I gave a lecture at the Tsing Hua Entrepreneur Network (TEN) on the transformation of the semiconductor supply chain under climate change, followed by another speaker, Niven Huang, general manager of KPMG Taiwan. Huang and I are both directors at the Monte Jade Science and Technology Association of Taiwan, but we just had a nodding acquaintance with each other. I came to notice that Huang has a PhD in chemical engineering when we exchanged business cards. This made me very curious and pay serious attention to Huang's lecture.
Huang opened by saying that many of us understand that we'll reach the fatal moment when the additional global warming reaches two degrees Celsius and that it will be a dangerous moment when it reaches 1.5 degrees Celsius. Therefore, to limit warming to 1.5 degrees Celsius is our goal to reduce the greenhouse effect instead of 2 degrees Celsius. We must find ways to decarbonize by 50% via the four main areas of manufacturing, transportation, energy and construction, so that we can achieve net zero goals by 2050.
At the UN Climate Change Conference that just concluded in Glasgow, a well-known industrial city, there was a consensus to reach carbon neutrality by 2050. Between now and then, we must at least conserve energy to reduce carbon emissions. The pressure is mounting as 2025 approaches. KPMG believes 70% of these efforts will come from energy-saving and decarbonized infrastructure, while 30% from industrial collaboration.
When ESG becomes the global theme, the future business community will be more concerned about "non-financial statements." Every decision-maker must understand the concept of "carbon credit." The chance for future accounting firms to deliver non-financial statements is on the rise. The increasing importance of Huang's roles in ESG reflects the reality of our time.
Huang spoke about four types of tradable carbon credits. The "carbon allowance" allows an enterprise to emit certain volume of carbon dioxide depending on its business type. The "avoided emissions" refers to a company's products or services enabling emissions reductions as a result of use. The "carbon removal" is the process of removing carbon dioxide from the atmosphere and locking it away through carbon capture and storage. The "product carbon footprint" refers to the carbon footprint accumulated by the enterprises. Enterprises can secure carbon credits if the accumulated footprints are less than the emission standards. All these require a systematic transformation, and no single plan can accomplish it at one time.
As the earliest developer of the world's first carbon market, Europe has renewed its expansion for the EU Emissions Trading System (ETS). All airlines operating in Europe are required to surrender allowances against the emissions since 2030. The Carbon Border Adjustment Mechanism (CBAM) mandates imports of high energy-consuming items such as steel and aluminum must secure allowances before entering the market. The EU will ban the sale of fossil fuel-powered vehicles from 2035. Construction and fuel supplies for transportation are to be incorporated in the ETS from 2025.
To encourage the use of renewable energy, the proportion of renewable energy adopted will be increased from 32% to 40% by 2030. The energy tax reform will be proposed to impose tax on family heating, sea transportation, air transportation and fishery. Under the European Green Deal, EU commits to plant at least three billion additional trees in the EU to reduce 310 million tons of carbon emission and strengthen the carbon sink mechanism by 2030.
The above are all notes taken while listening to Huang's lecture. It is essential to change people's habits and business models to evolve towards a "net zero society." We will face direct risks, transformation risks, but also usher in new business opportunities simultaneously. For manufacturers, the imminent risk would come from the OEM customers' zero emission requirements. Enterprises which used to comply with specs and pricing requirements to be a member of Apple supply chain need to tackle a lot of new issues now.
(Editor's note: This is part of a series of analysis of Taiwan's role in the global ICT industry.)