CO2 IQ

COP29 has shown that climate and trade policies are becoming increasingly interwoven. And the EU’s CBAM caused a stir. There is much to reflect upon from COP29: 📜 Can Article 6 create new momentum in carbon markets? 💰 Are $300 bn from developed countries enough climate finance? 🌐 Is the UNFCCC fit to deliver the urgently needed climate transition? Moreover, the increasing worry from emerging and developing countries about carbon-based trade restrictions stood out. CBAM was at the forefront of it. 🇪🇺 EU sees it as: 🔺 Instrument to reduce carbon leakage 🔺 Equal carbon pricing for imports and home goods 🔺 Incentive for decarbonization in industries with exports to EU 🔺 Reason for non-EU countries to introduce or expand carbon pricing 🌍 Developing countries see it as: 🔻 Pretext to protect EU industry 🔻 Risk to lose EU market access 🔻 Additional investment needs for decarbonization 🔻 Funding source for climate finance in affected countries Even without being on the agenda, CBAM overshadowed COP29 negotiations. And it is likely to continue to cause a stir, and not just in the EU. Read our full reflections in the latest CO2 IQ blog about trade disputes and CBAM at COP29 👇🏿 #CBAM #Trade #COP29

📢 With tightening carbon markets in European industry, there are increasing calls for protecting the competitiveness of exporters. But how sensitive are EU exports to carbon pricing? As free allowances in the ETS are phased out, CBAM is phased in as carbon price for imports. There is, however, no compensating mechanism for exported goods from the EU. 🇪🇺 In EU markets, goods produced in the EU face the same carbon price as imported goods. 🌐 In international markets, they face a competitive disadvantage against goods from countries without similar pricing. The most recent Carbon Markets Report by the European Commission reviews the state of play of carbon pricing in the EU. It also includes an initial assessment of the sensitivity of exports to carbon pricing. For goods produced in CBAM sectors, the assessment compares the export value (relative to the overall production and import value) with the emissions intensity (per production value). Multiplying the two, a sensitivity indicator is calculated (bubbles). 3 results stand out: 1️⃣ No product has a high emission- and high export-intensity. 2️⃣ Export products, such as fertilisers, aluminium and steel have a lower emissions intensity, but still a considerable sensitiveness to carbon pricing. 3️⃣ Hydrogen and cement have high emissions intensity, but lower export intensity. Depending on how exports develop, they could still be affected. These findings are preliminary, and the Commission will continue to assess risks for exports. As per the CBAM regulation, a review report is due before January 2028. Figure source: EU Carbon Market Report (11.2024) #CBAM #ETS #Manufacturing #Trade

Importers be aware: EU’s CBAM could lead to considerable costs rise in manufacturing as early as 2026! 💸 Companies will then have to purchase CBAM certificates for the emissions of imported CBAM goods. These will be treated with the same carbon price as home production under the EU ETS. 📊 The calculation of the costs of CBAM certificates factors in: ◾️ Production-specific emissions value indicating the product carbon footprint based on data from the producers of the goods ◾️ Goods-specific benchmark as a reference value for emissions per production unit; still to be set by the Commission ◾️ Year-specific CBAM factor that gradually ramps-up the levy in line with the phase-out of free emission allowances in the EU ETS ◾️ Weekly price for CBAM certificates linked to prices in EU ETS ❗ ❗ When taking national averages for emission values, large cost differences are possible – depending on the country of origin. Detailed rules are still to come. But reliable cost calculations are already possible. And they are now needed to take the necessary strategic and operational decisions before the start of 2026. 📑 To get a better understanding of impending CBAM costs for imported goods and how to get prepared, read our new blog (link in the comments 👇 ). #CBAM #Import #Trade #Manufacturing

🇦🇺 An Australian border carbon adjustment is in the works to add to the EU and UK’s CBAMs. 📄 Following first steps in 2023, Australia is exploring measures to reduce carbon leakage risks from tightening its Safeguard Mechanism. Findings from a second consultation now lay out its preliminary recommendations. Based on the assessment of 73 trade-exposed commodities, 3 commodity groups were identified: 🔴 High risks: cement, clinker and lime 🟠 High to moderate risks: ammonia, glass and steel 🟡 Currently not at risk: Alumina & aluminum, petroleum and pulp & paper To address these risks, a phased border carbon adjustment for imports is recommended with the following design elements: 🔹 Coverage limited to scope 1 emissions 🔹 Use of both actual emission values and default values for reporting 🔹 A minimum annual value before an importer becomes liable 🔹 Payments either through a fee with a fixed price, or via purchase of emission allowances. 📅 The second consultation round wraps up in early December, with the final recommendations presented to the government by the end 2024. #CBAM #CarbonPricing #Trade

What is Europe’ s place in the global energy and climate transition?   Today in Berlin, Fatih Birol, the Executive Director of International Energy Agency (IEA) shared his view based on the latest World Energy Outlook and Energy Technology Perspectives:   ▶️ #Energy transition is happening with renewables on the rise, and the age of electricity and peak fossil fuels coming soon   ▶️ #Cleantech markets are growing – led by China with trade and barriers to it becoming more important   ▶️ #Manufacturing in Europe is at a make-or-break point due to high energy costs, technology backlog, and lack of a clear industrial strategy.   And with US elections today, we may need to embrace further uncertainty in global climate, trade and industrial dynamics.

🇬🇧 How will the UK CBAM compare to its EU counterpart 🇪🇺? As was confirmed now, the UK will introduce it carbon border adjustment in 2027, one year after the EU CBAM definitive period begins. Following a public consultation, some more details were published in the response by the UK government (see link in comments 👇🏼):   📦 Higher thresholds to reduce the number of affected companies with few emissions 🏭 Similar sectors (but electricity) and list of commodity codes are covered to align with the EU CBAM ☁️ Indirect emissions added as these are included in UK ETS and CPS 📊 Default values per commodity are set at global level, but use of actual data is preferred 💷 CBAM levies are updated on a quarterly base and not weekly as in EU CBAM 📆 Payments are made quarterly through tax returns (12 months in 2027 to be settled by May 31, 2028) With these cornerstones in place, now the required primary and secondary legislation is to be developed. #CBAM #ETS #Manufacturing

🌍 International organizations call for coordinated approaches to address trade and economic implications of climate policies. 🌍 Last week a joint task force from WTO, OECD, IMF, UNCTAD and the World Bank presented a framework for coordinating climate action and carbon pricing.  💡 Challenges in putting a price on emissions are multifold:  🔻 Fragmentation is rising given the growing number and diversity of carbon pricing schemes. 🔻 Ambition is still not enough due concerns over competitiveness and distributional impacts in many countries.  🔻 Barrier in access and adoption of green technologies can lower their effectiveness.   🔻 National climate policies can have positive but also negative spillovers to other countries, such as carbon leakage.  🔻 Where Border Carbon Adjustments (BCA) are applied, they bring compliance costs and risks of trade frictions.    📢 To foster international coordination they call for: 1️⃣ Developing a common understanding on cross-border spillovers, and impacts on economic and climate outcomes 2️⃣ Alignment of carbon intensities calculations and product specific emissions metrics or benchmarks 3️⃣ Cooperation for the dissemination of low carbon technologies, e.g. R&D for low carbon technologies such as green cement, hydrogen, steel, etc. 4️⃣ Ensuring consistency in trade-related climate measures, such as Border Carbon Adjustments to avoid unnecessary trade frictions  International organizations can help to close some of the knowledge gaps. Work is already ongoing for more granular and better data on carbon prices and embedded emissions, as well as the design of border adjustments.  #CarbonPricing #CBAM #ClimateAction #Trade 

Should #CBAM move down the supply chain to cover additional goods? CBAM downstream expansion is an important topic to reduce carbon leakage risks and circumvention. Failure to do so, may also jeopardize EU competitiveness, and result in relocation of entire value chains. A recent report by ERCST - European Roundtable on Climate Change and Sustainable Transition outlines the considerations that should guide a CBAM expansion to downstream goods. According to the authors (Andrei Marcu, Aaron Cosbey, Michael Mehling, Sara Svensson), reducing the risk of carbon leakage should be the main criterion. Going too far down the supply chain may give rise to unnecessary implementation complexity with little climate benefit: ⬆️ Administrative burden and compliance complexity go up: 🔹 More distinct goods and production plants are covered 🔹 Carbon data from very different stages in value chain is needed 🔹 Declarants must go more upstream to get full data ⬇️ Relevance of carbon prices goes down 🔹 High-value processing steps add relatively fewer emissions 🔹 Carbon costs per unit of value-added decrease 🔹 Non-costs factors become more important A careful impact assessment should inform any expansion. The European Commission will release an assessment of potential expansion by the end of 2024. #Imports #Manufacturing #SupplyChain

🌟 Winners announced for the first round of German carbon contracts for difference (#CCfD)! 🌟 First industrial companies signed a Klimaschutzvertrag. This novel subsidy scheme was launched in Germany last year. To accelerate industrial decarbonization, the contracts compensate for the higher costs of green production methods factoring in EU ETS prices. Key highlights from the first round: 🔹 Around €2.8 billion in funding are allocated 💰 🔹 15 companies awarded support out of 17 bids 🏆 🔹 5 funded companies plan hydrogen use to decarbonize 💧 🔹 Up to 17 Mt CO2e expected to be avoided over a period of 15 years 🌍 SMEs and big corporations are among the winners – with revenues ranging from €50 million to over €5 billion. They operate in various sectors, including chemicals, metals, paper, and building materials. 🚀 The second round is already underway! This time, CCS projects are also eligible for funding. More than 130 companies have shown their interest. The second auction is scheduled for the end of this year. #Klimaschutzverträge #Industrie #Manufacturing #Decarbonization

“Overhauling how businesses think… . Look at their entire supply chain with carbon-colored glasses… .” Have you missed our latest CO2 IQ blog about #CBAM implementation experience? No worries. Here is an even cooler podcast version created by #NotebookLM by Google. #SupplyChain #Manufacturing #Import