The global economic landscape is shifting from an era of globalization towards one of de-globalization, where geopolitics and borders are regaining importance. This is being driven by political factors, with recent European elections indicating a potential move towards more protectionist, inward-looking policies focused on competitiveness rather than free trade agreements.
This de-globalization trend poses challenges for businesses that have benefited from open borders and the free flow of trade, services, capital, and people. Major companies like TSMC are critical of this development as it undermines their global business models.
Dr. Jörg Polster, Director General of the German Institute Taipei, addresses several critical issues impacting future business practices, emphasizing the significance of the Carbon Border Adjustment Mechanism (CBAM). He highlighted CBAM's potential to reshape global business dynamics and the push towards a green transformation and circular economy. However, he notes the headwinds faced by these initiatives due to higher costs exacerbated by rising inflation and interest rates.
CBAM is a pivotal regulation designed to mitigate carbon leakage by imposing a charge on the embedded carbon content of goods imported into the European Union. This charge mirrors the cost imposed on domestic goods under the EU Emissions Trading Scheme (ETS), adjusted for any mandatory carbon prices in the exporting country.
To fully understand CBAM, one must first grasp the EU ETS, launched in 2005 as Europe's first emission trading scheme. The EU ETS incentivizes companies to lower emissions by capping allowable emissions and requiring companies to purchase allowances if they exceed their cap. This scheme, covering around 40% of EU emissions, has gradually tightened, reducing free allowances and pushing companies to decarbonize more aggressively.
Impact on Taiwan
Aymeric de Condé, Head of APAC at Strive by STX, discusses the expansive reach of environmental commodities trading and the impending impact of CBAM on global markets, particularly in Taiwan. Strive by STX facilitates decarbonization for companies through environmental commodities, and handles a diverse portfolio including renewable energy credits, carbon credits, biofuels, and renewable natural gas.
Taiwan faces significant impacts from CBAM, particularly in the iron and steel sectors. While sectors like fertilizers and aluminum see minimal impact, iron and steel exports to Europe are substantial, making compliance with CBAM crucial. Taiwanese exporters must provide accurate carbon emission data to avoid penalties associated with default values higher than actual emissions.
CBAM is not isolated to the EU. The UK, US, Canada, and Australia are developing similar mechanisms, de Condé says. This expansion underscores the necessity for companies to integrate sustainable practices beyond compliance, emphasizing the growing demand for green steel.
The global nature of environmental commodities presents both opportunities and challenges. Strive by STX offers localized renewable energy certificates for companies operating internationally, ensuring access to region-specific solutions without needing a physical presence in each market.
"Challenges in market expansion are more about navigating local specificities in global markets," de Condé notes. "Our ability to access and offer environmental commodities across regions is key to helping companies achieve their decarbonization goals."
As CBAM and similar regulations proliferate, the need for comprehensive decarbonization strategies will only grow, reinforcing the importance of proactive measures and accurate emission reporting for companies worldwide.
