of Carbon Reduction Targets Set by Major Logistics Providers company normaliser time period % carbon reduction target Deutsche Post / DHL every letter and parcel delivered, every tonne of cargo transported and every sq.m. of warehouse space % DB-Schenker Tonne-km At least 20% UPS UPS Transportation Index % UPS Airlines Global Pounds of CO 2 emitted for every ton of capacity transported on nautical mile % Fedex (aircraft) available ton mile (ATM) % TNT (Mail and Express) not specified % Maersk Line not specified % NYK unit of transportation from vessels % Derivation of UPS Transportation Index Division intensity ratio weighting factor US domestic package service lbs CO2e / package 0.48 UPS airlines (global) lbs CO2e / available ton mile 0.37 UPS supply chain and freight lbs CO2e / lbs of freight 0.15

17 Shippers Targets for Reducing the Carbon Intensity of Logistics Operations Carbon footprint per case of goods delivered kgco 2e / case 50% reduction in CO 2 emissions per case delivered Source: Tesco Social Responsibility Report % improvement in CO 2 efficiency of logistics reducing truck mileage using lower emission vehicles employing alternative transport such as rail or ship improving the energy efficiency of warehouses

18 National CO2 e Reduction Targets Climate change targets: EU : 20% absolute reduction in CO 2 by 2020 (against 1990 base year) UK: 80% absolute reduction in CO 2 by 2050 (including shipping and aviation) China: 40-45% reduction in carbon intensity of the economy by 2020 (CO 2 emissions per RMB of national income) International aviation & shipping* UK non-co 2 GHGs Other CO Mt CO 2 e Industry (heat & industrial processes) Residential & Commercial heat Domestic transport Electricity Generation * bunker fuels basis 2006 emissions 77% cut (= 80% vs. 1990) 159 Mt CO 2 e 2050 objective Source: UK Committee on Climate Change To include emissions from international transport services

19 Reconciling Company Carbon Intensity Targets with Government Absolute Targets Projected Growth of Inland Freight Movement in the EU (billion tonne-km) Source: EU Transvisions project (2009) +160% EU White Paper on Transport (2011): 60% reduction in transport CO 2 emissions Assuming that the 60% target applies to freight transport: - requires 85% reduction in the carbon intensity of EU freight transport by company targets average 1.7% reduction in carbon intensity per annum for freight transport - equivalent to a 68% reduction in carbon intensity by assumes linear extrapolation of rate of intensity reduction beyond 2020

20 Differentiating Carbon Reduction Targets for Logistics Operations Bottom-up or Top-down Absolute or Intensity Varying scope

21 Boundaries around the Carbon Calculation Organisational

22 DHL Carbon Reduction Targets

23 Boundaries around the Carbon Calculation Organisational Geographical Functional logistics transport storage on-site external materials handling IT-related ancillary activities

24 Modelling Carbon Trade-offs between Logistical Activities CO 2 CO 2 Trade-offs Emissions total logistics CO 2 Inventory-related CO 2 warehousing CO 2 transport CO 2 Minimum CO 2 footprint no.of warehouses Targeting at a logistics level captures carbon trade-offs between logistical activities

Boundaries around the Carbon Reduction Target

logistics level transport on-site external Company

Company storage materials handling Activity Activity

Product group Item Product group Item Product group

25 Boundaries around the Carbon Reduction Target Organisational Geographical Functional Hierarchical logistics level transport on-site external Company Business unit Facility Company Business unit Facility Company Business unit Facility Company Business unit Facility storage materials handling Activity Activity Activity Activity IT-related ancillary activities Product group Item Product group Item Product group Item Product group Item supply chain

26 Differentiating Carbon Reduction Targets for Logistics Operations Bottom-up or Top-down Absolute or Intensity Varying scope Differing time-scales Differing start and end dates frustrates the comparison of targets Tendency to choose earlier base year to include past carbon saving initiatives Long term targets lack credibility need interim targets Alignment of dates with government and industry-level targeting

27 Differentiating Carbon Reduction Targets for Logistics Operations Bottom-up or Top-down Absolute or Intensity Varying scope Differing time-scales Degree of reliance on carbon offsetting

28 Evolution of a Carbon Management Strategy Source: CarbonView Need to project future costs of carbon offsetting and relate them to the marginal carbon abatement costs of actual decarbonisation measures

Industry-level Target-setting for Logistics Carbon Reduction Conform to targets set by industry trade-body confers credibility helps build industry momentum for decarbonisation encourages more

29 Industry-level Target-setting for Logistics Carbon Reduction Conform to targets set by industry trade-body confers credibility helps build industry momentum for decarbonisation encourages more consistent, responsible approach outsources the target-setting exercise UK Logistics Carbon Reduction Scheme Target reduction of 8% in carbon intensity of freight transport Endorsed by the UK Government

30 6 Principles of Target Setting for the Decarbonisation of Logistics Company-specific targets should be based on a bottom-up analysis of the potential for and cost of cutting carbon emissions over particular time-frames. Where possible, targets should apply to the whole logistics operation in recognition of the carbon trade-offs that exist between logistical activities. Targets should be expressed in terms of carbon intensity with logistics output measures used as the normalisers. Where the target period is greater than 3-4 years, bridging targets should be set for intervening years to show the trajectory for carbon reduction. The scope of the logistics carbon measurement and related target should be made explicit, delimiting the relevant organisational, geographical, functional and hierarchical boundaries. Where appropriate, a company should join an industry-wide carbon reduction scheme and conform to the targets that it sets.

Unternehmensführung Brooktorkai 20 20457 Hamburg E-Mail: alan.

31 Contact details Kühne Logistics University The KLU Wissenschaftliche Hochschule für Logistik und Unternehmensführung Brooktorkai Hamburg Website: Carbon Management Vol 3 no 6 December 2012

Setting targets for reducing carbon emissions from logistics: current practice and guiding principles

Carbon Management ISSN: 1758-3004 (Print) 1758-3012 (Online) Journal homepage: http://www.tandfonline.com/loi/tcmt20 Setting targets for reducing carbon emissions from logistics: current practice and guiding