Sea of environmental legislation a major challenge for manufacturers

A report by sustainability intelligence analyst S&P Global on 09 March 2022 predicts that government policies seeking to transition economies to net-zero emissions are likely to increase globally, including the use of carbon pricing regulations as a policy lever to achieve emissions abatement targets.

In the case of Europe, countries that are part of the EU all take part in the EU Emissions Trading Scheme (ETS) in which the participation of energy intensive industry sectors with installations operating above 20 megawatts rated power input from combustible fuels is mandatory.  

Additionally, many members of the EU are considering or have announced the implementation of separate national carbon tax schemes to cover activities not regulated under the EU ETS (Sweden levies the highest carbon tax rate at €117.30/tCO2e, Poland the lowest at €0.07/tCO2e). 

In the case of countries outside the EU, Switzerland has its own emissions trading system as does the UK, where support for the introduction of a carbon tax to cover activities not currently covered by the UK ETS is growing, and Ukraine has a carbon tax scheme). 

Published in July 2021 as a set of legislative proposals to make the EU’s climate energy and transport policies for reducing net green house gas emissions by 55% by 2030, the EU’s Fit for 55 package has several provisions targeting Europe’s construction sector including reformation of the EU ETS including a new self-standing emissions trading scheme (ETS II) for launch in 2027 for buildings and road transport.

During 2020-2021 financial year, the UK Environment Agency issued civil penalties to over 30 companies for breaches of climate change schemes including the EU ETS1.

On 30 June 2021 the Regulation of the European Parliament and of the Council establishing the framework for achieving climate neutrality came into force. Known as the European Climate Law, it writes into law the goal set out in the European Green Deal for Europe’s economy and society to become climate-neutral by 2050.

The law also sets the intermediate target of reducing net green house gas emissions by at least 55% by 2030 compared to 1990 levels and is expected to underpin a rise in prosecutions of companies whose activities are found to be in breach of its provisions. 

Its adoption sets the stage for a wave of green regulatory initiatives in the EU aimed at achieving the EU’s climate objectives including the “Fit for 55” package, which includes a new energy efficiency directive. 

Under the directive, contracting authorities will be asked to require tenderers to disclose information on the lifecycle global warming potential, on the use of low carbon materials and on the circularity and or materials used for new buildings and building to be renovated.

The so-called Carbon Border Adjustment mechanism (often referred to as CBAM) is a carbon import tax aims to ensure that the emissions reduction efforts of the EU are not offset by increasing emissions outside its borders through the relocation of production to non-EU countries (where climate action is less ambitious than in the EU) or through increased imports of carbon-intensive products.

The CBAM targets imports of products in carbon-intensive industries covered by the EU ETS and will follow the ETS allowance price. The obligation for importers to pay a levy on energy-intensive goods will kick in as of 2026, in line with the ETS free allocation phase out2.