Panama Canal Expansion May Yield Significant Emission Implications for Shippers, Carriers and Port Authorities

The current expansion of the Panama Canal, expected to be completed by early 2015, creates tremendous opportunities for the global freight transportation industry and may have significant effects on many ports in the United States, particularly in Houston and other Gulf areas. Today, I am happy to announce the publication of a peer-reviewed paper that analyzes the environmental implications of potential changes in container shipping as a result of the expansion. “Panama Canal Expansion: Emission Changes from Possible U.S. West Coast Modal Shift ,” is featured in a special issue of the journal Carbon Management. This paper, a collaboration by researchers at the University of Delaware, Rochester Institute of Technology, and Environmental Defense Fund (EDF), estimates changes in carbon dioxide (CO2) emissions and regional criteria pollutant emissions such as nitrogen oxides and particulate matter.

Our study found that using larger, more efficient container ships instead of the traditional truck/rail overland network for East Coast-bound cargo may not necessarily offset the increase in carbon emissions resulting from a longer waterborne distance traveled. Although the carbon effects may be negligible, localized air pollution is anticipated to rise in ports with projected growth in cargo volume. This includes the emissions of criteria pollutants that increase the risk for health impacts such as asthma and lung disease. Ports located in federal nonattainment areas, such as the Port of Houston, could be faced with additional traffic from the Panama Canal expansion that creates further air quality concerns (see our previous post on this issue). Although some ports, shippers, and carriers are working to improve their environmental performance, more needs to be done to ensure we leverage the opportunities from an enhanced Panama Canal.

Air pollution concerns are even more relevant now for Houston now that the U.S. EPA has strengthened the annual particulate matter (PM) standard to 12 micrograms per cubic meter. This change, projected to save thousands of lives, reinforces the need to understand future emissions scenarios and strategically improve air quality.

As our paper illustrates, short sea shipping may be one way to alleviate traffic and pollutant emissions along the East and Gulf Coasts. As the shipping sector evolves following Canal expansion, we are researching the impact of short sea shipping and other strategies to understand how they might mitigate some GHG and criteria emissions as well as increase reliability, network optimization, and time of delivery.

As carriers and shippers look to reduce their environmental footprint, our report demonstrates that a systems approach must be taken to fully understand the effects of route selection, modes, and distribution networks. An intermodal strategy can best take advantage of infrastructure developments such as Canal expansion, provided that we carefully consider all of the costs and benefits. We continue to evaluate the impact of an expanded Panama Canal for the Houston region, and are working tirelessly to ensure that any growth is smart growth.

Impressive new results of KKR's Green Portfolio Program provide important insights for the private equity sector

Today KKR announced the fourth year of results from its Green Portfolio Program (GPP), with portfolio companies saving a whopping $644 million and avoiding more than 1.2 million metric tons of greenhouse gas emissions, 3.4 million tons of waste, and 13.2 million cubic meters of water.

We know it has taken a significant amount of hard work from portfolio companies, KKR and external partners to continue to build these impressive results since the GPP began in 2008.

However, these results were created by more than just hard work; KKR’s strategic approach to ESG management ensures that they continue to capitalize on new opportunities in a changing environment. As a partner helping to build this approach at KKR, we drew on our work together to develop Environmental Defense Fund's (EDF) new ESG Management Tool.  I’d like to highlight a few of the practices from the tool that are clearly leading to these strong results at KKR.

Emphasizing the Firm’s Commitment:  Both George Roberts and Henry Kravis have provided clear public statements that highlight the firm’s ongoing commitment to integrating ESG considerations into firm practices.

Leveraging Expertise:  In addition to the expertise of many KKR staff that help drive results, they have also built an impressive list of external partners in addition to EDF, including BSR, Transparency International, American Heart Association and CSR Europe.  These internal and external experts combine to provide the tools and resources that portfolio companies need to identify opportunities and create results.

Building a Network: In today’s announcement KKR’s Ken Mehlman states that their next step is to share best practices across their entire portfolio.  The early 2013 launch of KKR's best practices handbook, will share lessons learned at some portfolio companies with others to help them identify and implement projects that improve environmental and financial performance.  This highlights a huge advantage we’ve always seen in private equity: the ability to share tools and resources developed at one company with many others.

Reporting with rigorous metrics: You can’t change what you don’t measure.  With that in mind, the GPP has ensured that environmental metrics are sound and accurately track progress for KKR's investors and stakeholders to judge for themselves.

The GPP began modestly with just three companies and now encompasses 24 KKR portfolio companies globally.  Today’s results continue to prove to institutional investors that reducing environmental impacts does provide stronger rates of return.

The solutions KKR has developed will continue to spread throughout its portfolio companies — and indeed, to other private equity firms and asset managers.  The bottom line results are too compelling to justify inaction.

EDF Releases New ESG Management Tool for Private Equity

We're gratified by the response to our new tool for measuring environmental, social and governance performance in the private equity sector, which for the first time defines the practices needed to build a successful ESG management program and provides a framework to assess and improve ESG management at firms of all sizes.

EDF developed the free Excel-based tool in collaboration with Irbaris, a strategy consulting firm specializing in sustainability. Our goal is to make measuring and managing ESG performance a standard practice for value creation across the private equity sector.

In less than an hour, users of the tool can evaluate performance across 22 best practice areas, including commitment and leadership from the top, access to ESG resources, integration of ESG management into the investment process and portfolio company operations, and measuring and reporting results.  The broader framework assesses performance across four categories: leadership, management, investment process and reporting results.

We expect the tool to be used by:

  • General Partners to compare their current approach with best practices and to develop plans for improvement;
  • Limited Partners to assess general partners’ ESG performance and to compare practices across firms;
  • Consultants to provide analysis for their clients; and
  • Media and research teams to evaluate the industry's performance to develop reports or stories.

The tool works by giving users a detailed analysis of the firm's practices and a menu of strategic initiatives to consider. We're grateful for the thorough peer review of the tool and feedback we received from a broad range of stakeholders, including Actis, Blackstone, Bloomberg, BSR, The Carlyle Group, Doughty Hanson, Harvard Management Company, Kohlberg, Kravis & Roberts Co.(KKR), Oak Hill Capital Partners, PwC US and TPG.

The tool was also informed by our experience partnering with prominent private equity firms including KKR, Carlyle Group and Oak Hill Capital Partners.  These partnerships combined have impacted over 30 portfolio companies and resulted in approximately $370 million dollars of operating cost savings or revenue growth as well as 820,000 metric tons of avoided CO2 emissions. Going forward, EDF will work with BSR and other industry partners to broadly disseminate the tool across the industry. We welcome any additional feedback or questions about the tool specifically, or ESG management generally.

Sustainable Logistics Webcast: Join us on DC Velocity

Each year, emissions from corporate freight logistics in the United States amount to nearly 500 megatons of carbon dioxide. If U.S. freight was a country, it would be the 11th largest carbon emitter in the world.

However, logistics is an area of tremendous opportunity for companies to reduce carbon emissions. There are many operational strategies that can help companies reduce their carbon emissions and reduce their costs.

Join us for a webcast hosted by DC Velocity on Thursday, December 13 at 2pm EST to learn more about sustainable logistics.

EDF’s Jason Mathers will explain why sustainability should part of corporation’s long-term logistics strategies, outline EDF’s five rules for cleaner freight and provide examples of how companies are already making logistics choices that reduce both their costs and carbon footprint.

Register here.

Join us for our EDF Climate Corps Webinar "Harnessing People Power to Save Energy"

Each year, EDF Climate Corps fellows work deep within hundreds of leading organizations to bolster smart energy management. Not only has the program identified an average of $1 million in energy savings for each organization involved, but it has learned a lot along the way.

Join us for a Webinar on Thursday, December 13 at noon EST to explore key learnings from EDF about how large organizations have overcome common barriers to investing in energy efficiency.

EDF’s Scott Wood and Jake Hiller will present the newly released framework The Virtuous Cycle of Organizational Energy Efficiency and discuss success stories from Climate Corps organizations that have cut millions in energy costs.