The transportation market is facing an increasingly tightening web of regulatory frameworks that seek to dramatically curtail carbon emissions across all modalities. The transportation of goods by sea, road, and air currently emits over two gigatonnes of carbon a year, which is expected to quadruple by 2050. The constantly evolving regulatory landscape has created a palpable sense of urgency behind the need to adopt low-carbon fuels and clean technology, but the difficulty in recovering these investments from the end consumer represents a significant obstacle to the adoption of low-carbon fuels, at scale.
The development of carbon insetting methodologies seeks to solve this problem. Insets allow energy providers, owners, carriers and forwarders to share the cost of carbon reduction projects with their direct customers, the broader market, or pay for their decarbonized transport through verified carbon claims. Unlike offsetting, carbon insets represent concrete reductions that physically contribute to the decarbonization of that specific supply chain, which can be allocated to freight forwarders and cargo owners based on a globally developed and fully verified book and claim methodology. This flexible allocation methodology allows for an acceleration of low carbon initiatives across all transportation modalities, as well as the opportunity for operators to share the costs of decarbonization.
This innovative approach to decarbonization is more important than ever, especially in the current context, where reducing emissions is at the top of the transportation sector’s agenda. With regards to the maritime industry, for instance, the revised targets established by the International Maritime Organization (IMO) during the Marine Environment Protection Committee meeting (MEPC 81), in 2024 – which includes an adoption of alternative zero and near-zero Greenhouse Gas (GHG) fuels by 2030 – sets a clear direction of travel for the industry in its efforts to achieve net-zero emissions by 2050. Furthermore, the European Union’s extension of the Emissions Trading System (ETS) in January 2024 has placed even greater emphasis on shipping’s need to rapidly decarbonize. The full impact of the EU ETS won’t be fully realized until 2027, at which point, all shipowners will be required to surrender European Emissions Allowances (EUAs) to cover 100 percent of their CO2 emissions for their voyages between EU ports, and 50 percent for those between an EU and non-EU ports.
For the aviation sector, governments around the world are increasing their fiscal support for the production of Sustainable Aviation Fuel (SAF), which received significant support following the ratification of the US Inflation Reduction Act (IRA), in 2022. This legislation established US$3.3bn in tax credits and competitive grant schemes to support the development of SAF. In Europe, the aviation sector is also mandated by the EU ETS, which seeks to phase out allowances provided to the aviation industry by 2026, and with the introduction of the RefuelEU aviation initiative in 2023 – as part of the EU’s Fit for 55 package – the European Commission established legislation which seeks to increase both demand and supply of SAF. As part of RefuelEU, fuel suppliers will have to incorporate two percent SAF in 2025, six percent in 2030, and 70 percent in 2050.
However, impactful solutions must be implemented in the short-term in order to reduce carbon emissions, if transportation industries have any hope of achieving these ambitious decarbonization targets.
The supply of low-carbon biofuels as a viable replacement for traditional fuels sources is limited in terms of its production and adequate infrastructure to support widespread adoption throughout the industry. One of the biggest barriers remains the cost of implementation; the price of biofuels, such as bio-methanol, is significantly higher than that of traditional fuels, which greatly inhibits owners and operators from beginning to adopt them.
In order to bridge the significant price gap, it is vital that carbon insetting certificates within the transportation market provide the transparency, level of detail, and robust control mechanisms needed to guarantee their integrity – failure to do so poses a risk to the inset buyer and could undermine the validity of the certificate. By focusing not simply on the inset issuer, but on every supply chain partner, both upstream and downstream, insetting methodologies represent a rigorous verification process. Developed in partnership with Smart Freight Centre – a global non-profit organization for climate action in the freight sector – insetting removes the risk of double counting, as the certificates cannot be changed or duplicated. Alongside this assurance, carbon insetting also provides detailed information regarding the specific project, the issuer’s compliancy with regards to sustainability; as well as emissions calculations, allocation principles, assurance details, and mitigation action.
Founded by multi-modal carbon insetting expert, Jeroen van Heiningen, 123Carbon represents the first independent insetting platform which allows fuel providers, carriers, freight forwarders and cargo owners to own, manage and allocate their CO2 reductions within the supply chain, thereby supporting decarbonization projects, ranging from fuel switches to fleet renewals. The name denotes the breadth of emissions that the insetting platform seeks to address, namely the allocation from Scope 1 parties to the downstream Scope 3 partners.
Scope 1 emissions are those created by an actor through the use of carbon-heavy fuels; Scope 3 are the result of activities from assets not owned or controlled by the actor, but those that are indirectly created throughout the value chain, as a result.
Although the concept of insetting is not new to the transportation sector, the introduction of more immediate and stringent regulations are prompting more and more companies to engage with the platform. 123Carbon recently completed an insetting pilot with TOKYO-Mitsui O.S.K Lines, Ltd (MOL), the first shipping company within the APAC region to issue carbon insets; whilst other major players within the maritime industry, such as Chevron, Norden and Titan, have also engaged in initial insetting pilots to tokenize the emissions reductions associated with the bunkering of biofuel.
Efforts to establish the viability and affordability of future fuels requires innovative solutions that will ultimately unlock the necessary investment that is needed in order for such fuels to be adopted across all transportation modalities. The inherent cost of implementing renewable and low-carbon fuels on the current global fleet is significant. However, by embracing carbon insetting, the industry has a proven and viable means of stimulating the production of low-carbon fuels – at scale – while also connecting fuel buyers and sellers from across the global value chain, removing the geographical barriers that arise from sourcing through physical supply chains and therefore bringing the supply and demand actors within low-carbon fuel development together.
Although the development of viable fuel diversity is widely considered as the leading method by which the transport sector will ultimately achieve its ambitious emissions reduction targets, the limited availability of low-carbon fuels represents a significant barrier to entry. However, insetting provides a solution that can help mitigate the cost of future fuel adoption, whilst making a tangible impact on Scope 3 emissions within the value chains. As a result, the importance of carbon insetting methodologies, which ultimately seek to incentivize the adoption of low-carbon fuels, cannot be overstated as it represents the key that will unlock the global transition to net zero.
Headline photo: Jeroen van Heiningen presents at Captain’s Table 2023. Photo courtesy of 123Carbon.
Jeroen van Heiningen has over 15 years’ experience in the decarbonization of transport, covering both air, marine and road transport. He was involved in setting up KLM’s corporate SAF program in 2009 and was one of the founders of GoodFuels, a leading supplier of low carbon marine fuels, where he developed the GoodShipping program and managed the Road division. In 2021, van Heiningen founded 123Carbon to develop an independent, multimodal platform to ensure the correct allocation of transport related reductions (Scope 1 emissions) to downstream players like freight forwarders and cargo owners (Scope 3 emissions).
In his early career, van Heiningen was an oil and gas strategy consultant at Accenture, where he Launched Accenture Sustainability Services Benelux in 2006.
Van Heiningen lives in the Netherlands with his wife and two daughters and holds an MsC in Business Administration from the Tilburg University in the Netherlands.
For more information, visit 123Carbon.
