Carbon tax

Additional costs for your company or a starting point for company transformation? 

On October 1, 2023, the introductory phase of the long-discussed carbon tax regulation came into force. It is intended to supplement the European Union's emissions trading system (also the "ETS system") to fight for the reduction of greenhouse gas (GHG) emissions and to achieve the ambitious "Fit for 55" goal. Although companies are not yet required to pay in the first phase, failure to report can result in fines right from the start. Are you prepared for the new regulation, and how can you leverage it beyond pure reporting?

In Deloitte, we believe that each challenge can become an opportunity and the carbon tax, or CBAM (Carbon Border Adjustment Mechanism) is one such case. The new regulation coming into the transitional period is changing a lot. The European Green Deal has set a clear path to achieving the EU's ambitious goal of reducing greenhouse gas emissions by 55% compared to 1990 levels by 2030 and becoming climate neutral by 2050, and by setting up this regulation, the carbon tax will play a key role. 

So what does it mean practically? First of all, this is one of the first regulations connected to ESG efforts that could have quite interesting consequences on the company’s financials. And failing to report can have some undesired consequences. 

Assessing your sustainable supply chain journey

The way it could be also looked at, however, is to see this as an opportunity to setup the data sets that need to be collected for the reporting. This may lead you to some further questions on your sustainable supply chain journey:


Take the above sheet as a little self-assessment. Are you confident to answer all of the questions in each step of the journey with a yes? Congratulations, you are likely a leader in sustainability practices with data-driven and effective approach of running your company. 

If not, you may try to assess where your company stands at the moment. We believe that asking yourself these questions is crucial in navigating the challenges in your supply chain, and gradually improving your business. Being compliant may be the starting point, but definitely not the ending one. Once entering this journey, the final stage then may be easier than you think. 

Understanding CBAM and ETS

If you, however, feeling already lost in the first stage, lets start with that and examine the details of the carbon tax, or CBAM (Carbon Border Adjustment Mechanism) to give you some pointers for the start. For the understanding of CBAM, it is also important to have some knowledge about the ETS system.

The company falls under the ETS system are defined by a set of rules – e.g. by the total input heat output larger than 20 MW. The companies then receive free quotas (EUA), which give them the right to emit 1 ton of CO2 equivalent per unit. If the emissions generated during the operation of the given company are not covered by the quota received free of charge, you must purchase the difference. On the other hand, if a company’s activities result in lower emissions than he would be entitled to, the difference can be sold. Quotas are sold and bought via a stock exchange (e.g. Leipzig Stock Exchange), OTC markets or in the framework of bilateral agreements. The EUA unit is considered a commodity product and its trading is mostly subject to the same rules as other similar products.

Since the scope of the ETS system only covers activities carried out within the European Union, the production of CO2-intensive products (e.g. cement, aluminum) is significantly more expensive within the Union than outside it. For this reason, EU market participants may be at a competitive disadvantage compared to third-country producers who are not subject to a similar environmental protection measure. 

However, the European Union created the CBAM to replace the competitive disadvantage in the next 10 years with the gradual introduction of the carbon tax to both EU and non-EU companies and thus within the Union strengthen the incentive effect of the carbon price. In light of this, the companies and all their suppliers will be sooner or later touched by this regulation. Moreover, the scope of products that will fall under this regulation is likely to increase, therefore hitting higher number of companies in total. 

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