By Richie Lin.    Photo : HASAN ZAHRA

Weeks ago, we talked about the influence of CBAM to trigger another round of global supply chain shifts in the future to cope with carbon border tax that the European Union (EU) is planning to implement in 2026. This week we explore more why it will influence global supply chain and how the effected industries and governments can do to reduce impacts.

The CBAM aims to reduce carbon emissions by imposing a tax on imported goods based on their carbon footprint. The tax will be levied on products that are produced in countries with less strict carbon regulations than the EU. The CBAM will initially target five high-carbon industries: cement, electricity, fertilizers, steel, and aluminum. The CBAM will require importers to purchase CBAM certificates to prove that the products they are importing meet the EU’s carbon standards.

The price of the certificates will be based on the average weekly auction price of carbon quotas in the EU Emissions Trading System. The reason why EU initiated the CBAM is related to a word called carbon leakage. Carbon leakage is a phenomenon that occurs when a country’s climate policy reduces emissions, but the emissions increase in another country due to the policy’s spillover effect. Carbon leakage can occur for several reasons, such as when a country’s emissions policy raises local costs, and another country with a more relaxed policy may have a trading advantage. In order to have fair trade and make other countries to reduce global warming together, CBAM was introduced by the

European Union to put a fair price on the carbon emitted during the production of carbon-intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries.

After the initiation of CBAM in 2024, the manufacturers and the buyers in Europe will need to pay much more attention on the carbon emissions during the productions of raw materials and final products. Therefore each country will need to provide clean and renewable energies or the supply chain will need to evaluate if they are worthy of staying because the carbon tax will be levied in the future. When people are talking about the renewable energies, there is a worldwide standard called RE100. RE100 is a global initiative that brings together influential businesses committed to 100% renewable electricity. The initiative aims to accelerate the transition to zero-carbon grids at a global scale.

The RE100 initiative has been adopted by several companies, including Apple, Google, and Microsoft. RE100 considers renewable energy to be electricity generated from geothermal, solar, sustainably sourced biomass (including biogas), hydropower and wind energy sources. And there are also many discussions about whether the nuclear power can be considered the clean and renewable energies or not. The electricity from nuclear power will not cause carbon emissions but the biggest problem is how to store nuclear waste safely.

The CBAM and RE100 initiatives are complementary in their goals to reduce carbon emissions. The CBAM aims to reduce carbon emissions by putting a price on carbon-intensive goods, while RE100 aims to reduce carbon emissions by transitioning to renewable energy sources. In the meantime, global companies will not only consider the costs of labor, lands, distances transportations when they decide the locations of factories.

The ability to provide renewable energies will be a crucial factor for any country in order to attract global supply chains. We might not see any big relocations of supply chain within these few years. But in the future, how to provide renewable energies will take significant part when evaluating the advantages and disadvantages of setting up factories in one country.  

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