Why we should count emissions reductions in ROI considerations

Home>Why we should count emissions reductions in ROI considerations

Blog

There’s no doubt that the year-long decline in oil prices has had significant impacts on economies worldwide, with exporting countries like Russia, Venezuela and the Gulf states facing a “new normal”. On the flip side, oil consumers have benefited from reduced costs, with the transportation sector at the front of the line. It is not overstated to say that fleets in every sector are savings tens of millions of dollars due to low fuel prices.

While fossil fuel prices may fluctuate, the impact of those fuels on the environment is growing. In new estimates from the World Health Organization around 7 million people died in 2012one in eight of all deaths worldwide – as a result of air pollution. This finding more than doubles previous estimates and confirms that air pollution is now the world’s largest single environmental health risk. Reducing air pollution will undoubtedly save lives globally.

Not all harmful emissions come from transportation, of course; however, according to the US Environmental Protection Agency, vehicles are responsible for around half of the air pollution in the US. And while medium duty vehicles like trucks and buses make up only four percent of those vehicles they are responsible for more than twenty percent of that number.

While commercial accountants may regard “the environment” as a nebulous concern that doesn’t have a direct bearing on the bottom line, the effect of vehicle emissions on human health is something that all pollution-emitting businesses must take into consideration as part of their social responsibility portfolio.

For fleet managers, this is easier said than done. How do you add “air quality” to a spreadsheet? How do you quantify hospitalizations and premature deaths in a way that leads to investment decisions? How can a fleet merge making green and truly being Green?

How can fleets turn emissions reductions into realizable ROI?

P1030246_smallOne illuminating consideration is that not all emissions reduction technologies are created equal. Consider diesel trucks, which are required by regulations to be equipped with DEF and particulate filter systems. Both technologies represent additional capital expense, as well as ongoing operational costs. Neither technology delivers fuel savings or any other tangible cost benefits. And they certainly don’t contribute to vehicle performance.

In contrast, regenerative braking systems, such as Lightning Hybrids’ Energy Recovery System, achieve emissions reductions as a result of significantly reduced fuel consumption. Less fuel used means a happier spreadsheet; and the emissions reductions, especially in the case of NOX, deliver benefits to our communities every time the vehicles are on the road. And these systems definitely improve vehicle performance.

However, while this is generally compelling (at least when fuel prices are high), the broader question is: How can fleet managers adopt a business model where it makes sense to assign investment dollars to environmental responsibility? Many companies trumpet their environmental stewardship credentials these days; but how often is this just lip service?

Here are some ideas to help you visualize assigning a monetary value to emissions reductions. First, follow the same logic your fleet uses to monetize safety. For example, most fleets don’t buy the cheapest tires. How does your fleet monetize the additional investment to ensure lower litigation and better driver safety?

Second, look to your marketing department. Being able to brand your vehicles with sincerity that you care about the environment has an impact on customer acquisition and retention. Ask your marketing department what that level of marketing would cost if you were to take out newspaper ads, TV ads, etc.

Finally, look at your other corporate priorities and mandates, and what is being spent to achieve them, and place a similar value on your “Green” mandate. You should be able to place a monetary value on achieving a carbon or NOX reduction if it meets a company priority. For example, you might say that achieving a 20% CO2 reduction is worth $2,000 per year per vehicle. Similarly (and in addition to), you might put a value of $3,000 per year per vehicle for a savings of 20% in NOX emissions.

Tim Reeser’s blog piece explores the tools that governments can (and do) apply to the problem of transportation’s contribution to air pollution. He argues that a careful balance of regulations and incentives is the way to go, but that the market – and not the government – should decide which technologies best fulfill the government’s goals. The obvious consequence of this is that technologies which deliver cleaner air while also reducing costs are going to experience the strongest adoption rates.

Unfortunately, the ability or will for governments to implement such tools varies by country, or even by state or city. And, as China and India have shown, regulatory enforcement can be close to non-existent, leading to some of the worst air quality conditions on the planet, to which the government’s response is a slightly surreal knee-jerk reaction such as their “odd/even” mandates. Of course, we all thought that Western organizations would be in full compliance, until last year’s revelations about Volkswagen led us to wonder if there’s even such a thing as “clean diesel”.

sea-sky-water-clouds_smallThe way forward requires a sea-change. It requires fleets to be judged by their customers on their environmental performance as well as their prices. It requires companies to recognize that they have the power to contribute to air quality and that not using that power is a dereliction of social responsibility. And the good news is that there are technologies out there like ours which reduce pollution and save money.

Let’s hope that this becomes the “new normal”.