Exploring Alternative Fuel Solutions in the Transportation Industry: An Insurance Perspective

By: Joe Palmer, Senior Vice President and National Transportation Practice Leader,

Martin Delaney, Senior Vice President and National Practice Leader-Sustainable Transactions,

Harp Powar, Account Executive, Transportation,

Josh Hannaberry, Account Executive, Transportation

The transportation industry is seeing an increase in demand for commercialized alternative fuel solutions. As these fuel solutions are sourced, tested, and ultimately utilized, there are new and unique risks that need to be identified and mitigated.

As the demand and environmental pressures increase for commercial carriers and key stakeholders to incorporate alternative fuel solutions into their operations, it’s critical to work with a knowledgeable insurance broker to help navigate potential risks.

With offices and transportation experts strategically located across the country, Gallagher is well-positioned to help any organization that operates within the transportation industry, as they explore these innovative fuel solutions.

Alternative Fuels & Commercial Transportation in Alberta, and Beyond

More popular alternative fuels that are being tested in Alberta, and in different areas across Canada, include hydrogen, compressed natural gas (CNG), liquid natural gas, and bio diesel.

Alberta Motor Transport Association (AMTA), in partnership with other key stakeholders, is doing an excellent job in leading the research of potential solutions for commercial carriers to utilize alternative fuels. The Alberta Zero Emission Truck Electrification Collaboration (AZETEC) project for example, involves the design, manufacturing, and testing of two long-range heavy-duty hydrogen fuel cell tractors that will be operational year-round on Alberta’s major highway between Calgary and Edmonton.

One of the highlights of this project is the opportunity it presents for commercial carriers in Alberta to try utilizing the AZETEC project tractor in their own operation. This allows real-life testing, with the commodities a commercial carrier would normally haul on common routes to regular customers.

While the testing of alternative fuels in some sub sectors of transportation is new, there are a couple early adopters who have integrated CNG into their commercial fleets. In Alberta for example, the City of Calgary has buses operating on CNG fuel, while one of Canada’s largest fleets has integrated tractors that operate on CNG fuel.

Considerations to Obtain Adequate Insurance Coverage  

While insurance companies differ in their risk appetite, there is a collective interest to provide coverage for alternative fuel commercial vehicles.

Carriers should be thorough in their research to identify possible risks and consider the downstream impacts to their business. To assist with this research, carriers are encouraged to speak with their insurance broker, who can help identify potential risks.

In addition to the normal details required, for insurance companies to consider these types of risks, commercial carriers are asked to provide details of the proposed utilization of the alternative fuels commercial vehicle(s).  

Carriers will also be required to provide information on their current safety and maintenance programs with additional precautions in place to mitigate risks associated with the integration of alternative fuel commercial vehicles. It's also critical for the carrier to provide their insurance broker with driver(s) experience and training with handling the proposed alternative fuel. AMTA and key stakeholders are working towards developing industry training and educational materials.

Additional risks to consider and mitigate

Currently, there are only a small number of fueling stations that provide hydrogen fuel for commercial vehicles. While the risk of hydrogen fuel supply, or volatility in pricing is difficult to predict or plan for, Alberta is investing heavily in developing infrastructure and increasing production which over time should bring stability.

In the event of a collision, be prepared for an extended period of downtime, due to a limited supply of less-than-common parts, and mechanics trained and certified to complete the required repairs. If you have questions regarding the commercial claims process, speak with your insurance broker.

Clean Fuel Standard (CFS)

What impact will the implementation of the Clean Fuel Standards (CFS) have on your business’s profitability and our industry in general? The CFS, introduced by the Government of Canada, aims to reduce greenhouse gas emissions and contribute to the national target of reducing emissions by 30% below 2005 levels by 2030. The CFS will work alongside carbon pollution pricing to reduce emissions throughout the lifecycle of fuels and promote investments in cleaner fuels and clean technology.

The key design elements of the CFS include:

·        Requirement for the liquid stream: Liquid fuels will be required to reduce their carbon intensity by 10 grams of carbon dioxide equivalent per megajoule below their current carbon intensity by 2030. This will result in an approximate 11% reduction in carbon intensity and up to 23 megatonnes of emissions reductions in 2030.

·        Actions that generate credits: Credits can be earned when fuel users switch from higher carbon intensity fuels to lower carbon intensity fuels, such as transitioning from liquid transportation fuels to natural gas, propane, or non-carbon energy carriers like electricity or hydrogen. Credits can also be earned when fuels are switched along the production chain of a fossil fuel.

·        Trading of credits between fuel streams: Companies will have the option to meet a portion of their carbon intensity compliance obligation for any stream by using credits from other streams.

The implementation of the CFS will have a significant impact on the transportation industry in Alberta. The standards will focus on reducing greenhouse gas emissions from liquid fuels used in the transportation sector. Fuel suppliers in Alberta will need to incorporate more renewable fuels, such as biofuels, which must have at least 25% fewer greenhouse gas emissions than petroleum fuels. While there are concerns about the economic implications of the CFS, experts argue that the regional costs may not be as severe as some are anticipating.

To meet the new standards and benefit from the introduction of credits, the transportation industry in Alberta will need to invest in cleaner technologies and infrastructure, such as electric vehicles and hydrogen fuel cells as discussed in this article. It is important for your broker partner to understand the significance of these credits to your bottom line and how to protect them against invalidation, ensuring that you can fully benefit from these CFS credits. Make sure that you and your insurance broker understand the implications of this program and the value of these CFS credits to your company and importantly how to protect and maximize their benefit to you.

Gallagher Advantage

For nearly 100 years, Gallagher has worked closely with organizations around the world and across all industries to navigate risk. At Gallagher, we provide tailored and comprehensive solutions designed for all your business needs. Our team of experts develop effective risk management strategies to help protect both your business and your people, while reducing your total cost of risk.

This is an exciting and innovative time in the transportation industry, with the progression of alternative fuels in commercial vehicles. As your organization explores the integration of these fuel solutions, it’s imperative that you partner with the right insurance broker, who can help you navigate the various risks that may arise.

To learn more about how Gallagher can assist your organization, visit our website or speak with one of our transportation insurance experts.

Gallagher, your trusted insurance and consulting partner.

Authors

Joe Palmer, Senior Vice President and National Transportation Practice Leader Joe_Palmer@ajg.com

Martin Delaney, Senior Vice President and National Practice Leader - Sustainable Transactions Martin_Delaney@ajg.com

Harp Powar, Account Executive, Transportation Harp_Powar@ajg.com

Josh Hannaberry, Account Executive, Transportation Josh_Hannaberry@ajg.com

We would like to thank Intact Insurance, Northbridge Insurance, and other contributing insurers for their insights regarding insurance, and risk mitigation for commercial carriers looking to utilize alternative fuels.