Climate Change

How a new framework for carbon emissions accounting can help decarbonize freight and logistics

Carbon markets can play a key role in the transition of industries and provision of green freight solutions.

Carbon markets can play a key role in the transition of industries and provision of green freight solutions. Image: Unsplash

Margi Van Gogh
Head, Supply Chain and Transportation Industry, World Economic Forum
Christoph Wolff
CEO, Smart Freight Centre, Amsterdam, Honorary Professor Economics & Social Sciences, University of Cologne
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Climate Change

This article is part of: Centre for Nature and Climate

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  • Carbon markets can play a vital role in creating economic incentives for cutting emissions during the green transition for industries such as freight.
  • Significant barriers still hinder the rapid and widespread decarbonization of freight transport, which is where carbon markets can prove highly useful.
  • The World Economic Forum, partnering with the Smart Freight Centre, launched the Voluntary Market Based Measures Framework for Logistics Emissions Accounting and Reporting to accelerate the journey to net zero.

Carbon markets, designed as systems for buying and selling carbon credits or permits, play a crucial role in creating economic incentives for reducing emissions and promoting the adoption of low-carbon technologies.

However, carbon markets scepticism has grown due to concerns about offset project integrity and accurate emissions measurement. Nevertheless, when properly designed and regulated, carbon markets can serve as a vital incentivizing tool and adoption accelerator during transitional periods for hard-to-decarbonize industries such as freight.

They act as a bridge, providing incentives for emission reduction and facilitating the transition to low-carbon technologies. In the context of heavy transport, carbon markets will be essential as complementary measures for at least the next decade, by helping address the demand for infrastructure and green energy sources while also supporting efforts to reduce emissions in the sector.

Barriers to decarbonization of freight transport

The World Economic Forum has identified several significant barriers that currently hinder the rapid and widespread decarbonization of freight transport.

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Firstly, the high costs associated with decarbonization pose a major challenge, especially for freight carriers that already operate on narrow profit margins. Despite some leading shippers showing interest in co-investing, the solutions available may not immediately yield substantial emissions reductions. This lack of immediate payoff limits investment, given sector economics.

Secondly, the complexity of supply chains exacerbates the challenge. Supply chains are often heavily subcontracted, resulting in limited control over the specific vehicles, vessels or planes used for transporting freight. Additionally, there is often a lack of visibility regarding the frequency with which a particular vehicle or container is utilized for transportation.

Recognizing the potential of carbon markets in addressing these barriers, in early 2021 the World Economic Forum’s Supply Chain and Transport community of CEOs endorsed efforts to create viable standards for a multi-modal 'book and claims' chain of custody framework and, to support the development of buyers’ alliances that would harness green demand.

Consequently the First Movers Coalition (FMC) and the Sustainable Freight Buyers Alliance (SFBA) were born. Both are driving progress in terms of the scale of commitments, the increasing number of companies willing to invest and carbon abatement potential that can be achieved with appropriate collaboration and investment from the public sector.

The development of the Global Logistics Emissions Council (GLEC) Framework is a prime example of how collective community efforts can yield remarkable results. This universal framework for logistics emissions accounting gained widespread support and has swiftly evolved into an ISO standard.

This achievement highlights the significant impact that voluntary leadership from the private sector and collaboration between initiatives and leading organizations can have in accelerating market uptake, forging new partnerships and developing innovative solutions.

A new framework for carbon emissions accounting and reporting

Recognizing the successes and potential impact of such initiatives, the World Economic Forum partnering with the Smart Freight Centre, along with several corporate experts across modes, worked together to pilot and launch the Voluntary Market Based Measures Framework for Logistics Emissions Accounting and Reporting.

This framework has the potential to complement and accelerate efforts to centralize demand and overcome some known barriers to logistics decarbonization.

Unlike traditional carbon markets that mainly focus on setting a cap on emissions and trading allowances, this new framework operates on a book and claim chain of custody approach that enables emission allocations to contributors regardless of their specific freight movements.

Specifically, the framework allows for:

  • Purchasers of freight transportation to contribute to the cost premium and report the greenhouse gas (GHG) emission profile of a low emission transportation service, even if their freight was not physically transported on that specific low emission service.
  • Freight transportation providers or decarbonization solution providers to allocate a low emission profile to organizations contributing to emission abatement costs, even if their freight is not always transported using low emission solutions.

Moreover, where possible, it ensures consistency with established freight transportation GHG accounting methods, such as those outlined in the GLEC Framework and ISO Standard 14083:2023.

The process of establishing this framework was guided by key principles and a shared understanding of transparently managing additionality and avoiding double counting. The finished product provides clear guidance for users throughout the value chain, enabling collaboration and creating value and environmental benefits.

Carbon accounting framework a milestone for freight sector

In summary, this framework is a significant milestone for the complex freight sector, as it offers a more flexible approach compared to traditional carbon markets. Its ability to centralize demand would be amplified with wider adoption among key players in the freight sector, leading to a worldwide standard.

By fostering collaboration among various stakeholders, including shippers, logistics service providers, freight carriers and freight decarbonization solution providers, it encourages broad participation and investment in low emission transportation services.

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This inclusive and interconnected approach paves the way for a dynamic market, accelerating the adoption of low emission technologies and services throughout the freight transportation industry.

Decarbonization of the heavy transport sector requires an industry wide, collaborative effort. Proliferation of disparate approaches to market based accounting for transport could undermine the legitimacy of any specific approach.

As such, World Economic Forum, Smart Freight Centre and other partners encourage collective utilization of the framework to accelerate the joint journey towards zero-emission freight.

ClAcknowledging the significant contribution of all industry leaders supporting the successful pilot and framework development – with specific appreciation to Dan Smith from Smart Freight Centre and Angie Farrag-Thibault, Mette Asmussen, Thibault Villien De Gabiole from the World Economic Forum.

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World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Climate ChangeEnergy Transition
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