Cross-border carbon taxes are on their way. That’s going to force manufacturing companies to think harder about the products they consume.
There are plenty of good reasons for companies to improve the environmental sustainability of their operations. Customers are increasingly demanding action to cut waste and reduce greenhouse gas emissions, for example, and strong sustainability credentials are becoming an ever more important consideration for investors too.
Then there’s the straightforward economic argument. Around the world, governments and industry regulators are taking action to make companies pay more for their carbon footprint. Since 2005, for example the EU Emissions trading system (ETS) has required Europe’s most energy-intensive businesses to purchase allowances for every ton of greenhouse gas they generate.
In the coming years, the scope and reach of carbon pricing is set to expand significantly. Notably, regulators want to ensure that companies don’t avoid emissions restrictions by shifting production or sourcing to regions with less stringent rules. In June 2021, EU lawmakers are set to publish detailed proposals for a “carbon border adjustment mechanism”, likely to come into effect in 2023.
These new rules are expected to require non-EU suppliers of carbon-intensive products, such as chemicals, steel and cement, to buy “carbon credits” for everything they sell to EU customers. The scheme will apply to companies operating under emissions reduction regimes that don’t reach Europe’s standards.
Similar policies are under consideration elsewhere. While some U.S. states, such as California and Oregon, operate their own emissions trading schemes, the country has not imposed carbon pricing at a federal level. President Joe Biden has, however, announced plans for border carbon adjustment fees or quotas to be imposed on energy-intensive goods imported from countries that fail to live up to their commitments under the Paris Climate Agreement.
Closing the gaps
It is too early to say exactly which products will be included in these new cross-border rules, but their intent is very clear. Governments want industries to accelerate the transition away from fossil fuels and, as carbon prices rise over time, they need to close loopholes that could allow emitters to sidestep regulation. For buyers of carbon-intensive products, and that includes both end users and manufacturing companies, this will create ever-stronger incentives to identify more sustainable sources of supply.
That is going to require companies to take a close look at every commodity that comes through the factory gates, and it will be easier in some categories than in others. By value, petroleum-based products account for more than 97 percent of the $60 billion global market for industrial lubricants, for example. In the absence of suitable bio-based alternatives, users will have no choice but to pay higher prices for the carbon embedded in these mission-critical products.
From consumable to precious commodity
Higher prices for industrial oils may be inevitable, but higher costs are not. As the oil in their machines becomes more valuable, users will have more incentive to make it last.
Adopting proven best practices in lubrication management can enable industrial users to dramatically extend the time between oil changes, while simultaneously improving machine reliability and overall process performance.
Those practices include appropriate storage and handling; minimizing exposure to high temperatures, moisture and avoidable
contaminants; and the use of efficient filtration and treatment systems to keep oil as clean as possible in service.
Regular oil analysis helps users to understand the condition of their oil, so they can take action to maximize its service life, and schedule oil changes at the optimum time. Finally, it is now possible to apply advanced regeneration technologies to used oil, stripping away accumulated contaminants and enabling the same oil to be reused again and again.