‘Fit for 55’: How new EU climate targets could change supply chains | 2021-08-29
The European Union recently published plans to speed up its already ambitious legislation to be carbon neutral by 2050. While the original target was a 40% reduction from 1990 levels, the EU is seeking now to raise the bar to 55% by 2035. The legislation, titled Fit for 55, will represent a huge effort to achieve the goals set out in the 2015 Paris Agreement.
In itself, Fit for 55 is ambitious, but what is more difficult is that it belongs to the 27 individual members of the EU who have extremely varied capacities in climate, energy and transport. reach this goal. This is only complicated by the fact that the shipping industry is an international market and global e-commerce is expected to reach $ 1.4 trillion by 2025, bringing a variety of difficult nuances to deliver the products needed by consumers. populations.
Fit for 55 will incorporate agreements that apply to all industries to decarbonize. But with the extreme growth of e-commerce in tandem, supply chains are likely to come under significant pressure, especially with the millions of metric tons of CO2 currently created by the shipping industry each year. Many facets of logistics networks in maritime transport will need to operate as efficiently as possible, and technological innovations will require an unprecedented focus on efficiency.
Let’s take a look at the main factors described by Fit for 55 and the expected results within the shipping industry.
A price to pay
There is no doubt that the EU aims to make pollution expensive. The first step in this direction was the introduction of the Emissions Trading System (ETS) in 2005, the world’s first and largest carbon market. Operating in commercial phases, the ETS operates in defined time increments which can be adjusted to stay aligned with the overall objectives of EU climate policy.
After years of low prices, a mix of reforms and pushing for stricter climate legislation, there are now a plethora of restrictions that make emissions a hugely expensive by-product. Under the ETS, emissions prices have been raised to over € 50 per tonne of carbon emitted, and the permits needed for more than 11,000 power plants and industrial facilities will be increasingly reduced. To date, these industries collectively cover around 40% of the EU’s greenhouse gases in total.
The Fit for 55 legislation will further limit the number of emission permits to new parts of the EU economy. This will include shipping and stricter conditions for aviation – regulating free permits and reducing permits in these industries. All of these measures will inspire companies across all industries to jump in and start integrating solutions, but as always, it’s not that simple.
Each country being responsible for its own reduction of 50 to 60%, some countries with less infrastructure and more dependent on industries with polluting consequences will be severely disadvantaged. Rising fuel prices will have a significant impact on high-emission countries such as Poland and Estonia, as their economies embody the EU’s road transport and construction sectors. On the other hand, countries like Denmark have already accumulated advantages in their gradual and sustainable resourcing, serving as an important environmental example. In fact, Denmark’s capital, Copenhagen, aims to become the first carbon-neutral capital by 2025, 10 years before the Fit for 55 finish line was even set.
The EU has invested in this program, but the question arises as to how much loan each country needs to live up to the ambition of the legislation. The current strategy is for the EU to be paid back, but in return member countries will have an extreme return on investment (ROI) – including better quality of life and sustainable efficiency across all sectors in the long run.
Emissions tests have been in place in the EU since 2020, but more transport taxes are on the way. The very first EU-wide CO2 emission standards for heavy duty vehicles, Regulation (EU) 2019/1242, aim to reduce the overall average emissions created by large vehicles, as they stand observed in the freight transportation industry.
Compliance is checked using simulation software measuring CO2 emissions and fuel consumption of heavy vehicles. The software, called VECTO, can be applied to specific loads, fuels, and mission profiles, such as long-haul, regional, or city deliveries, based on input data from relevant vehicle components.
Financial penalties for missed CO2 targets apply. For the average driver, the EU has proposed a broad plan to phase out all gasoline-powered internal combustion engine vehicles by 2035.
The EU believes that the 2025 climate targets can be achieved using technologies already available on the market. The 2030 target is expected to be assessed in 2022 as part of the review of the regulation – creating an action plan to move forward. To meet the acceleration target of having a 55% reduction by 2035, however, the EU will need to step up efforts to ensure governments and businesses participate.
These new standards will shape the future of the supply chain, but it is important to note that currently shipping is built on a global network. A combination of high shipping costs, long lead times and increasing trade restrictions are forcing a re-evaluation of sourcing decisions. This will potentially increase the need for production closer to the market, which means that the infrastructure must be integrated locally. Analysts expect long-term relocations to increase as companies move their supply chains closer to home.
This translates into less dependence on Taiwan and China, which means more investment locally and therefore less weight on the international transport of goods from Asia. One country that has taken the initiative is France, which plans to launch autonomy in chip production by introducing semiconductor manufacturing in Europe. With the ambitious goal of doubling its share of the global chip market by 2030, France intends to initiate a trend of “strategic autonomy” and, hopefully, begin a trend of more local production in EU industries that previously sourced from Asia.
In turn, this will drive increased demand for technology. Businesses will soon have to track their own resources and be held accountable for updating their physical assets, whether through electric and autonomous vehicles, automated operations via robotic measurements, or even carbon capture. One of the biggest game changers when it comes to efficiency, however, will be the wide application of artificial intelligence (AI) in the supply chain. AI will dramatically improve and advance operational efficiency, advancing resource efficiency in the transportation industry.
Behind the scenes, more efficient warehouses will emerge thanks to AI and the Internet of Things (IoT). AI algorithms help create forward-looking logistics – providing real-time data to optimize shipment volumes, capacity utilization and vehicle routing. This will reduce the number of empty runs and inefficient practices, all of which can reduce CO2 production. Additionally, with IoT sensors on physical assets, AI can determine more effective tactics on the ground floor and help optimize operations, reducing overall wasted resources.
Sophisticated AI and IoT analytics also create more beneficial transportation solutions in the sky, water or roads. Reporting of inefficient practices observed in the field can occur through predictive analytics and telematics-fueled demand forecasting. With this data, sustainable solutions emerge and the innovations applied can provide a roadmap for improved feasibility. This improves strategic last mile planning and positioning of assets where less polluting resolutions such as electric vans or local chargeable drivers can be implemented, thus enhancing the use of more local resources in the urban infrastructure sector. transport.
Beyond Fit for 55, more and more consumers around the world are demanding the sustainability of brands and businesses. With a push from all sides, the shipping industry will only face increasing pressure to adopt solutions.
Marc Meyer is Commercial Director of Transmetrics.