Rising carbon pricing (a.k.a. carbon taxes)
Western countries are busy legislating for net-zero emissions, but the European Union is closing the legislative window even tighter. The region is codifying a net-zero ambition that's set only 14 years away. Germany has gone further with its Supreme Court (in a delightful twist on pay-later policies), putting the current government on the hook to protect future generations by mandating stronger legislation and enforcement around carbon and other environmental-related regulations.
One striking policy proposal from the European Union is a Carbon Border Adjustment Mechanism (CBAM), which explains philosophically how Europe and the US businesses will approach the climate change challenge: carrots and sticks. The stick is the European Union’s tendency to regulate its way through a challenge. Climate change's challenge will require some of the most draconian measures becoming law.
For instance, the CBAM proposes levying a fee on the carbon content of imports, forcing non-European countries that export to the European bloc to reduce emissions on goods and services and use the revenue to support The European Green Deal. Essentially CBAM is a tax on carbon that’s set to increase each year to incentivize companies to accelerate their carbon reduction plans — once fully implemented, it will raise $10 billion per year. In addition, the mechanism protects European enterprises from foreign competitors outside the bloc’s stringent climate targets: the implications for business inside and outside Europe are huge.
Take manufacturing: current calculations put manufacturing as one of the highest sources of greenhouse gasses of any sector worldwide, which means that any legislation such as CBAM will demand fast action to get ahead of emissions generated by product manufacturing. The first step will be to measure the carbon impact and then prepare and transition production processes accordingly. So, processes established and refined through by decades of industrial development must give way to low cost, lean manufacturing and lean carbon production.
Getting ahead of the compliance wave
Some enterprises see sustainability beyond meeting the legislative targets. Taken seriously, it goes beyond the corporate climate pledge to a broader consideration of ESG to guide business strategy, technology investment and operational execution.
The environmental aspect of business strategy is the most challenging to tackle, and one of the most famous examples is IKEA, the Swedish home goods maker whose flat-pack furniture has a massive carbon impact. The company recently disclosed plans to be 100% circular in the next few years; it's getting there by measuring/investigating global waste streams and building collaborations around more than 30 high-priority materials in woods, plastics, papers, metals and textiles, which have the fullest circular capabilities. They know what's coming with an eye on the next generation of customers and the emerging legislative landscape.
Our Green Rush study casts European sustainability goals and investments in technology ahead of their US counterparts. Based on our reading of global industry trends, European companies are about four years ahead of their US counterparts. Moreover, 54% of European companies say that it's an integral part of their overall business planning today, rising to 77% of companies by 2025. Today, over 25% of European businesses rate sustainability as highly important to their operations. European leaders understand where the (renewable) wind is blowing because they can see the legislative signals around them. But, according to our study, beyond the compliance wave, the business drivers in support of sustainability are universal.