The European Union is well on its way to implementing a series of pivotal environmental regulations that cover everything from water quality to carbon emissions and biodiversity preservation. For businesses operating from within or exporting to the EU market, understanding and preparing for these changes is important to ensure continued compliance.
This post will offer a high-level view of each of these regulations, providing key insights and actionable tips to ensure your business is prepared to meet these new standards.
The European Union's Carbon Border Adjustment Mechanism (CBAM) is designed to prevent carbon leakage by imposing a carbon price on imports of certain goods from outside the EU. This will ensure that ambitious climate efforts within the EU do not simply result in the relocation of carbon-intensive production to countries with less stringent emissions standards. "Carbon leakage" refers to the situation that may occur if, for reasons of costs related to climate policies, businesses were to transfer production to other countries with laxer emission constraints.
CBAM requires importers to purchase carbon certificates or pay a carbon price that is equivalent to the carbon price imposed to EU producers under the Emission Trading System (ETS). . The carbon price is based on the embedded emissions associated with the production of the imported product.
Since the system focuses on preventing "carbon leakage," importers can qualify for deductions by showing proof of having already paid a carbon price in other jurisdictions.
For a deeper dive into compliance strategies and ESG implications, read our blog Understanding the EU’s CBAM: Reporting Requirements, Compliance Strategies, and ESG Impacts.
The mechanism initially targets a specific set of goods known for their carbon-intensive production processes.
These include:
The CBAM is being phased in gradually to allow businesses and trading partners time to adjust. A transitional phase, started on October 1, 2023, involves reporting requirements without financial adjustment. Full implementation is expected by 2026, at which point importers will begin paying for the carbon content of their imports.
For businesses to stay ahead of these changes, it is advised to start developing data gathering processes, assessing the carbon footprint of their supply chains and exploring ways to reduce emissions.
Companies covered by CBAM will initially only be required to report their GHG emissions and will have some flexibility in reporting. Through the close of 2024, there are three options for calculating the embedded emissions:
Starting from January 1, 2025, the reporting process will become more streamlined. At this point, the EU's specific methodology will be the single accepted reporting standard.
Starting from January 1, 2026, the mechanism will enter in full force, requiring companies to purchase and surrender carbon certificates.
EU manufacturers may see a more level playing field as CBAM disincentivizes the import of cheaper, carbon-intensive goods.
All businesses, particularly those exporting carbon-intensive products to the EU market, should focus ensuring that necessary data gathering processes are in place, reducing their carbon emissions, re-evaluating and adjusting their supply chains to meet EU standards, and enhancing transparency in reporting their carbon data.
Adapting to these new requirements is crucial for ensuring continued market access leveraging opportunities within the EU market and avoiding heavy taxation as a result of lacking efforts in the adoption of decarbonization strategies.
“The introduction of CBAM marks a crucial advancement in the global sustainability transition and climate change mitigation efforts. Even if it entails significant administrative and technical challenges, it is vital to establish transparent and robust systems for monitoring, reporting, and verification to effectively address climate mitigation objectives. CBAM will not only encourage domestic production within the EU but also impose measures to reduce emissions by third-country exporters, thereby fostering a more sustainable global economic landscape. I anticipate significant growth for CBAM and welcome the inclusion of a wider range of goods in the future.” Julia Ekander, Sustainability Consultant, DGE Sweden / DGE Group
The Drinking Water Directive (DWD) is aimed at safeguarding public health through enhanced water quality standards. Adopted in December 2020 and fully implemented as of January 2023, this directive sets a new precedent for the access to and quality of water intended for human consumption.
The directive is ambitious, expanding its scope to ensure that all water, whether in its original state or after treatment, intended for drinking, cooking, food preparation, or other domestic uses, meets stringent safety standards.
Here are the key goals of this directive:
Compliance with the DWD demands proactive measures from businesses, especially those involved in water supply and treatment, food industry, and manufacturing of products that come into contact with drinking water.
Here’s what businesses need to consider:
Businesses must also stay informed about the directive's reporting requirements, which include annual updates on water quality and six-yearly updates on risk assessments and measures to improve water access.
The European Union's Biodiversity Strategy for 2030 is an effort to reverse the alarming trends of biodiversity loss and ecosystem degradation. As part of the European Green Deal, this strategy is part of an ongoing global conversation around safeguarding biodiversity. At the same time, it aims to build our societies’ resilience to direct and indirect impacts of climate change (es. forest fires, food insecurity, disease outbreaks).
The strategy sets ambitious targets to safeguard and revitalize the EU's biodiversity by 2030:
While the Biodiversity Strategy does not set out specific compliance mechanisms for businesses in the same way as direct regulation, it sets a clear direction for future policies and legislation that could impact business operations.
Businesses should stay informed about the development and implementation of related laws and guidelines that may arise from the strategy, as these could directly or indirectly impose new compliance and monitoring requirements.
The European Union is taking significant strides toward drastically reducing packaging waste with the new Packaging and Packaging Waste Regulation. This new policy also hopes to enhance recycling rates and promote a shift toward more sustainable packaging solutions.
The regulation will significantly influence the packaging industry:
Companies that package materials outside of the EU will need to comply with the new Packaging Reduction Regulation in order to sell their products within the EU. This regulation applies to all packaging that enters the EU market, regardless of where it is manufactured or packaged.
The aim is to ensure that all products sold within the EU meet the same environmental standards, contributing to the reduction of packaging waste and the promotion of recycling.
Specific deadlines will be set for compliance with different aspects of the regulation, such as reduction targets for packaging waste, requirements for recycled content in packaging, and bans on certain materials and chemicals.
The regulation will also clarify requirements for reusable and refillable packaging, including criteria such as the minimum number of times packaging should be reused. Businesses in sectors like beverages and take-away food will need to adapt to these requirements, likely before the end of the decade.
Businesses should closely monitor the progress of this regulation through official EU channels and prepare for these changes by reviewing and adjusting their packaging strategies accordingly. Early preparation and adaptation can help ensure compliance and minimize disruption to business operations.
Thanks to our Associate author contributors with local expertise on these regulations: Julia Ekander, DGE Sweden / DGE Group; Mattia Colombo, Valentina Vieri, and Paola Camisani HPC Italy
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