Action on peak oil essential for business survival, say UK transport chiefs

If you’re fighting to stay afloat in the teeth of a recession, you’re not going to worry about distant threats like peak oil and climate change, right? Wrong, say Brian Souter, Moir Lockhead, Will Whitehorn and Richard Brown. The UK’s leading transport chiefs tell Martin Wright why action now is essential for their business survival.

At the end of the year, eight UK companies came together under the auspices of the UK Industry Taskforce on Peak Oil and Energy Security to publish a report entitled The Oil Crunch. It was a stark warning that cheap, easily available petroleum production is likely to peak by 2013, sending the price soaring and the markets into turmoil. It called on the Government to respond with a crash programme of investments in energy efficiency and renewables, among other measures. These would not only offset the impact of peak oil, it argued, but also deliver massive cuts in carbon emissions [see 'What does cheap oil mean for renewables?'].

Among the signatories to The Oil Crunch were three of the UK’s principal transport operators, Stagecoach, First Group and Virgin. These are not the easiest of times for the sector: after several years of stellar growth, passenger numbers on trains in particular are levelling off rapidly, and the operators are locked in complex tussles with the Government over the terms of franchise agreements.

Meanwhile, times are relatively sunny for Eurostar. Although not involved in the report, the company has recently become a vocal proponent of low-carbon travel.

So Green Futures asked the key leaders in each company what peak oil and climate change mean for their business – and how they square it with day-to-day survival.

Brian Souter, Stagecoach

“Peak oil is a real threat,” says Brian Souter. “But most CEOs don’t really see the relevance of it [to their business]. They’re convinced about global warming, but not about peak oil. People are roughly where they were on climate change ten years ago – they’re agnostic. If anything, they see it as tomorrow’s problem. What worries me is that we need to be taking action now – but this recessionary blip may lull people into a false sense of security [based on cheap oil], which would be quite unjustified… Actually, I think the general public are more sensitive to this issue than chief execs. There’s a common sense in people – they know we can’t keep being dependent on [oil imports] for ever. It’s the business leaders, by comparison, who are out of touch.”

“Business leaders are out of touch”

That style of rhetoric won’t surprise anyone familiar with the self-made Aberdeen bus and train magnate – although the subject matter might. Souter’s famous for his robustly outspoken attitudes on everything from labour relations to social issues. A keen supporter of the Scottish National Party, he’s not exactly your archetypal fluffy corporate environmentalist. But Stagecoach has led the way in using recycled vegetable oil for their bus fleet, and Souter’s adamant that his customers are already on board the green agenda. “To give one example, we’ve just launched the first ‘reverse vending’ machine at a park-and-ride site near Aberdeen, where people can bring their recycling, and in return get points towards bus travel. The interest has been incredible!”

So would he go so far as to say the oil crunch is also a business opportunity? “Definitely. And if you have new technologies in place – alternative fuels, in our case – you’ll be able to exploit it. The beauty of this is that you can address both threats – climate change and peak oil – with the same policies.”

For Stagecoach, this means “recycled fuel – tallow, chip fat, etc. That has a massively lower-carbon footprint than mineral oil – around 85% less. And there’s enough supply to power the whole bus fleet… In some ways we’re just going back to a previous age when that was where most of the energy came from. Think of all those tallow lamps – the Victorians used tallow to fuel their economy! It’s a by-product of the rendering plants, but now it’s just waste – it has no value.”

When it comes to biofuels more generally, Souter’s cautious. “When you’re using a cereal-derived product, obviously you’re opening yourself to criticism [over] what you’re doing to food supplies. I’m not totally convinced on that myself: I’m not saying it’s not an issue, I just think some of the fears have been exaggerated… [But] the real trouble with [cereal-based biofuels] is that they take so much energy to manufacture – their carbon footprint is around 70% of mineral oils… I’m much more excited about second and third generation biofuels, using wood waste and so on. It’s important that we follow that through.” Meanwhile, he says, Government could help by tweaking fuel duty to favour recycled fuels, as part of a wider fiscal shift to encourage lower-carbon travel.

Will Whitehorn, Virgin Group

“There is a real and present danger here. A real and present danger from climate change; a real and present danger from peak oil.”

Described somewhat unfairly by one wag as “Richard Branson’s representative on Earth”, Will Whitehorn in person comes across as a robustly free thinker who sees no contradiction between his other day job as President of Virgin Galactica (the company’s space tourism arm) and his mounting concerns over natural limits.

He was one of the driving forces behind the peak oil report. And he sees the recession as offering a salutary lesson in what happens if you ignore signals set at danger. “You had various academic reports warning that easy credit would lead to a bubble – but at no point did the financial services sector sit down and say, ‘Right, what are we going to do about this?’”

Virgin and the other companies involved in the peak oil taskforce, he says “were determined not to find ourselves, ten years down the road, being accused of burying our heads in the sand over this.”

“This is about industrial survival”

So what can be done? As with the credit crunch, there’s a certain inevitability about peak oil, he believes. “It’s going to happen, and we have to plan for it.” For transport companies like Virgin, he says, it means weaning themselves off petroleum as fast as realistically possible, whether it’s running super-efficient electric trains like the Pendolino, or, more controversially, experimenting with biofuels in its airliners. The company has launched the Virgin Green Fund to invest in renewables in general and next-generation biofuels in particular. “This isn’t about altruism, because frankly that approach gets you nowhere. This is about long-term investment in the business opportunities of the future. It’s about industrial survival.”

But companies can only do so much. “We really need Government to be deeply involved in this process.” It could start, he says, by relaxing planning laws and other regulations which stymie the growth of renewables. But at a more fundamental level, “we need to [massively] reduce our reliance on fossil fuels right across the transportation, construction and industrial sectors. There need to be a lot of big carrots there, a lot of sticks!”

Like Souter, Whitehorn fears that the recession, combined with the current depressed oil price, will distract attention just when it’s most needed. “We’re in a sort of phoney war just now, and I think it will last about half a decade… But given what we know, there’s no excuse for inaction. And if you look at the true costs of investments made now in terms of their likely returns in the future, then [investing in renewables and energy efficiency] is exactly the sort of thing you should keep doing through the recession [because you will reap the rewards later]. The Government needs to grasp the nettle,” he adds, and use fiscal stimuli to drive companies down the renewables route.

“This isn’t just about being a responsible citizen, or about getting ready for a carbon tax… This is about our basic energy security.”

Sir Moir Lockhead, First Group

“Much to the disgust of the car industry, and some of my own relatives,” says Moir Lockhead, “I argue that the sooner we get fuel prices to move up again the better, because at that point we’ll stop wasting it. Even if we did nothing else, we’d at least be a better and more efficient company because we’d be conserving energy.”

Lockhead’s public endorsement of a third runway for Heathrow may not have endeared him to environmentalists, but he’s adamant that First Group takes climate change seriously. The company has set itself a 2020 target of cutting carbon emissions from its trains by 20%, and from its buses by 25%.

He acknowledges that there’s a lot to do. “Before, fuel consumption wasn’t even on the radar – even though it accounts for 5-7% of our costs. If anything, it was going in the wrong direction, because we’ve focused on better acceleration” – rather than more efficient engines.

“Fuel consumption wasn’t even on the radar…”

Like his compatriot, Souter, Lockhead spotted the competitive advantage of public transport at a time of rising pump prices – although First Group might be seen as a little unfortunate with their timing. They chose summer 2008 to launch their ‘Fuel for Thought’ campaign, highlighting the relative affordability of bus travel, just as petrol prices were about to plummet. 

But over the long term, says Lockhead, he has no doubt that dramatic action is needed – not least with his own rolling stock. “If science is driving us to reduce CO2, and it seems to be, let’s understand how we can dramatically effect that over the next decade. Our fleet renewals are over five to ten years, so if we can get the right product over the next two years, say, then in ten years’ time the fleet would be completely renewed.” ‘Right’, in this context, means light. “

Trains are massively heavy – and so are buses. At the moment, a bus is basically a derivative of a truck – in terms of the engine, the transmission – and that won’t work in the long term… Even the hybrid bus is very heavy… Now, I come from an industry background where weight equals strength equals reliable life and structural safety. But now we have to learn how to make a vehicle that is safe and strong as well as being light and fuel-efficient, and that’s my ambition.” It will mean looking at new compounds, at different power trains. And all the while playing catch-up with the motor industry, which in this area at least is no slouch when it comes to innovation.

Somewhat controversially, Lockhead denies there’s any contradiction between his stance on Heathrow and his climate goals. “It’s not that I want to stick with air travel – far from it. But domestic travel should be by rail, and that’s why I’m pushing for new high-speed rail lines, where we’re way behind France, Germany and Japan, incidentally. But if you believe in the global economy, you’ve got to have a really good hub in the UK.” 

He’s less certain about the promise of recycled biofuels. “The big question is how you move from having maybe 5% or 10% biofuels to 100%.” Which is where rising oil prices could prove decisive. “We were experimenting with a biofuel on our buses in Aberdeen nearly 20 years ago, derived from rapeseed. But that was costing $60 a barrel at a time when the oil price was $15.” However, Lockhead believes high oil prices are inevitable as production peaks – and those, in turn, will drive research into more sustainable ‘new generation’ biofuels.

But will the recession throw all these plans off track? No, insists Lockhead – if anything, hard times concentrate the mind. “I’ve honestly not had anyone, in management or elsewhere, tell me we shouldn’t be doing sustainability. People realise that this is a core business issue.”

Richard Brown, Eurostar

Richard Brown wears the unavoidably satisfied expression of a CEO whose company shows every sign of growing right through the recession. Ticket sales rose by nearly 11% last year, and, as he’s keen to point out, it’s fairly low-carbon growth, too. Eurostar runs on all-electric lines, a hefty share of which is powered by French nuclear electricity.

This makes it well placed to exploit businesses’ eagerness for ‘quick wins’ on carbon by poaching their travellers off short-haul flights – at least as far as journeys from London to Paris or Brussels. “There was a YouGov survey which showed 53% of business travellers are concerned about their environmental impact when flying,” says Brown. “That is pretty powerful.”

Maybe, but does it translate into action? “Well at least they’re aware of it and they feel they need to say it! And even if half of them are lying, it still means there’s an opportunity for greener businesses like ours to convert them [into customers]… We are seeing business travellers switch daily, and we also think we’re seeing a switch in the leisure market, too. It’s not happening on a vast scale, but it’s significant, and I think it will be the trend for years to come.”

It’s not just carbon concerns driving the shift, of course. Shorter check-in times, less security hassle, and the fact that the stations are in city centres, rather than marooned on the outskirts like their airport equivalents, undoubtedly helps too. Train travel is inherently more productive, Brown insists. “You can work uninterrupted. There’s no-one telling you to put your seat into the upright position or turn off your gear during take-off and landing…”

But just how much greener is Eurostar than flying? “We used to say to [our corporate customers], ‘We don’t know the exact figures, but you don’t need to worry, we’re bound to be much lower-carbon than airlines’. But they’d come back at us and say, ‘Actually we do need to know the exact figures, because we want to publish our carbon footprint in our annual report.’ So we commissioned independent researchers [a consortium led by AEA Technology Environment] and found, to our genuine surprise, that one of our train journeys emits ten times less carbon than the equivalent flight.”

For what it’s worth, it also comes in comfortably ahead of car travel: an average Eurostar passenger is responsible for 13.5g/km; by comparison, four people in a Toyota Prius would still each contribute around twice that.

“When we got the figures,” says Brown, “we thought, ‘Wow! – we should make more of this...’” That led to the launch of Eurostar’s ‘Tread Lightly’ programme, which commits the company to cutting carbon by 25% per traveller by 2012 – one of the toughest short-term targets set by any major business. To start with, this means “looking at the low-hanging fruit: making sure we operate our trains in as energy-efficient a way as possible, making sure they’re relatively well-loaded, because an empty train is not a green train. And we’re just starting on the refurbishment of our fleet, so we’re using every opportunity to make efficiency gains there, too.” The next step could be generating some of their own power: Eurostar is currently in talks with partners Eurotunnel, which is planning on building a wind farm near Calais.

But all these actions together are unlikely to deliver a 25% cut, so the gap will be bridged by offsetting. Doesn’t that call into question the credibility of the target? “Well, I don’t think there is such a thing as an entirely zero-carbon activity,” Brown responds. “Even wind generation has a carbon footprint, because you have a lot of steel in a turbine, with a lot of embedded carbon.” So some offsetting, he argues, is pretty much inevitable.

“Yes, there are a lot of dodgy offset projects out there, and people are being naïve if they think, ‘Oh, I can just offset and then my conscience is clear’. But we’ve selected our offset projects very carefully – we don’t do forestry offsets, for example – and we’ve chosen ones which have a degree of social benefit as well as carbon savings. In the Philippines, for example, we’re [investing in a scheme which will] retrofit three-wheeled taxis with a new carburettor, which improves fuel consumption and reduces black smoke. So that has health benefits, local economic benefits and carbon benefits…” What the scheme doesn’t have, at the moment, are carbon credits – it’s at too early a stage. “Effectively, our role has been to pump-prime it; if we hadn’t done so, it wouldn’t have got off the ground. So even though we won’t get the credits till 2010, there’s genuine additionality there.”

“The Government is in catch-up mode”

Meanwhile, he says, the lack of certainty around the carbon price is a huge obstacle to long-term planning. “At the moment, with the price rocketing up and down, it’s not going to change anything. You can’t take it into account in your planning because you’ve no idea what the price will be. So setting a [long-term] target price for carbon, and managing the release of permits and the auctions so that they’re working towards that price, would send a very strong signal to business. If you know the price of carbon is going to be £100 per tonne in five years’ time, say, you can start to factor that into your calculations as a business, and the Government can factor it into their planning. At the moment the Department for Transport does not use any carbon price when evaluating their investment decisions – even though these are going to be influencing transport networks and usage for 30, 40 or 50 years to come!”

It’s the same with energy, says Brown. “The Government needs to set some long-term policy frameworks, because any sort of electricity generation requires investment on a large scale. The generators need to have more clarity, more certainty. I do believe quite passionately that consumers are ahead of business in wanting to have green choices – but I think businesses are ahead of the Government in thinking all this through. The Government is in catch-up mode. There are a lot things that need to change pretty quickly.”

Our conversation hasn’t touched much on peak oil. Does this mean Brown is relatively relaxed about it? “Well, as a business we’re in a great place, obviously, since we don’t rely on the stuff. But for the world it’s going to be a huge challenge. And I’ve got more than a degree of apprehension as to whether we’re capable of rising to it.”

Martin Wright is Editor-in-Chief of Green Futures.

In the next Green Futures, we’ll be asking some of the UK’s leading travel and transport experts what more needs to be done to shift practice right across the sector.

5 May 2009

Martin Wright

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