Compliance Cross Border Adjustment Mechanisms (CBAMs) are yet another layer of reporting and rules to monitor and keep up to date on. However, they emerged in the UK and the EU to solve an economic problem for businesses: loss of price-competitiveness in the wake of decarbonisation. Historically, the West alone (the European Union and the UK, combined with North America) has been responsible for over half of the greenhouse gases emitted in the atmosphere since 1751, due to having an early industrial revolution that other regions are only now catching up to. To address this high level of responsibility early on, these regions have become climate leaders in tackling a problem they largely contributed to and guide other countries in developing in a low-carbon way. This is why the EU has created the European Trading System (ETS) that caps emissions on the internal market and distributes emission allowances based on that cap – a system that the UK has replicated post-Brexit. The need to address climate change is now recognised by most countries and people across the world. So how do we address it? In principle, the levers a region or country can activate to lower its emissions are straightforward – it’s about replacing high-emission activities with lowemission ones. High emission activities (e.g. generating electricity with coal plants), due to being technologically feasible and cheap, can be shifted either by having their price artificially increased, by being banned or by being voluntarily discarded by economic agents. In parallel, low-emission activities (e.g. generating electricity with solar panels) can be made more accessible and cheaper to compete with their highemission counterparts – some technologies, activities, and processes are seeing tremendous success in that regard (e.g. renewable electricity). This is why Emission Trading Systems exist – they ensure that the cost of high emissions rises over time, in a way (allowance trading) that allows for businesses to distribute these costs between each other through a market mechanism – effectively incentivising decarbonisation when it’s competitive with the carbon price. In parallel, other policies (namely research and development as well as grant funding) help low-carbon alternatives become more accessible, taking care of the other term of the equation. However, this fundamental principle behind an ETS creates a problem for businesses. The global economy of climate change has been in a giant stalemate for decades because tackling climate change generates both benefits in the future (by avoiding what could be the biggest catastrophe ever witnessed by humans) and costs in the short term (by moving away from cheap high-emission activities CBAM: What businesses need to know 52 www.bfpa.co.uk As businesses prepare to comply with the upcoming Carbon Border Adjustment Mechanism (CBAM) requirements in the UK and EU, Guillaume Lane, Engagement & Impact Lead at Climate Action for Associations, outlines the implications and the steps UK-based companies must take to ensure compliance.
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