Europe’s Climate Stride: Unpacking the Carbon Border Adjustment Mechanism

Container Ship on the Ocean

In an ambitious bid to combat climate change, the European Parliament has introduced legislation, including a Carbon Border Adjustment Mechanism (CBAM), aiming to drastically cut greenhouse gas emissions.

With a target of at least a 55% reduction by 2030, this initiative could have far-reaching effects, particularly for large industries whose operations produce considerable carbon emissions.

Central to this package are two key measures. Firstly, it proposes to phase out free allowances under the European Emission Trading Scheme (ETS) by 2026. Secondly, it introduces the Carbon Border Adjustment Mechanism (CBAM), which sets tariffs on goods produced using carbon-intensive processes, particularly those prone to ‘carbon leakage’ — a term for shifting carbon-intensive production stages to countries with more lenient climate policies.

While the CBAM concept is gaining momentum globally, with countries like the UK, Japan, Canada, and the US exploring similar mechanisms, it presents its own challenges. Despite Australia’s ongoing considerations for a CBAM amidst resistance from carbon-intensive sectors, the complexity and cost of compliance, including intricate accounting and potential auditing bottlenecks, could pose significant obstacles to its widespread implementation.

This is a summary article from Edge2020 – read the original article.

The team Edge Utilities are passionate about renewables and sustainability, we are energy brokers with an eye on the planet. We are committed to helping councils and business communities reach their net zero goals through renewable power purchasing agreements (PPAs) and smart portfolio management.
To discuss options and plans for your community contact us at save@edgeutilities.com.au  or call us on 1800 334 336 to discuss. 

Intergovernmental Panel on Climate Change Warning

plant in landscape suffering drought

The catastrophic impact caused by rising greenhouse gases

The Intergovernmental Panel on Climate Change (IPCC)’s 6th Assessment Report (AR6) has shocked the scientific world and beyond. More than 250 climate scientists worked on this eight-year assessment, which drew an alarming conclusion about the catastrophic impact caused by rising greenhouse gases.

The report highlights that we are already experiencing the effects of 1.1 degrees Celsius warming, including summer arctic ice coverage, ocean acidification, and rising carbon dioxide levels. Moreover, it discusses the irreversible effects that can occur at as low as a 1.5-degree overshoot, including species extinction and loss of life.

The UN’s Secretary-General, Antonio Guterres, has urged nations to abandon the 2050 net-zero target for stronger 2040 packs while calling for developed nations to phase out coal by 2030 and block new oil or gas extraction. This, he believes, could hold us at the 1.5-degree warming cap. The upcoming COP28 in the UAE in November and December will be a true test of the global commitment to tackling climate change. However, with the chair being the CEO of the 12th largest oil business, there are concerns about softening approaches.

The AR6 shows that we are close to the point of no return and that the impacts of climate change require immediate action.

This is a summary article from Edge2020 – read the original article.

The team Edge Utilities are passionate about renewables and sustainability, we are energy brokers with an eye on the planet. We are committed to helping councils and business communities reach their net zero goals through renewable power purchasing agreements (PPAs) and smart portfolio management.
To discuss options and plans for your community contact us at save@edgeutilities.com.au  or call us on 1800 334 336 to discuss. 

 

AEMO TO FASTTRACK TO NET ZERO EMMISSIONS

 

On Friday, the Australian Energy Market Operator (AEMO) published its 2021 Inputs, Assumption and Scenarios Report (IASR) which includes five scenario’s which may take the industry into the future. The five scenarios range from the slow change where not much happens in relation to technology changes and the existing generation mix right through to the Hydrogen superpower where changes in technology make huge advancements. The scenarios outlined in the IASR will form part of the 2022 Integrated System Plan (ISP).

AEMO have spent the last 10 months working with industry, governments, and consumers to build the scenarios. During consultation, most stakeholders supported the rapid decarbonisation scenarios leading to achieving net-zero emissions.

Compared to the input to the 2020 ISP, the 2022 ISP will include economy wide decarbonisation not just across the electricity sector and increased investment in distributed energy resources. To model decarbonisation across the economy, the 2022 ISP will include scenarios of electrification across industry and the transport sector.

To understand how the market moves to a lower carbon world, AEMO have modelled a ‘steady progress’ scenario and a ‘net zero’ scenario. The steady progress scenario employs existing government policy including emission abatement targets and a steady growth in the uptake of PV. In the Net-zero scenario the change in the electricity industry is driven by technology led emission abatement and progressive tightening of emissions targets leading to net zero emission by 2050.

AEMO have also modelled a ‘Hydrogen superpower’ scenario where the market is structured to support the development of a renewable hydrogen export economy.

A draft ISP will be published in December with the final ISP released in June 2022.

CARBON PRICES INCREASE

As the next round of auctions are set to take place under the Emissions Reduction Fund, prices for Australian Carbon Credits (ACCU) have increased steadily since January and are now trading at $18.40 per certificate, 10% higher than in January.

The growth in the ACCU market is partially from the Federal government’s Safegaurd mechanism, but also due to an increasing number of companies implementing zero emission targets and using ACCU’s to offset their emissions.

As more companies choose to aim for a net zero emission position, the supply / demand balance in the ACCU market has shifted and the price of the commodity is increasing. Some forecasts predict ACCUs could reach as high as $45 per certificate by 2030.

The biggest jump in the price for ACCUs was recorded in February when the Prime Minister endorsed a net zero target by 2050.

As highlighted in previous articles, many companies are responding to shareholder pressure to reduce emissions and decarbonise.  The European market, Emissions Trading System (ETS), a block of 27 countries, has seen EU carbon permits jump from €23 in November to €41 in March.  They were trading closer to €5 only two years ago. The price increase has been the result of the EU’s tougher climate change policies.

Large emitting companies had until February 2021 to purchase their ACCUs to comply with their Safeguard liabilities, hence the  increases in price. However as seen from the chart above the prices of ACCUs has remained high. This leads to the assumption that voluntary purchases of ACCUs are maintaining upward pricing pressure.

Across Australia, large emitters such as AGL have been joined by large energy users including the Coles Group and Woolworths to commit to net zero greenhouse gas emissions by 2050. Other large gas and petrochemical exporters have started to sell carbon neutral LNG and other carbon neutral products, this is achieved by carbon offsets such as ACCU’s.

As the demand for carbon offsets increases the ACCU price is likely to continue to rise until cheaper abatement solutions develop such as improved farming practices resulting in improved soil carbon storage and broad acre management such as Savanna burning.

Common to all markets, the offset market is currently in a state of flux.  Demand will most likely increase the price of ACCUs while new project and pressure from international carbon offsets will put downward pressure on prices. The positive takeaway is businesses are clearly proactively moving to reducing their carbon footprint.

What are you doing to reduce yours?