All That's Trucking

Natural gas, fuel surcharges and carbon credits

January 3, 2013

In our series on natural gas last fall, we included some information on determining payback. I got a letter from a reader telling me I left out a critical consideration: fuel surcharges.

UPS is one company that touts carbon-neutral shipping. Should you?

Joe White, who heads up Cost Down consulting and Greenway Miles, says if you use compressed natural gas as an example, differences between pump price averages for diesel at the time of the article ($4.10) and compressed natural gas ($2.40) suggest a $1.70/gallon savings with CNG. 

However, he notes, most heavy-duty trucking companies have fuel surcharges in place that reimburse them for diesel costs above a base price of $1.20/gallon (base prices differ, but $1.20 is representative).

Shippers are the beneficiaries

"Often, fuel surcharges are structured to effectively make a carriers net cost for fuel equal to their base price - $1.20/gallon - regardless of pump price," White says. Therefore, it does not matter what the carrier pays at the pump, $4.10 (diesel) or $2.40 (CNG), their net cost after surcharge will be approximately $1.20/gallon.

"Therefore, most if not all of the fuel cost savings associated with CNG equipment will eventually go to the shippers in the form of lower surcharges."

"The only real, long-term fuel cost advantage of CNG trucks for carriers will be in unsubsidized fuel usage - empty miles traveled and idle time," he says. "Carriers with 75%+ laden mile percentages will be hard pressed to justify an additional $40,000 or more for CNG tractors using fuel cost savings alone."

The other advantage of CNG equipment is that it does emit less carbon, White notes -- about 25-30% less on average. There is definitely a value in reducing carbon emissions, he says, but it is hard to financially quantify.

Are carbon credits the answer?

White, of course, is not a totally independent bystander here. His company, Greenway Miles, offers an alternative -- carbon credits.

"Truckers receiving shipper pressure to add CNG equipment to their fleet for environmental reasons might want to consider another alternative offering shippers carbon neutral shipping. Based on current carbon offset pricing, many trucking companies could offer carbon neutral shipping for $0.01/mile or less."

White says that dividing $0.01/mile into $40,000 demonstrates that 4 million miles could be shipped carbon neutral for the incremental cost of just one CNG tractor. Additionally, the emissions from CNG equipment running 4 million miles is approximately 4,800 metric tons of carbon compared to 100% of emissions "neutralized" with carbon neutral shipping that invests in carbon offsetting projects.

"Finally, offering carbon neutral shipping on a cost per mile basis places the cost burden of sustainability where it should be, on the shippers generating the carbon by transporting their product to the marketplace."

So, those of you who are experimenting with natural gas trucks, I'd like to hear from you: Where do fuel surcharges fit in your calculations?