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Date September 15, 2023
As global low-carbon transition accelerates, InfoLink Consulting has launched the carbon cost assessment, which provides enterprises with tailor-made competitiveness analysis based on latest progress of carbon-related policies in various countries, assisting them in developing carbon strategies in face of risks associated with low-carbon transition.

For enterprises, it has become imperative to pay for carbon emissions. The price per tonne of carbon emissions will be determined by various carbon pricing systems, such as the carbon fee in Taiwan scheduled to be levied in 2024, the EU’s Carbon Border Adjustment Mechanism (CBAM) to be implemented in 2023, namely carbon costs. Therefore, enterprises must understand their emission sources to assess the specific impacts, thereby planning a more realistic carbon reduction path.

Carbon costs can affect businesses in three ways. The most immediate and direct impact is a decrease in gross margins, as product costs increase with the imposition of a carbon fee (tax) on emissions from products and the organization itself. Even if companies are not subject to a carbon fee (tax) in the early stages of policy implementation, they may still face the risk of increased costs if companies in their supply chains are required to pay under carbon tax regulations.

Another issue is site selection. The cost of emissions varies significantly across countries and cities due to different energy mixes. For example, if one kilowatt hour of electricity is used, its carbon emissions in Indonesia will be 150 grams more than in Thailand, equivalent to a price difference of US$0.015[1], thus affecting the operation cost and the ability to achieve net zero for businesses when choosing locations for expansion.

The last aspect is carbon reduction pathway planning. While carbon reduction actions are imperative, the schedule may vary for different industries given the urgency and cost of carbon reduction (such as replacement of equipment and raw materials). Therefore, companies need to take actions at the appropriate time to reduce costs and maximize the effect of carbon reduction.
 

Data-driven cost estimation to identify business competitiveness

Taking Company A, an exporter of nuts to Europe and the U.S., as an example, InfoLink predicts the potential carbon tax[2] it may face in the future based on the carbon footprint and annual export volume of its products, while also considering existing mechanisms such as free allowances. The estimated data will be presented in a visualized chart (as shown in Figure 1 below) to make the carbon cost data more comprehensible at a glance.

Infolink also estimates the carbon cost based on various carbon reduction pathways. For instance, as shown in Figure 2 below, if Company A can reduce its carbon footprint by 30% by 2030, it could save US$3 million in carbon costs. With this data, companies can assess the costs of carbon reduction and carbon fees more accurately, enabling them to make the most appropriate choices. Additionally, InfoLink's database can assist companies in identifying the ranking of their products' carbon footprints in Europe and the U.S., allowing them to understand the gap with their competitors (see Figure 3 below).


Figure 1. EU carbon tax forecast for Company A from 2027-2030
(by rates in positive, neutral, and conservative scenarios)    

EU carbon tax forecast

Figure 2. Potential carbon costs for Company A under different
carbon reduction progress from 2024 to 2030 (by neutral pricing)

Potential carbon costs
 

Figure 3. Competitiveness analysis for Company A

Competitiveness analysis


Many companies have engaged in carbon reduction efforts, some of which have shown promising results. However, these companies may face questions such as "What should be the next steps?" or "How much impact will policy changes have on us?" By utilizing carbon cost assessment, enterprises can understand the specific impact of carbon policies and avoid profit losses, so that they can better manage risks, develop future deployment, and maintain competitiveness.

 
[1] It is assumed that the products are exported to the EU and are based on its carbon price. This price will fluctuate due to regional differences in carbon pricing.
[2] This service is customized according to the needs of companies and uses InfoLink's estimated carbon prices for calculation. The carbon cost values may vary depending on the amount of carbon footprint of the product.


 

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