Carbon pricing policies represented by the carbon market and carbon border adjustment mechanism (CBAM), circular economy policies represented by ecological design, life cycle management and utilization, and compliance and reporting policies represented by value chain carbon management and mandatory disclosureThe requirement that Chinese enterprises going overseas should have the ability to quantitatively calculate carbon emissions at the organizational and product levels, build a circular economy system, and build a sustainable value chain has brought compliance challenges to enterprises going overseas.
Nowadays, global climate change is becoming increasingly severe, and the international community and other countries** have generally strengthened their cooperation efforts in climate governance and environmental protection. In this context, Chinese enterprises going overseas are facing increasingly stringent global climate governance requirements. Especially on the issue of greenhouse gas emissions and carbon management, enterprises need to have the following three capabilities to effectively enhance their international competitiveness.
1) Quantify and calculate carbon emissions at the organizational level and product level
2) Carry out product life cycle assessment (LCA) and management, and build a circular economy system
3) Extend carbon management to upstream and downstream to achieve a sustainable value chain
This paper reviews the global climate governance policies represented by the EU Green Deal, and excerpts some policies and regulations that put forward specific compliance requirements for the above three levels of capabilitiesExplain how these climate policies that have been implemented or are planned to be implemented will affect the carbon management of Chinese enterprises going overseas。Specifically,We summarize the compliance supervision and policy landscape affecting overseas enterprises into three aspects:
1) Carbon pricing policy: carbon market and carbon border adjustment mechanism (CBAM).
2) Circular economy policy: ecological design, life cycle management and utilization
3) Compliance and reporting policies: Value chain carbon management and mandatory disclosure
These policy requirements have prompted overseas enterprises to continuously improve their carbon management capabilities at all levels, and in turn, higher carbon management capabilities can help enterprises better cope with different compliance regulatory requirements and changing policy patterns.
One. Carbon Market and CBAM
Carbon pricing, as a policy tool for climate governance, aims to incentivize companies to reduce greenhouse gas emissions by imposing economic costs on carbon emissions. Due to the differences in emission reduction ambitions and carbon pricing policies in various countries around the world, in order to prevent enterprises from transferring carbon emissions to regions with lower carbon pricing, resulting in "carbon leakage", the carbon border adjustment mechanism with "carbon tariff" as the main form of import goods came into being. With the introduction of the carbon border adjustment mechanism in developed countries such as the European Union, Chinese enterprises going overseas will face a new global pattern with carbon management and carbon data disclosure as the core.
An update on carbon pricing mechanisms
Climate change is a major challenge in the process of human development. Since industrialization, greenhouse gas emissions caused by human activities have increased dramatically, triggering the climate risk of global warming and posing a serious threat to the sustainable development of human society. In order to reduce global climate risks and control greenhouse gas emissions, countries and relevant organizations around the world have taken action, forming a series of legally binding emission reduction documents such as the United Nations Framework Convention on Climate Change, the Kyoto Protocol and the Paris Agreement.
National strategic guidance
In September 2020, China announced at the 75th session of the United Nations General Assembly the "dual carbon" strategy, that is, China's carbon dioxide emissions will strive to peak before 2030 and strive to achieve carbon neutrality before 2060. In order to promote the realization of the goals of carbon peak and carbon neutrality, in October 2021, China proposed to release implementation plans for carbon peak in key areas and industries and a series of supporting and safeguard measuresBuild a "1+N" policy system for carbon peak and carbon neutrality。The successive proposals of the "dual carbon" strategic goal and the "1+N" policy system will help accelerate the low-carbon development of China's real economyIt will elevate China's green development path to a new height and play an important role and impact in the global climate change action.
Local pilot carbon markets and national unified carbon markets
On July 16, 2021, China officially launched its National Emissions Trading Market (CNS), making it the world's largest carbon market covering greenhouse gas emissions。In the next few years, the national carbon market will gradually include high-carbon emission industries such as petrochemicals, chemicals, building materials, steel, non-ferrous metals, papermaking and civil aviation, so as to actively respond to climate change and achieve the goal of carbon peak and carbon neutrality.
Local financial incentives
At the local level, all parts of the country have actively responded to national policies, successively released provincial dual-carbon implementation plans, guided enterprises to implement targeted energy-saving and carbon-reduction measures, and promoted the green and low-carbon development of key industries and enterprises in the region. The regional dual carbon action includes a series of incentives and subsidy policies around carbon emission reduction, which has played a positive role in promoting the energy transformation of enterprises and accelerating the effective implementation of the national dual carbon strategy.
The world's largest new pattern
As a frontrunner in climate change, the EU has set ambitious emission reduction targets, aiming to reduce net greenhouse gas emissions by more than 55% by 2030 compared to 1990 levels, and become the first climate-neutral region by 2050. To achieve this goal, the EU has proposed it under the EU GreendealThe "fit for 55" package, as a concrete path to the goals, aims to ensure that EU policies are in line with the climate targets agreed upon by the Council of the European Union and the European Parliament。Among the proposals in this series, the non-EU countries and regions have the greatest impactEuropean Union Carbon Border Adjustment Mechanism (EU CBAM).。The EU CBAM plans to impose a "carbon tariff" on goods imported into the EU in the form of quotas, so as to prevent companies from transferring high-carbon emission production to countries and regions outside the EU, prevent carbon leakage, and reduce the import of carbon-intensive products to avoid undermining the integrity and effectiveness of their own climate policies.
In the first phase, the transition period, EU importers are not required to pay "carbon tariffs", but are required to fulfill the carbon emission declaration obligations of imported goods.
In the second phase, from 1 January 2026, EU importers will be required to purchase and pay a corresponding number of carbon certificates based on the carbon emissions of their imported products. The EU CBAM uses an electronic voucher system, with each certificate corresponding to one tonne of carbon emissions embedded, and the certificate is linked to the carbon emission allowance (euro tons of carbon dioxide) under the EU ETS, which is the weekly average of the EU ETS public auction platform.
It should be noted that the EU CBAM recognizes the explicit carbon price of the importing country, including carbon tax and compliant carbon market trading, and the carbon cost paid in the country of origin can be offset by the carbon emission certificate to be paid.
In 2022, the total value of China's exports to the EU reached 120 billion yuanThe implementation of EUCBAM will bring great challenges to Chinese enterprises going overseas.
1.At present, China's industry is characterized by high carbon production, and the EU CBAM will inevitably increase the overall cost of Chinese exports to the EUWeakeningChinese high-carbon products in the EUCompetitiveness in the market
2.For companies that have not yet established a mature greenhouse gas management system, they may face it in the futureFinancial & Operational Implications
3.With the gradual expansion of the EU CBAM, once the EU market share shrinks and exports are blocked, it will face it in the futureOvercapacityand so on.
With the imminent implementation of CBAM, companies may face the burden of huge cost increases, or even be forced to withdraw from the European market on a large scale. For businesses, the following should be done to avoid the potential risks posed by CBAM:
Use the carbon emissions report as a standard to assess the availability of carbon emission data for goods exported to the EU, especially for companies that are not included in the domestic emissions trading market but are covered by the CBAM.
Evaluate the additional costs that CBAM will entail to the business. Within the scope of application of the mechanism, especially enterprises that have a large number of ** dealings with the EU, if they cannot adjust their business strategies in a timely manner according to the new trends of EU policies, they may need to bear greater upward pressure on costs.
Adjust corporate policies as soon as possible according to the rising costs brought about by CBAM, explore new overseas markets, deepen cooperation with Belt and Road countries, and effectively control costs.
With this as the driving force, we will force ourselves to improve, introduce or develop low-carbon production technologies, eliminate outdated production equipment, and adopt more advanced and environmentally friendly processes, so that the products exported to the EU will have sufficient competitiveness.
In addition, the relevant departments should also take the initiative to actively play a role in assisting and guiding.
Two. Establishment and development of a circular economy system
In the traditional linear economic model, the production, use and disposal of products are separate stages, resulting in waste of resources and environmental burden. On the contrary,The circular economy emphasizes maximizing the reuse and recycling of resources, reducing resource consumption and waste generation through design, production, use and remanufacturing。As the international community gradually transitions from a linear economy to a circular economy, the European Union, Japan and other countries and regions have successively introduced policies and systems related to the circular economy system and mandatory disclosure requirements related to product carbon footprints. Under the circular economy system, overseas enterprises urgently need to pay attention to the whole life cycle management of products, focusing on starting from the design, considering the environmental and social impact of the product in the whole life cycle, realizing the efficient use of resources, reducing carbon emissions and waste, so as to meet the access standards of different countries and regions.
EU Circular Economy Action Plan
On March 11, 2020, the European Commission published its new Circular Economy Action Plan (CEAP), proposing for the first time a comprehensive product policy frameworkAdvocate for the implementation of measures throughout the product life cycle to accelerate the transition and address the challenges of energy-intensive industries. The concept of circular economy runs through the whole life cycle of product design, production, consumption, maintenance, treatment, and secondary energy resource utilization, and carries out sustainable management of products. Reduce energy resource consumption and "carbon footprint", increase the use of recyclable materials, and lead the development of the global circular economy.
New EU battery regulation
In June 2023, the European Parliament adopted the New EU Battery RegulationThe regulation requires all batteries entering the EU market, including those produced in the EU, to comply with the new battery regulations, and companies will have to provide a carbon footprint (PCF) declaration and label for electric vehicle (EV) batteries, light vehicle (LMT) batteries and rechargeable industrial batteries with a capacity of more than 2 kWh. The EU's new battery regulation is the first step of the EU's circular economy action plan, and is its most representative and systematic industry regulation, reflecting the EU's approach and trend to circular economy management.
The legislative system, represented by the circular economy system of the European Union and Japan, has put forward more stringent requirements for product life cycle management, carbon footprint disclosure, and carbon traceability. For Chinese enterprises going overseasIn order to better cope with the carbon barriers in international import and export, it is necessary to start from the accounting and management of carbon footprint, conduct a comprehensive product life cycle assessment, and establish a scientific and effective monitoring, reporting and verification (MRV) system to ensure that overseas products meet the requirements of carbon footprint limits and the use rate of recycled materials in overseas markets. At the same time, based on the results of carbon footprint accounting, overseas enterprises can formulate corresponding carbon emission reduction plans to provide quantitative support for their further carbon emission reduction work.
EU Ecodesign Regulation for Sustainable Products
In March 2022, the European Commission adopted a proposal for the Ecodesign Regulation for Sustainable Products (ESPR). The ESPR extends the scope of the Ecodesign Directive from energy-related products to all products except food, feed and pharmaceuticals. The regulation consists mainly of three measures: the implementation of eco-design requirements for products intended for placement on the EU market, digital product passport requirements and transparency requirements on the destruction of unsold goods. Among them, the Digital Product Passport (DPP) is a key regulatory element of ESPR, which promotes the digital transformation and green transformation of Europe by strengthening the traceability of products and their ingredients. DPP digitally collects and records product data throughout the product lifecycle, so that information can be shared and traced between the chain, the regulator and the consumer. DPP will provide information about the product**, ingredients, repair and disassembly options, and how** the various components. The ESRP specifies what is covered, general requirements, technical design, and operational requirements for the DPP.
Three. Focus on mandatory value chain management and disclosure requirements with a focus on carbon management
As investors, consumers and stakeholders pay more attention to the sustainability performance of enterprises, sustainability information disclosure is gradually changing from voluntary to mandatory. For example, the EU Corporate Sustainability Reporting Directive (CSRD) and the EU Sustainability Due Diligence Directive (CSDD) have transformed sustainability information disclosure, especially carbon emissions-related indicators, into mandatory compliance requirements from the legal level, and expanded the scope of information disclosure from the enterprises themselves to the upstream and downstream of the ** chain. These compliance requirements promote:While improving their own carbon management system, overseas enterprises also need to consider carbon emissions and other environmental impacts in the first chainEnterprises should further optimize the carbon footprint of the first chain through value chain carbon management, improve the quality of carbon data, and achieve more sustainable operations.
EU Corporate Sustainability Reporting Directive
In November 2022, the European Parliament and the Council of the European Union formally approved the Corporate Sustainability Reporting Directive (CSRD), and in December issued a formal text of the directive (Directive (EU) 2022 2464). CSRD will begin to be phased in from 1 January 2024, and accordingly, businesses will begin to implement CSRD in phases as early as 1 January 2024Starting in 2025Fulfillment of reporting obligations. In July 2023, the European Commission approved the first oneESRSS Enabling ActAs a supporting standard of CSRD, ESRSS sets out specific specifications for the disclosure of sustainable information by enterprises.
According to the ESRSS Enabling Act, companies are required to target hundreds of quantitative or qualitative ESG indicators in different areasMake detailed disclosures as required。The information required to be disclosed by enterprises includes environmental, social, governance and other topics, among which a large number of specific indicators highly related to carbon emission management are covered under the disclosure standards such as climate change mitigation and adaptation, resource use and circular economy, enterprise internal control and risk management system, business relationship and chain management. The ESRSS also requires companies to conduct a materiality assessment in terms of both "financial" and "impact", proposing a dual materiality principle for companies in scope. In addition,In order to prevent the occurrence of "greenwashing" behavior, CSRD formally introduced an independent assurance mechanism, requiring the audit of the information disclosed in the report to verify the reliability of the data and the standardization of data processing procedures.
It can be seen that for enterprises in China, both enterprises within the scope of application of CSRD and upstream enterprises as a link in the chain, they need to comply with the information disclosure requirements and due diligence and compliance requirements related to CSRD that will come into effect. CSRD proposes a wider scope of disclosure information, more detailed requirements for the content of disclosure information, and stricter requirements for the quality of disclosure information for corporate sustainable development, especially the disclosure of carbon emission information, which may become an important driving force for enterprises going overseas to strengthen carbon management.
EU Sustainability Due Diligence Directive
The European Commission published in February 2022 a proposal for the Corporate Sustainability Due Diligence Directive (CSDDDD) as a strong complement to the CSRD to address environmental and human rights impacts in global value chains, which is considered a "watershed moment for the environment and human rights", requiring companies to meet due diligence obligations in their business practices.
CSDDD extends the scope of due diligence to the entire life cycle of a company's production, use, disposal of products and services, covering the value chain and its upstream and downstream, within which companies are obligated to undertake sustainable due diligence to identify, eliminate, prevent, and mitigate the negative impacts on the environment and human rights of the company, its subsidiaries and other entities with which the company has established a business relationship.
For the enterprises in the coverage area and their upstream and downstream enterprises, the CSDDD will greatly improve the sustainability compliance management requirements of enterprises, as information disclosure, especially carbon emissions-related data, needs to be based on traceable and verified quantitative data. For Chinese overseas enterprises, even if their scale does not meet the requirements of CSDDD, they may become the subject of due diligence as an entity in the value chain of the subject of due diligence obligations. As a result, the compliance requirements for sustainable development due diligence will become a "threshold" that Chinese companies must cross to enter the EU market.
To sum up, compliance requirements such as CSRD and CSDDD are all aimed at the global ** chain, focusing on the mandatory disclosure of carbon emission information, and Chinese enterprises going overseas will be affected to varying degrees. Enterprises going overseas need to disclose multiple information in multiple dimensions, including environment and sustainability, biodiversity, and chain compliance, etc., and the reported information must be verifiable and traceable.
The international market within the EU has an important economic position, whether it is an overseas enterprise with an economic entity in the EU, or a domestic enterprise with an upstream and downstream relationship with the enterprise in the EU, they should attach great importance to the signal of the compliance requirements of the **chain released by the relevant EU regulators through CSRD and CSDDD, because these enterprises will be directly or indirectly regulated by the above compliance requirements in the near future。In the face of increasingly strong regulatory compliance requirements for the first chain, Chinese enterprises, especially those going overseas, must set clear, detailed and whole-process carbon management goals according to the relevant requirements, take the first chain carbon management as an important part of the company's strategic development plan, implement and improve the carbon data information database, continuously improve the level of carbon management of the first chain, and maintain strong comprehensive competitiveness in the environment of strict carbon management regulatory compliance requirements.
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