Will Your Company Be Impacted By The New EU Carbon Tax?
The European Commission’s proposal to introduce a Carbon Tax on imports may be the incentive many companies needed to reevaluate their supply chains and fund their decarbonization initiatives.
The proposal is to equalize the price paid for carbon by European vs. non-European producers by implementing a carbon tax on imported goods - a move that is being referred to as the EU Carbon Border Adjustment Mechanism (CBAM).
This action aims to reduce a risk to the EU’s climate goals that arises from emissions linked to imports from countries without robust climate policies by pushing those countries to put in place emissions-reduction strategies in their manufacturing industries.
Companies with importing to the EU may now face additional taxes or ‘purchase certificates’ for both goods and services to cover the carbon emissions associated with the production and transportation of imported goods.
One possible ramification of the heightened cost this will impose on companies is that the CBAM may lead EU companies to sever international supplier relationships and rely on local EU suppliers that are required to comply with existing emissions regulations.
If enacted as it is proposed, the CBAM will help to level the playing field for European companies who will no longer be disadvantaged by competitors who undercut them on price with goods made in countries without emission-reduction strategies and ambitious climate goals.
A statement from the EU Parliament added that, “only countries with the same climate ambition as the EU will be able to export to the EU without buying CBAM certificates.”
The proposed Carbon Tax on imports has caused concern among companies who would have to pay higher taxes on the goods and services they import as well as those with supply chains in the global market, including trading partners like manufacturers in the U.S..
CBAM, if passed, is scheduled to be implemented in early October 2023 and will apply to a list of specific products from carbon intensive sectors in its first phase of implementation, including:
Cement
Steel
Iron
Fertilizer
Hydrogen
The CBAM mechanism includes indirect emissions, meaning that the carbon emissions from supply chains - representing a high percentage of overall emissions - will need to be addressed.
Although some EU trading partners have expressed frustration, the proposal may be showing its value as several countries have already begun to consider implementing similar measures of their own.The United Kingdom, Canada and lawmakers in the U.S., for example, have themselves begun to look at border adjustment taxes.
Before even taking effect, the new EU tax is already pushing countries to do more and it is quite likely that the CBAM will have a major impact on companies’ operations and emissions-reduction strategies moving forward.
So what should your company do now?
Factor the increased costs associated with the tax in their international supply chains and potential compliance costs
Assess the likely impacts on the companies’ overall competitiveness and profitability
Evaluate the potential for retaliatory trade measures from other countries
Report on the company’s emissions and energy use – the Carbon Tax is based on the specific amount of carbon emitted in the production and transport of goods
Invest in clean technologies and processes to reduce emissions
Implement climate initiatives and make public commitments
Optimize the supply chain to become more efficient and less carbon intensive
Reevaluate procurement policies to ensure sourcing comes from low-carbon suppliers
As the EU continues to roll out regulations designed to meet their GHG reduction goals, countries and their companies will need to implement carbon reductions strategies and optimize their supply chains if they are going to remain competitive and keep business partnerships with the EU.
The Uplift Agency
Uplift builds strategies, programs, and communication campaigns that advance ESG in workplaces, supply chains and communities.
We know how to navigate the road ahead because we’ve already been down it – 90 percent of our team has led environmental or social programs in corporations or nonprofits. Because ESG is all we do, our services are more comprehensive and integrated than most firms.
