Introduction

Organisations are facing increasing pressure to align their fleet procurement plans with climate change targets. However, financial sustainability, operational efficiency, and service delivery expectations remain critical considerations.

This blog post highlights the importance of thoroughly analysing the costs and benefits of fleet transition options to optimise an organisation’s overall GHG reduction strategy, ensuring that financial resources are used most effectively while ensuring climate change targets can be met.

Maximising abatement “bang for buck”

As organisational emissions from purchased electricity (scope 2) continues to trend downwards, scope 1 emissions from activities like vehicle fuel combustion are growing in proportional significance. Transitioning traditional vehicle fleets towards low-emission or zero-emission alternatives is therefore a fundamental requirement for organisations targeting net zero emissions.

While the desire to act strongly on fleet transition to reduce emissions is well-placed, this needs to be tempered by a goal of getting the best abatement “bang for buck” for your organisation. By making cost-effectiveness a key criterion in your fleet transition, you can maximise the total amount of abatement achievable across an organisation within given budgetary constraints, ensuring that resources are used in the most impactful way.

As an example, electric vehicles (EVs) still cost considerably more upfront compared to traditional internal combustion engine vehicles, primarily due to the higher cost of batteries and advanced technology. Getting a clearer understanding of the actual amount of abatement achievable by EVs, and when and under what circumstances the operational benefits will outweigh the upfront costs, are both important underpinnings of responsible climate change policy and planning.

In assessing the financial implications of different fleet transition options, organisations should consider the pros and cons of various leasing offers versus purchasing, and keep in mind the rate of depreciation associated with different vehicle models and types. As an example, 100% Renewables recently analysed a large dataset of used car sales data and found that, since 2019, Tesla 3 has shown an average annual rate of depreciation of approximately 11.8%, versus 7.7% per annum for a Toyota Camry Hybrid. Considering such factors can help in optimising vehicle turnover schedules and model selection.

It’s also important to factor in the availability—and conversely, the risk of withdrawal—of government incentives such as Fringe Benefits Tax (FBT) exemptions. These considerations can significantly impact the overall cost-effectiveness and financial viability of low emission vehicle adoption.

It should also be noted that the costs and benefits of a shift to low emissions vehicles are likely to distributed differently and, potentially, unevenly within an organisation, necessitating a more coordinated, whole-of-organisation accounting approach for accurately assessing and optimising various fleet transition pathways.

Quantifying and forecasting

A lot of our work at 100% Renewables involves building tailored forecasting models for local governments and businesses. Over the last 12 months, we have worked with numerous organisations across NSW, QLD and Tasmania to help them quantify the costs and benefits of fleet transition. While each situation has its own unique context and complexities, we have tried to simplify and distil some of the key aspects of our method below.

Step 1: Establish a baseline

The first step in developing a fleet transition model is understanding your current fleet utilisation. This requires gathering detailed data on fuel consumption, fuel types, and vehicle usage. This baseline assessment helps identify how energy is being used and provides a starting point for projecting future improvements. In combination with relevant emissions factors, it can also identify emissions “hotspots” where you can focus your effort for biggest gains.

For example, data collected might include:

• The types and models of vehicles in use
• The types and volumes of fuel consumed
• Distance travelled, and real-world fuel efficiency

Step 2: Developing a transition schedule

Once the baseline is established, the next step is to create a transition schedule, which involves mapping out the anticipated replacement of vehicles over time. A well-planned transition schedule can help distribute the replacement costs more evenly, making the transition more manageable financially by avoiding overwhelming the budget in any given year. Below is a sample vehicle replacement schedule that shows the numbers of different types to be replaced in each year.

Step 3: Emissions modelling for different scenarios

After developing your transition schedule, it is then possible to estimate the emissions under various scenarios, comparing projected emissions from the current vehicle procurement strategy with projected emissions from transitioning to low-emission or zero-emission vehicles. Scenarios can range from business-as-usual (BAU) to more aggressive approaches that prioritise rapid replacement.

For example, a few sample scenarios are shown below:

• Scenario 1: Business-as-Usual (BAU) – The organisation continues its current vehicle replacement strategy without accelerating the adoption of EVs or hybrids.
• Scenario 2: Aggressive – The organisation rapidly transitions its fleet to electric vehicles.
• Scenario 3: Cost-effective – Drawing on Total Cost of Ownership (TCO) tools, the organisation seeks to balance the cost of transitioning with environmental impact, aiming for an optimal cost-of-abatement outcome.

Additional scenarios can be modelled that combine fleet procurement strategies with renewable electricity purchasing, for example via a Power Purchase Agreement (PPA) as shown in the graph below.

Step 4: Cost analysis

After modelling emissions from various scenarios, it’s important to forecast and compare the costs of each pathway. At a minimum, this analysis should consider the following components:

• Unit replacement cost: The cost of purchasing new vehicles, which can vary significantly depending on the vehicle type and model specifications.
• Unit running cost: The ongoing operational costs of the vehicles, including maintenance and fuel and/or electricity. These costs may be somewhat uncertain due to factors such as inflation and future fuel prices, so some assumptions will need to be made.
• Infrastructure costs: The cost of establishing necessary infrastructure, such as electric vehicle charging stations and the associated cabling.
• Resale value: The residual value of vehicles helps offset some of the costs associated with the transition.
• Other costs and benefits: Including any relevant incentives or taxes such as FBT.

When forecasting the costs and benefits of fleet transition options, it is also important to consider long-term trends such as decreasing upfront costs of low-emission vehicles, improvements in model availability and efficiency, and changes to grid intensity. These factors can influence the timing and strategy of your fleet transition, helping to optimise both financial outcomes and emissions reductions over the long term. The graph below shows the forecast annual costs of a hypothetical fleet transition scenario, dominated by hybrids in the short-term followed by a full-scale transition to EVs from 2030.

Figure 5: Sample cost analysis of a fleet transition scenario

Step 5: Comparing scenarios

Once both emissions and cost analyses are completed for each scenario, organisations can compare the cumulative cost of each scenario to determine the budgetary and cost-of-abatement implications of various pathways.

Summary

In conclusion, fleet transition modelling provides a structured framework for supporting organisations to make informed fleet transition decisions. By carefully quantifying the costs and benefits of various strategies, organisations can develop plans that not only meet environmental targets but also align with budgetary constraints and operational needs.

If you need assistance with your fleet transition strategy, contact us today to learn how we can help. Reach out to Ian or Patrick for more information.

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