How the Paris Climate Deal is set to impact your fleet
The 2015 United Nations Climate Change Conference, held in Paris this month, saw 195 countries come together to discuss one of the most pressing global issues of this time: how to curb climate change. On 12 December 2015, the talks resulted in a landmark agreement which is a clear signal to both governments and industries that the transformation of our global economy from one fuelled by fossil energy, to one fuelled by sustainable economic growth, is inevitable.
One thing that’s sure, is that the consequences of the agreement go far beyond the actions of governments. They will be felt in boardrooms too, as industries work towards decarbonising the global economy. Car manufacturers will have to develop electric vehicles that win broader acceptance in the marketplace. And energy and technology companies will be pushed to achieve breakthroughs in making better and cheaper batteries that can store energy for use when it is needed.
But, what exactly is the outcome of the Paris Climate Deal?
Although finding common ground on climate change with this many different countries is difficult, these key elements were agreed upon:
• All governments acknowledge that climate change is a common concern of humankind.
• Keep the global average temperature increase below 2°C above pre-industrial levels, with an effort to limit the increase to 1.5°C.
• Explicit goal of having as much greenhouse gas coming out of the atmosphere as going into it in the after 2050, with a peak before 2030.
• Individual government plans are to be reviewed every 5 years in order to achieve the above goals.
Although the agreement requires countries to act on climate change and to increase their actions over time, it doesn’t mention any concrete measures. This means that the real work to curb CO2 emissions is to begin now, within each country.
Fuel and oil prices have never been lower, so why invest in green?
Yes, the Monday following after the Paris agreement, the price of a barrel of WTI oil dropped to a record low of $35 per barrel. Fuel prices are expected to follow suit, but probably only as short-term effect. But, if we take a long-term perspective, there are pressing reasons why a focus on sustainability and a reduction in fleet CO2 emissions should be top of mind. Why? Well, because of the following political and economical factors that are the cause of the current price decline:
• Iran announced it would start the export of oil again, after the international ban is expired.
• US oil production has increased significantly, largely due to the shale revolution.
• The OPEC agreed to continue with a high level of production, as strategy to defend their market share.
• The global oil demand forecast decreased, as the expected growth in China showed signs of decline.
Although oil prices are expected to remain low for the upcoming year, experts believe the price will go up to a more normal level of $70/80 in the medium-term. This will largely be due to the fact that the current over-supply is not sustainable with the current price level. As oil companies cancel or delay investments in new oil projects (as they are already doing) oil supply will decrease.
This means that fuel efficiency and CO2 reduction remains an import area for fleet managers, even with the current low oil prices.
Going for greener fleets – 3 things to watch out for
Now, with the expected mid-term increase of oil prices and the outcome of the Paris Climate deal, the ‘decarbonisation’ of fleets might go even faster than expected. Of course, this will impact your fleet and fleet policy, but there are three ways in which you can stay ahead of the inevitable move to green AND keep tabs on your TCO. Here’s how:
1. The Paris Climate Deal will force governments to (further) limit the exhaust gasses of new vehicles. It is expected that ‘green’ vehicles will be stimulated, while high-emission vehicles will be banned. The good news is that governments are bound to provide fiscal incentives. Be sure to keep a lookout for such cost-incentives and react quickly.
2. The message of the governments is that the age of fossil fuels is drawing to a close. Already, automakers are under intense pressure to meet strict fuel economy standards. An exploration of and phased transition to electric vehicles will help you choose the best, TCO-optimal green solutions for your fleet.
3. An effective method to limit the CO2 emission of your fleet is to introduce a CO2 threshold for new car orders. It could make sense to make the threshold variable per job category and per country and to index it every year. What we’ve seen is that, as rule-of-thumb, a 4% decrease per year is possible and will keep your fleet in sync with the technological advances offered by the car industry.
Last, but not least, the thrust towards greener could also be coming from your own employees as these vehicles become increasingly popular. Mark Fields, Ford’s chief executive, recently remarked that their “$4.5 billion investment in 13 electric new vehicle models was not only driven by regulatory requirements, but also because ‘people love electric vehicles when they try them”.