Carbmee's blog on corporate climate action, scope 1, 2, 3, Scope 3.1 emission calculation, and ESG reporting.

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Knowledge & Insights about carbon footprint managemnt

The Greenhouse Gas (GHG) Protocol is a comprehensive standardized framework for measuring and managing emissions from private and public sector operations, value chains, products, cities, and policies. According to this framework, greenhouse gas emissions are categorized into the following groups:

 Scope 1 emissions are direct emissions from owned or controlled sources. 

Scope 2 emissions are indirect emissions from the generation of purchased energy.

Scope 3 emissions are all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions.

Find everything you need to know about Scope 1, Scope 2, and Scope 3 at our GHG Protocol Guide.

Back to basics: What are the GHG Protocol Scopes?

The GHG Protocol has 15 subcategories within Scope 3 emissions from both upstream and downstream activities. When calculating their corporate carbon footprint, most companies should consider the first category, Scope 3.1, which covers emissions from the production of purchased goods and services, to be the most critical to their carbon accounting. This includes the production or extraction of raw materials, manufacturing, and transportation up to Tier 1 (direct) suppliers.

What makes this category particularly relevant for the future is that it gives companies a better understanding of which GHG emissions they are most directly responsible for (e.g., Scopes 1 and 2), and therefore have more control over reducing, as opposed to those emissions they are purchasing from their suppliers (Scope 3.1). Industrial companies committed to net-zero must do so efficiently to achieve results while maintaining growth and profitability. Their extensive supply chains, which can include thousands of suppliers, and these emissions can add up to a large portion of the company's emissions – in some cases, nearly all of a company's total GHG emissions. Businesses should take special care to measure and reduce these emissions, as they will be most affected by the upcoming Carbon Border Adjustment Mechanism and other carbon regulations.

To gather this information at scale, it's important that both internal and external stakeholders are able to align in one place to share the data necessary to develop the most accurate and impactful insights. Engaging with your procurement team is particularly important when assessing and reducing your company's Scope 3.1 emissions, as they are largely responsible for purchase orders and supplier engagement. If your company has an extensive supply chain, it's critical that they are aligned with your company's sustainability strategy.

The Role of Sustainable Procurement in Reducing Scope 3.1 Emissions

Net-zero can't be achieved alone-it requires your organization to lead and mobilize stakeholders toward your goals. Directly engaging your suppliers and inviting them to collaborate is an effective way to gain their buy-in and identify your most strategic partners. 

By working closely with suppliers, companies can obtain accurate and validated data to develop actionable insights into how your company's purchased goods are manufactured and distributed. This is key to differentiating the emissions you produce from those you receive, allowing your teams to plan and execute targeted, high ROI reduction initiatives.

Supplier Engagement: How to Work with Your Supply Chain to Reduce Emissions

Choosing a Calculation Method 
Measuring your company's Scope 3.1 emissions footprint starts with understanding which calculation methods your organization or solution can accommodate. An organization can use an spend or activity-based calculation, according to its needs and desired results. Depending on the calculation method, you will need to know:

- Product-specific GHG emissions originating at the direct supplier level (Tier 1) as well as in the upstream chain (Tier 2 to Tier n).

- Quantities for purchased items and components, such as number of units, weight, volume, etc.

- Activity data at the supplier level, such as proportional energy and fuel consumption, waste, etc.

Primary data relates to specific activities within a company's value chain, is provided and validated by the source, and is more accurate than secondary data that reflects industry averages or benchmarks. However, specific primary data on product-related GHG emissions for Tier 1 suppliers is often unavailable or of insufficient quality.

Carbon management is an ongoing process, and companies can begin their decarbonization journey by working with secondary data. This provides a starting point to build on, as the secondary data can later be replaced with primary data, leading to more accurate results and refined insights.

Identifying the right secondary data sources and emission factors can also be an obstacle your team faces when calculating your company's carbon footprint. Emission factors are used to calculate GHG emissions based on:

purchase spend, e.g. kg CO2e per euro purchase value for a particular product group;

unit, e.g. kg CO2e per kg weight of a particular good;

or activity data, e.g. kg CO2e per kWh. 

The type of emission factors that are needed will depend most on the company's choice of calculation method.

Initially, many companies may only be able to include a portion of their purchased goods and services in Scope 3.1 emissions calculations, so they will need to consider the level of validity when extrapolating the collected emissions data for the remaining purchases for which no data was collected. Similarly, emission factors may not be available for some specific processes, resulting in data gaps that must be filled over time either through primary data or by finding a database with appropriate proxy data.

Best Practices for Scope 3.1 Calculation 

With a mission to help companies drive sustainable transformation and achieve net-zero by 2050, carbmee always applies the 80/20 rule, meaning that 80% of emissions are typically found in hotspots that represent 20% of the value chain. EIS™ Carbon Management helps develop Scope 3.1 hotspot transparency within days. This enables companies to collaborate with suppliers and gain the granularity needed to make bold decisions to reduce emissions and plan an effective, efficient net-zero strategy.

Activity-based calculation for optimal transparency

The EIS™ solution uses an activity-based methodology to develop Scope 3.1 transparency, including the largest product categories and suppliers contributing to those emissions. Typically, emission factors are based on LCI databases and calculated using the methodology recommended by the GHG Protocol to determine the global warming potential of various materials and services. Carbmee's activity-based approach uses ecoinvent models as-is, selecting them based on their best fit to the materials or services being modeled.

EIS™ Carbon Management can also model using a supplier-specific approach, which works similarly to our activity-based methodology. However, our supplier-specific approach replaces generic data from the database with enriched primary data obtained directly from customers or suppliers. This allows companies to not only calculate emissions more accurately, but also recommend and plan initiatives to achieve emissions reductions.

Involving suppliers directly can help gain their buy-in and identify your most strategic partners. With carbmee's collaboration feature, your company can increase the granularity of Scope 3.1 emissions by inviting suppliers to validate or edit emission factors for materials, energy mix, transportation, and more.

By aligning your suppliers with your sustainability goals, using activity-based carbon accounting, and increasing the accuracy of carbon footprints through collaboration, companies can make confident decisions to reduce emissions effectively and efficiently. 

With deeper insight, companies can tackle the 20% of hotspots that account for 80% of their emissions – the same emissions that are most vulnerable to taxation under the Carbon Border Adjustment Mechanism and other upcoming carbon regulations.

Talk to one of our industry experts to learn more about how EIS™ Carbon Management can help your company achieve Scope 3.1 carbon transparency.

Unlock Scope 3.1 Reduction Potential with carbmee

Depending on the industry, Scope 3 emissions can account for anywhere from 75% up to to nearly 100% of a company's total carbon footprint. For large enterprises, the first category (Scope 3.1) includes emissions from the production of purchased goods and services, and is often the most relevant. Learn more about what Scope 3.1 is and how your business can measure and reduce those emissions to achieve deliver on its sustainable transformation.

Understanding Scope 3.1: A quick guide

Understanding Scope 3.1 Emissions: A Quick Guide

The CSRD marks a watershed moment for corporate sustainability with far-reaching implications for how companies assess their own climate impact, as well as for the future of sustainability reporting in both Europe and globally. Organizations will need to devote significant time and resources to prepare for implementation of the directive within a short timeframe.

We’ve created a quick guide to help industry enterprises understand the most important points of the CSRD and how they can best prepare for it.

Corporate Sustainability Reporting Directive

The Corporate Sustainability Reporting Directive (CSRD) is an amendment and extension of the current Non Financial Reporting Directive (NFRD), under which large companies, banks and insurance companies with more than 500 employees are required to disclose information on their environmental and social impacts. The European Commission adopted a proposal for a CSRD in April 2021, with the aim of improving the quality of sustainability reporting and increasing transparency on the non-financial performance of companies for external stakeholders.

As the climate crisis has progressed, the EU is increasing its efforts to drive forward its transition to a sustainable economy. The CSRD strengthens the existing rules on non-financial reporting introduced in the Accounting Directive by the 2014 non-financial reporting directive (NFRD). The new regulations under the CSRD will bring important changes regarding scope and reporting requirements.

The scope of companies affected by the regulations will significantly be extended to apply to: 

All large companies, that is companies fulfilling 2 out of the three following criteria:
- Revenues surpassing EUR 40 million per year
- Total assets over EUR 20 million
- More than 250 employees

All companies listed on EU-regulated markets (except listed micro-enterprises)

This nearly quadruples the number of companies required to publish reports on the environmental and social impacts of their operations from 11,700 to about 50,000. 

What are the main differences between the CSRD and the existing NFRD? 

The CSRD will include more comprehensive sustainability reporting requirements and significantly expand the number of EU and non-EU companies subject to the EU sustainability reporting framework. Enterprises will provide detailed environmental and climate change information, but will now also be held accountable for reporting on a wider range of topics such as environmental rights, social rights, human rights, and governance factors.

The CSRD is mandatory for companies that meet in-scope criteria, which includes: 

Large companies that have:
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Non-EU companies with at least one subsidiary in the EU and a net turnover of more than EUR 150 million

Reporting requirements for the CSRD will be fully phased in before the end of the decade as follows:

reporting in 2025 on the financial year 2024 for companies already subject to the NFRD

reporting in 2026 on the financial year 2025 for large companies that are not currently subject to the NFRD

reporting in 2027 on the financial year 2026 for listed SMEs (except micro undertakings)

reporting in 2029 on the financial year 2028 for third-country undertakings with net turnover above 150 million in the EU if they have at least one subsidiary or branch in the EU exceeding certain thresholds.

To comply with the CSRD, companies will need to prepare a non-financial statement that includes information on their sustainability policies, risks, and results. This statement must be auditable by an independent third-party and be included in the company’s annual financial report.The specific content of the statement will vary depending on the size and sector of the company but could include policies and performance details, such as: 

a brief description of the company’s business model, strategy and sustainability risks and opportunities; 

implementation plans as they relate to the transition to a sustainable economy, measures taken to achieve climate neutrality by 2050 ( in line with the Paris Agreement), and exposure to coal, oil and gas-related activities;

double materiality, i.e. both the sustainability matters that affect the company and the impact of the company on the environment, market, and people; 

greenhouse gas emission reduction targets; 

policies in relation to sustainability (including incentive schemes); 

and the processes the undertaking used for due diligence in relation to sustainability issues, as well as the current and future negative effects of the business' operations and value chain.

What information will need to be disclosed?

Companies will need to compile their ESG disclosure information in accordance with the CSRD with guidance from the European Reporting Sustainability Reporting Standards (ESRS). During the drafting process, the ESRS referenced various ESG reporting frameworks and standards, including CDP, GRI, SASB, and others.

The ESRS will incorporate both universal and industry-specific standards, like many other comparable frameworks. The first set of ESRS reporting standards is expected to be adopted by June 30, 2023, and publication of ESRS sector-specific standards is anticipated by June 30, 2024.

Which reporting standard applies to the CSRD?

While the full extent of sanctions is not known, as penalties are defined at a member state’s discretion, organizations found to be in violation of the CSRD can expect serious administrative sanctions, with possible penalties including significant fines.

In the case of NFRD implementation by member states, fines in Portugal ranged from €50 to €1,500, while in Germany companies are fined up to either €10M, 5% of the annual turnover, or twice the amount of the profits gained/losses avoided because of the breach.

Other consequences of CSRD non-compliance could also include damage to brand reputation, a loss of investor and stakeholder confidence, as well as legal action taken by non-governmental organizations.

Will there be penalties or sanctions for not complying with CSRD?

While some details are in development, it is clear that implementing CSRD it will require significant resources, and most crucial for multi-national enterprises, will overlap in scope and diverge in content from region to region. Regardless of size, companies should prepare for CSRD by:

ensuring that key stakeholders across your company are familiar with CSRD sustainability disclosure requirements; 

staying up-to-date on EFRAG announcements and ESRS guidance for CSRD;

assessing how your company identifies and gathers sustainability-related information;

setting targets and KPIs with planned periods to evaluate progress and relevance;

utilizing the right tools to help you quantify and report your relevant sustainability information.

How can your company start preparing for CSRD?

Carbmee’s EIS Carbon Management solution can help you to plan for success and prepare for the CSRD. Our platform provides you with everything you need to understand your baseline, set targets for emission reduction, develop transparent benchmarks, and report your progress through:

centralized and automated data collection from your existing ERP system;

industry-specific databases of emission factors that guarantees the highest accuracy;

hotspot-assisted target setting, benchmarking and gap analysis so you have the best data to create compliant reports;

real-time and impact-oriented insights to help you deliver on targets in good time.

To learn more about EIS Carbon Management and what carbmee can do for your company, get in touch with one of our industry experts. 

How carbmee can help your enterprise to report in good time and in compliance?

What is the Corporate Sustainability Reporting Directive? What will it mean for your industry? How can your enterprise prepare for compliant reporting? Check out our quick guide to find out.

Corporate Sustainability Reporting Directive (CSRD):Quick Guide

Corporate Sustainability Reporting Directive (CSRD): A Quick Guide

Streamlined Energy and Carbon Reporting is a regulatory framework designed to help UK businesses meet global energy efficiency standards and greenhouse gas (GHG) emissions. It requires companies to report information on energy usage, carbon emissions, and efforts to improve these areas. It applies to all UK-incorporated quoted companies on stock exchanges, large UK-incorporated companies not quoted on exchanges, and large limited liability partnerships (LLPs). Companies also may elect to participate in SECR voluntarily as a means to improve their energy consumption and carbon footprint.

What Is Streamlined Energy and Carbon Reporting (SECR)?

SECR is intended to encourage businesses to be environmentally responsible. It aims to achieve this by raising companies’ awareness of energy costs, providing them with data they can use to pursue greater energy efficiency, and helping them reduce carbon emissions. With respect to carbon emissions, SECR is aligned with global standards promoting net-zero emissions, where companies’ output of greenhouse gases is balanced by carbon removed from the environment. 

SECR reporting is mandatory for all companies quoted on UK stock exchanges and all companies designed as large. The latter designation currently includes companies meeting at least two of the following criteria:

Annual turnover (or gross income) of at least £36 million

Balance sheet assets of at least £18 million or more

Large companies consuming less than 40,000 kWh of energy in a reporting period are exempt.

Electricity usage, both for powering operations and transportation

Gas consumption for both mobile and stationary activities

Transportation fuel consumption is used for purposes such as fueling company vehicles and minibusses

Emissions intensity ratio, which is a metric measuring emissions from one year to the next

The methodology used to calculate the required information

A narrative explaining steps being taken to improve energy efficiency

Prior year figures for comparison, when applicable

SECR reports are submitted to Companies House. Quoted and unquoted companies should include them in their annual directors’ reports. LLPs should submit an energy and carbon report with their annual reports. Companies, where energy use and carbon emissions are of particular strategic importance should include them in their strategic reports. Charitable organizations should include them in combined directors’ and trustees’ annual reports.

There is no prescribed reporting format. However, all reports should include all required elements, namely:

Annual energy use and greenhouse gas emissions

An emissions intensity ratio, using a metric selected by the company

Methodologies used to calculate the required information

A narrative on how the company is improving energy efficiency

Prior year figures for comparison, if available

Your reporting deadline is based on your company’s financial year and should be aligned with deadlines for your annual reports, as described above.

How the SECR Framework Reporting Process Works

Participating in the SECR framework, whether out of obligation or voluntarily, offers companies a variety of benefits. Some of the most important are:

Enhanced risk management and decision-making: reviewing energy consumption and carbon emission patterns can help companies understand and avoid the impact of risks stemming from wasteful energy usage and climate-based factors

Potential cost savings: monitoring energy consumption can help businesses reduce usage and increase energy efficiency, promoting savings.

Improved transparency and accountability: greater environmental transparency can be attractive to investors and consumers

Of course, if your business is required to file an SECR report, an additional benefit is achieving regulatory compliance and avoiding penalties for non-compliance.

Three Benefits of Participating in the SECR Framework

Failing to comply with SECR reporting regulations can trigger financial penalties. The Conduct Committee of the Financial Reporting Council can levy fines for non-compliance. Additionally, since reports are submitted with your annual reports to Companies House, that agency can reject your application and make you submit it again if you fail to include SECR information. This can trigger late filing penalties from £150 up to £7,500, depending on the size of your company and how late you end up filing.

Consequences for Non-compliance with the SECR Framework

When preparing your SECR filing, you may run into several common challenges:

Gathering accurate and complete data on energy and carbon emissions can be time-consuming and resource-intensive, especially if you don’t have an automated system in place to collect the information.

There may be discrepancies in the methods used to measure and report emissions, leading to inconsistencies in your reported data.

You may encounter difficulties in accurately accounting for emissions from complex supply chains or operations, which you’ll need to know to provide information on indirect emissions from sources you don’t own or control which aren’t energy providers (Scope 3 emissions).

The best way to overcome these challenges is to consult professional advisors and use enterprise-quality carbon management software with Scope 3 tracking capability.

Potential Challenges in Reporting Energy and Carbon Emissions

The SECR framework requires affected UK businesses to report information about energy usage, greenhouse gas emissions, energy efficiency progress, and steps to improve consumption. Staying in compliance with the framework requires access to all relevant data and an accurate methodology for analyzing data.

Using carbon management software, you can automate the process of collecting and analyzing the data you need and preparing your reports. Smart software can also help you identify opportunities to improve energy efficiency and reduce emissions. The carbmee platform is designed to help you achieve SECR compliance by automating your data collection, identifying opportunities for energy optimization, and producing reports to demonstrate your progress over time. We also provide an online knowledge base and answers to FAQs to help you find the necessary information to achieve compliance. Book a free demo to see how our solution can help you and discuss your company’s needs with our industry experts.

Improve Your SECR Compliance With carbmee

Streamlined Energy and Carbon Reporting regulations govern UK companies quoted on stock exchanges and larger non-quoted businesses. What does it mean for your business, and what do you need to do to comply? Check out our quick guide to find out.

Streamlined Energy and Carbon Reporting (SECR) Framework

Streamlined Energy and Carbon Reporting regulations govern UK companies quoted on stock exchanges and larger non-quoted businesses. What does it mean for your business, and what do you need to do to comply?

Streamlined Energy and Carbon Reporting (SECR): A Quick Guide

In March 2022, the US Securities and Exchange Commission issued Release No. 33-11042, which proposed updated rules to enhance and standardize climate-related disclosures for investors. The SEC climate disclosure 2022 proposal would require domestic and foreign registrants with the Securities and Exchange Commission to include certain information related to climate policy on registration statements and periodic reports such as Form 10-K. The required information would include the following:

Climate-related risks and their probable or actual material impacts on the registrant's company, strategy, and outlook

Registrant governance or risks and corresponding risk management processes

Climate-related financial statement metrics

Climate impact targets, goals, and transition plans, if any

Climate-related risks pertain to climate-associated events and conditions which can impact the registrant's financial statements, business operations, or value chains. Greenhouse gas emissions include direct emissions from a company's production and indirect emissions from a company's utility providers or supply chain partners.

These proposals echo policies many companies already follow based on common disclosure frameworks such as the Greenhouse Gas Protocol and the Task Force on Climate-related Financial Disclosures (TCFD). Such disclosures aim to promote net-zero practices where the amount of carbon companies generate is balanced by what they remove from the environment. This objective reflects the goal of the Paris Climate Accords to keep global temperatures from exceeding 2 degrees Celsius above pre-industrial levels. The upcoming SEC rule update is a regulatory effort to promote this goal by providing transparency to investors about companies' climate policies.

What Is the SEC Climate Disclosure Guidance?

The proposed climate disclosure updates would require SEC registrants to report information about several key elements, including:

Materiality: Information investors should be informed about regarding the impact climate-related events and conditions such as wildfires, hurricanes, and floods could potentially have on a company's finances, operations, and financial reporting

Physical risk: The potential impact of climate-related events and conditions on a company's assets and operations

Transition risk: The potential impact the transition to a low-carbon economy could have on a company's business, operations, and financial reporting

Risk management: What companies are doing to assess and manage climate-related risks

Compliance with laws and regulations: What companies are doing to comply with laws and regulations related to climate change

These are just a few highlights of the proposed disclosure update. The full text of the original proposal is 490 pages long, and adjustments are still being debated and finalized. Consult a professional such as an environmental compliance advisor, with detailed questions about the impact on your company.

Five Key Elements of the SEC's Climate Disclosure Guidance

Companies can benefit in various ways, from adhering to SEC climate disclosure guidelines. Some of the biggest benefits include the following:

1. Improved Risk Management and Decision-Making

Internally, the actions required to comply with SEC climate disclosure guidelines force you to review climate-related risks to your company and your energy efficiency and develop strategies for addressing any issues you uncover. This leads to better risk management and decision-making, which protects you from threats while simultaneously improving your operational efficiency and cutting costs.

2. Increased Transparency and Credibility

Disclosing your climate risk management actions to the public through the SEC provides transparency and accountability, increasing your company's credibility. You're not just saying you're addressing climate risks; you're demonstrating it publicly with regulatory authorities confirming your disclosures.

The fact that you're taking steps to manage climate-related risks and being transparent about it gives climate-conscious investors reason to be more confident in your company. This enhances your brand's reputation and can help you attract capital.

In addition to these benefits, staying in compliance with SEC guidance helps you avoid potential regulatory obstacles to your business growth, both today and in the future.

Three Benefits of Complying With SEC Climate Disclosure Guidance

When pursuing SEC climate disclosure compliance, it's important to follow best practices to avoid common pitfalls. Here are three of the most prevalent mistakes to avoid:

Full disclosure of materiality is vital under investment law. Failure to consider all potential climate-related risks to your company can lead you to overlook information you're legally obligated to include. To avoid this, work with a professional using a comprehensive checklist of factors to consider.

Adequate disclosure requires you not only to claim commitment to risk management but to demonstrate your commitment by assessing risk and developing a plan to address it. Follow through on your disclosure by detailing how you plan to manage your identified risks.

Climate disclosure isn't a one-time event but an ongoing process where you document your progress in achieving climate-related goals over time. Report your results consistently on a regular schedule using standard disclosure frameworks to provide objective benchmarks.

These pitfalls are especially easy to fall into if you're trying to achieve compliance through your own resources. The best solution is to get professional support from experienced advisors and enterprise-quality automation.

Three Common Pitfalls to Avoid when Complying with SEC Climate Disclosure Guidance

Complying with the SEC's climate disclosure guidance can be complex and time-consuming, but it's necessary. You can streamline the process by working with a carbon management software provider to automate the process of collecting and analyzing data on your greenhouse gas emissions and other environmental impacts.

The carbmee carbon management platform can enhance your ability to effectively manage and mitigate climate-related risks. We help you streamline your data collection and analysis procedures, set and track emissions reduction targets, and report your results consistently in a transparent manner that complies with SEC's guidance. We also provide a knowledge base and answers to FAQs to help you answer your compliance questions. Book a free product demo to see our solution and discuss your company's climate compliance needs with one of our industry experts.

Streamline Your SEC Compliance With carbmee

An SEC climate disclosure rule update is imminent, with changes currently scheduled for finalization in spring 2023, pending Congressional approval. If you're still trying to catch up with the old rules, you may be wondering what the upcoming changes mean for your business. Check out our quick guide to find out the essentials of the SEC's climate disclosure rule updates.

SEC Climate Disclosure: A Quick Guide

If you're still trying to catch up with the old rules, you may be wondering what the upcoming changes mean for your business. Check out our quick guide to find out the essentials of the SEC's climate disclosure rule updates.

As part of the EU’s path to hitting net-zero greenhouse gas emissions by 2050, a new Carbon Border Adjustment Mechanism (CBAM — a.k.a carbon border tax) was adopted from July 14th 2021. Here’s how the CBAM impacts industry, and how you can avoid high costs by reducing your supply chain emissions.

Global trading has finally begun to take action against climate change: and the result is the world’s first carbon border tax. The European Union’s new Carbon Border Adjustment Mechanism (CBAM), poised to start in 2023, puts pressure on companies to reduce their greenhouse gas emissions in a way that directly affects their bottom line: with a carbon border tax that will soon impact all levels of scope 3 emissions.

The Carbon Border Adjustment Mechanism (CBAM)

While EU businesses are already required to measure, report, and account for the costs of their own production’s carbon footprint, this will now extend to businesses importing from outside the EU. It is a vital step in tackling global trading emissions.

Border tax is another way of saying import tariff. Specifically, it relates to the amount of carbon dioxide emitted during the production of certain goods imported into the EU.

From January 2023, some impacted importers will have new carbon reporting requirements to which they must comply. From January 2026, carbon import permits will be introduced; their cost linked to the EU’s domestic carbon price (estimated to reach at least €75 by then). If the carbon pricing in the producing country is compatible with the EU’s, the carbon border tax will not apply. As we mentioned before, carbon emissions clock in at a high price. So if you don’t know how much your entire carbon footprint is, it’s time to prepare for the CBAM and do a life cycle assessment (LCA) of your supply chain activities.

If your company works with non-EU suppliers who don’t comply with EU climate standards (including carbon price), the carbon border tax is highly likely to affect your business in the near future. However, it will initially apply to certain products, including:

Ultimately, this means that the automotive, construction, and packaging industries will be heavily taxed. Indian steel imports could see a 32% rise, while Chinese ones could see a 17% rise. It could also impact the EU’s reliance on Russian oil, and get businesses looking for cleaner supply sources, with a smaller carbon footprint.

The CBAM is to be gradually implemented, giving businesses enough time to prepare and readjust their emissions. It starts with taxing direct emissions first, and the EU will later discuss whether to include more goods and/or indirect emissions in the CBAM’s second phase, due to start in 2026.

If CEOs are not proactive now, they could end up paying a high-price down the line. For example, could your business be importing a crucial component from the US? Since the US does not yet have a carbon pricing mechanism in place, you could be caught out. Leaders of any organization importing from outside the EU will need to rethink their sourcing decisions with a more holistic view of cost-effectiveness: a greener, cleaner impact item may actually save money in the near future and ensure a minimum is passed on to the customer.

With the carbon border tax, EU importers will have to match the corresponding EU carbon price (i.e. the price paid if the goods had been made in the EU) by buying certificates. They have to buy the CBAM certificates from the EU country they are trading with.

Every year, importers will have to declare the emissions and the goods for the year before, and present the CBAM certificates corresponding to these emissions. The price already paid within a third country will be, of course, deducted. However, if the emission information is not available, default carbon prices will be applied.

With this in mind, we can expect to see new trade agreements and the renegotiation of existing ones to ensure the carbon prices correspond with the EU’s, significantly reducing the carbon border tax.

In fact, many EU companies have already been paying for carbon emissions. The EU’s Emissions Trading System (ETS), initiated in 2005, places caps on emissions for most companies. If they go over their quota, they need to buy emission permits from other businesses.

Carbon-intensive EU manufactures, such as the steel and chemical industries, can sometimes find themselves at a disadvantage against the low prices from manufacturers without the EU green standard (and price).

Here, a carbon border tax could mean a fairer field for EU manufacturers, and international pressure to raise environmental standards in general.

It’s well-known that carbon emissions hide in most businesses’ supply chains. Since Scope 3 emissions are complex to track, many CEOs avoid focusing the carbon impact they have on their businesses.

However, the most important step that affected businesses can take to prepare for the upcoming carbon border tax is to find out where and how much their emissions are. This is crucial for understanding exactly how the CBAM will affect them — not only in the immediate future (taxing only direct emissions) but also longterm (indirect emissions).

Carbmee is already empowering some of the world's largest enterprises to take control of their emissions for effective carbon reduction strategies. If you want to learn more about how EIS™ Carbon Management can help your organization start on its decarbonization journey, or even just level up existing initiatives, talk to one of our industry experts today.

What is the Carbon Border Adjustment Mechanism? What will it mean for your industry? Could there be new hidden costs in your supply chain because of it? Check out our quick guide to find out.

Carbon Border Adjustment Mechanism (CBAM): All you need to know

What is the Carbon Border Adjustment Mechanism (CBAM)? What will it mean for your industry in EU? Could there be new hidden costs in your supply chain because of it?

Carbon Border Adjustment Mechanism (CBAM): A Quick Guide

The Science Based Targets Initiative is a carbon emissions reduction partnership between CDP (formerly known as the Carbon Disclosure Project), the United Nations Global Compact, the World Resources Institute (WRI), and the World Wildlife Federation (WWF). These partners coordinate with the We Mean Business Coalition, a global nonprofit working with influential businesses to pursue climate goals.

The coalition helps businesses achieve an SBTi net-zero standard, meaning that participants seek to balance the amount of carbon dioxide they generate with the amount they remove. The SBTi was launched in 2015 to promote the goals of the Paris Climate Accords agreed upon that year.

What Is the Science Based Targets Initiative (SBTi)?

The SBTi works by helping companies set and achieve science-based targets, which are carbon emission goals aligned with what the latest science recommends to limit global warming below 2 degrees Celsius above pre-industrial levels, in keeping with the Paris Agreement. The SBTi recommends sector-specific emissions reduction targets for certain industries, such as oil and gas, transportation, and information and communication technology. Companies may submit target goals to the SBTi for assistance with the scientific validation of objectives and tracking of progress. Progress is tracked and publicly disclosed on an annual basis.

The SBTi follows the Greenhouse Gas (GHG) Protocol, the main global standard for measuring carbon emissions, in dividing greenhouse gas emissions targets into three scopes:

Scope 1 consists of direct emissions from sources directly owned by companies, such as boilers, furnaces, and vehicles

What Is the Science Based Targets Initiative (SBTi)?

What is SBTI, how does it work, and how does it impact your company? This quick start guide will walk you through basic FAQs about the Science-Based Targets Initiative and what it means for your business.

Overview

MODULES

INDUSTRY EXAMPLES

Knowledge & Insights.

Expertise to drive
sustainable transformation

The Best Carbon Reduction Approach for Industrial Enterprises

Does every board need a Chief Sustainability Officer?

Carbon Border Adjustment Mechanism (CBAM): A Quick Guide

Understanding Scope 3.1 Emissions: A Quick Guide

Corporate Sustainability Reporting Directive (CSRD): A Quick Guide

Streamlined Energy and Carbon Reporting (SECR): A Quick Guide

SEC Climate Disclosure: A Quick Guide

Carbon Border Adjustment Mechanism (CBAM): A Quick Guide

What Is the Science Based Targets Initiative (SBTi)?

Spend Matters recognizes carbmee as a 2022 “Future 5” start-up

The Best Carbon Reduction Approach for Industrial Enterprises

GHG Protocol: What Are Scope 1, 2, & 3 Emissions?

Knowledge & Insights.

Expertise to drive sustainable transformation

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