Decarbonizing the hard-to-abate freight sector with carbon insetting

30 March 2023 5 min. read

A growing number of companies are adopting the use of carbon insetting, as part of their broader roadmap to decarbonize their operations. To understand more about the growing phenomenon and its benefits, we spoke with Bonne Goedhart and Inge Tanke, both sustainability experts at consultancy AllChiefs.

When it comes to drawing up sustainability strategies, players in the freight sector face an uphill challenge. “Of the six ‘hard-to-abate sectors’ for decarbonization, three revolve around freight transportation – shipping, trucking and aviation,” said Goedhart, who co-leads the sustainability practice of AllChiefs.

“Along with the likes of heavy industry such as cement, steel, and chemicals, freight transportation typically lacks the technological mitigation options needed to enable a smooth pathway to net zero,” he added.

Bonne Goedhart en Inge Tanke - AllChiefs

“There are several reasons for this,” said fellow practice leader Tanke. “At the core is a large and complex supply chain with sometimes up to thousands of suppliers, meaning realising improvements can be difficult and requires alignment across the value chain.”

In addition, Tanke added, the freight transportation sector is still “completely built on fossil fuel energy”, with the development of ‘greener’ technologies and solutions still in their infancy.

As the sector drives towards a more sustainable future, one of the key challenges it will have to tackle is attaining a positive business case for decarbonization. “It requires investments in new manufacturing and production processes that use clean energy. The upfront costs are big, and even if companies manage to finance low-carbon alternatives, it would require immense effort to align their value chain and could make them less profitable – at least in the short-term.”

Greenwashing emissions?

But with the stakes so high – the Energy Transitions Commission estimates that six hard-to-abate sectors account for 30% of total global CO2 emissions – Goedhart and Tanke said that freight companies are increasingly exploring other avenues to decarbonization.

The well-known, but also criticized approach of carbon offsetting, is one such strategy. In this approach, companies purchase carbon credits from a project that reduces greenhouse gas emissions to compensate their overall carbon footprint. The classic example: a polluting company plants a forest full of trees. “Here, it’s all about compensating for emissions, instead of actually reducing emissions,” said Goedhart.

Critics have been quick to label carbon offsetting as ‘greenwashing’, with the renowned Science Based Target initiative (SBTi) going a long distance in curbing the benefits companies can claim from this approach.

Carbon insetting

The criticism on offsetting is forcing companies to rethink their roadmap towards net zero, and this is where the rapidly growing carbon insetting trend enters the stage.

In a new whitepaper geared at leaders in the freight landscape, Goedhart and Tanke walk through the basics of the concept, and outline how and why it adds value. “Carbon insetting allows companies to allocate the environmental benefits of a low emission alternative intervention (e.g. fuel switches or fleet renewals) to the one that is willing to pay for it.”

Key in the approach is that carbon reduction is actually delivered, and that benefits can be accrued across a company’s value chain. And: the activity for which decarbonization is agreed can be decoupled from the environmental benefit. Take the example of a cargo owner and a road freight supplier.

Example 1

Agreeing on a carbon insetting model, a cargo owner can partner with a freight supplier on the replacement of the carrier’s fleet to electric trucks. The cargo owner pays the cost of the replacement, even though these electric trucks will not be used for their products only. In the bookkeeping system, the paying cargo owner can claim the environmental benefits for a set number of years and can report lower emissions.

“The cargo owner can use the environmental benefits to reduce their own logistics emissions footprint,” explained Goedhart.

Meanwhile, to avoid double counting, other non-carbon insetting customers of the road freight carrier report their scope 3 emissions as if the trucks were diesel.

Carbon insetting can also work the other way around, where a more sustainable party ‘sells’ environmental benefits to parties interested in abating their emissions. For example: a Sustainable Aviation Fuel (SAF) manufacturer can supply SAF to an airport, and then connect with any fossil fuel provider (carrier, cargo owner or logistics provider). The party with which the SAF players strikes a deal pays the premium and can report lower GHG emissions.

Example 2

“This system of carbon insetting has several major advantages,” said Goedhart. “Most importantly, it actually reduces carbon in the system, while keeping in place the flexibility of offsetting.”

Then there are benefits for individual stakeholders. “For freight transport it is beneficial because it takes away the complexity in the supply chain. For carriers it unlocks more financial support to decarbonize their fleet. Also, both cargo owners and freight forwarders can more easily reduce their scope 3 emissions.”

Having advised on several carbon insetting schemes in hard-to-abate sectors, Goedhart said that AllChiefs has first-hand seen how the model can be an invaluable tool for enabling even the “most complex value chains to reduce their footprint and report emissions savings.” Tanke concluded: “And for building a more sustainable world, of course!”