CO2 Regulation

Trend Definition 

What is the essence of this trend? What is its impact? 

• Essence: CO2 Regulation represents the increasing integration of legal policies aimed at controlling and reducing carbon dioxide emissions through tools such as emission trading systems, carbon taxes, and emission reduction targets
• Impact: CO2 regulations increase prices for carbon-heavy products and reward companies that reduce their carbon footprint which can lead to competitive advantages

Trend Drivers 

Why is this trend emerging now? What’s changing? 

• Global Climate Change Initiatives: The worldwide urgency to become carbon neutral drives regulatory bodies to implement strict CO2 regulations, leading to reduction goals set by initiatives like the Paris Agreement
• Impact of Climate Change: An increased number and worse impacts of natural disasters caused by climate change highlight the importance of measures to tackle the development and increase awareness 

Use Cases 

How to apply this trend? 

• EU Emissions Trading System (ETS): Require companies to buy CO2 certificates
  Example: The EU-ETS allows companies to cause carbon emissions up to the extent they own certificates for. These certificates can be sold and bought on a specific market 
• EU Carbon Border Adjustment Mechanism (CBAM): Pay for emissions in imported goods 
  Example: CBAM will impose higher CO2 charges on goods that contain more carbon emissions, aiming at incentivising cleaner production in supplier countries that benefit the procurement prices of EU-based companies 

Procurement Relevance & Response Strategies 

How should Procurement adapt its Processes, Organisation, and Strategy?

• Carbon Transparency: Constantly track the emissions that suppliers include in their goods to enable a better negotiation position and create transparency regarding their own procurement activities 
• Contractual Emission Targets: Contracts with suppliers may include clauses that specify emission reduction targets and penalties for non-compliance