The carbon tax is coming, how can OEMs avoid risks!

更新於 2023/05/18發佈於 2023/05/18閱讀時間約 20 分鐘

From the manufacturer's perspective, as a joint brand owner, can OEMs levy a carbon tax on new and remanufactured products? In addition, will carbon tax affect the procurement policy of the company's supply chain, and how can we reduce the cost of carbon tax risk?

The implementation of carbon taxes may have an impact on supply chain procurement policies. When facing a carbon tax, companies often consider purchasing raw materials and components with low carbon emissions to reduce carbon emissions in the product life cycle. This could lead to a reassessment and adjustment of the supply chain, looking for more environmentally friendly and low-carbon alternatives or suppliers.

First, we need to understand what a carbon tax is. A carbon tax is a fee levied on greenhouse gas emissions that aims to make emitters bear the cost of the environmental damage caused by carbon emissions and provide an economic incentive to reduce emissions. A carbon tax can be a special public tax (Sonderabgaben), such as an air pollution charge or a specific purpose tax (green impact. cc). Different countries or regions have other carbon tax systems. For example, Singapore, Japan, Canada, the United Kingdom, Sweden, etc., all charge some fees for carbon emissions (green impact. cc, 2023).

Second, we need to understand what is a carbon border tax. The carbon border tax is a special tariff on carbon dioxide emissions imposed on imported high-energy-consuming products. It is mainly levied on carbon-intensive products (high-carbon emission products) among imported products. Products with higher carbon emissions in manufacturing will have to pay a higher carbon border tax. The European Union has announced the Carbon Border Adjustment Mechanism (CBAM), which regulates that high-carbon emission products imported into the European Union must set a fair price for the carbon emitted during the production process to encourage companies in non-EU countries to move towards the clean industrial chain. In addition, the United States, Japan, and South Korea have also considered or proposed related carbon border tax policies (greenpeace.org, 2023) (esg.businesstoday.com.tw, 2023).

Next, we analyze the possibility that the OEM, as a joint brand owner, can impose a carbon tax on new and remanufactured products. There is no clear answer to this question, as different countries may have additional regulations or standards defining what constitutes new and remanufactured products and how their respective carbon emissions are calculated and taxed. In general, OEMs may face higher cost pressures or Competitiveness drops. However, suppose the OEM's new and remanufactured products have lower carbon emissions during the production process or have paid a carbon fee or carbon tax equivalent to or higher than that of the destination trading body at the export location. In that case, the OEM may be exempted or pay less carbon border tax (greenpeace.org, 2023)(e.g., businesstoday.com.tw, 2023).

Finally, we want to analyze whether a carbon tax will affect the procurement policy of the supply chain and how to reduce the cost risk of a carbon tax. Generally speaking, if there are many high-carbon emission production links or sources in the supply chain, the cost and risk of the supply chain may increase when faced with differences in carbon prices between different trading entities. There is also no one-size-fits-all answer to this question, as other supply chains may have different compositions, characteristics, resilience, and adaptability. Therefore, the supply chain may need to adjust procurement policies, such as finding lower carbon emissions or more sustainable raw materials, parts, equipment, services, etc.; improving production efficiency and energy use; transitioning to cleaner or renewable energy sources; reducing logistics, Shipping, and packing, etc. In addition, the supply chain can also manage and report the carbon footprint of itself and its partners by establishing a more transparent and traceable information system; demonstrate social responsibility by participating in voluntary or mandatory emission reduction programs; invest in innovative technologies or Models to create differentiated advantages, etc. (esg.businesstoday.com.tw, 2023) (kpmg.com, 2023).

To reduce the risks posed by carbon taxes, companies can take the following measures:

Improve energy efficiency: Reduce energy consumption and carbon emissions by improving production processes and using more efficient equipment.
Use renewable energy: Switch to renewable energy sources, such as solar or wind power, to reduce dependence on fossil fuels and reduce carbon emissions.
We are optimizing the supply chain: Work with suppliers to promote low-carbon measures, such as reducing transportation emissions or using sustainability.
Support carbon emissions: Establish an effective carbon emissions tracking and reporting system to keep abreast of the company's carbon footprint and formulate corresponding emission reduction strategies.

Taking the above measures into consideration, enterprises can better reduce the risks brought by the carbon tax and promote sustainable supply chain management.

As a joint brand owner, the OEM imposes a carbon tax on new and remanufactured products. How to reduce risks and maintain a competitive advantage in the market:

Carbon tax cost: Imposing a carbon tax will increase production costs for OEMs. The carbon tax rate may be determined based on the carbon emissions of products, so products with high carbon emissions will bear a higher tax burden. This could have an impact on OEM profitability and competitiveness.
Carbon emission management: OEMs will need to pay more attention to product carbon emission management to avoid high carbon tax payments. This could involve using greener production techniques, sourcing low-carbon raw materials, and reducing energy consumption. This will require additional investment and effort to improve production processes and supply chain management.
Supply chain impact: Implementing a carbon tax could lead to changes in supply chains. This may affect supply chain reliability, cost, and sustainability and requires supplier evaluation and selection. As an OEM, you may need to work with your suppliers to ensure they also take steps to reduce emissions and provide carbon-compliant raw materials and components.
Competitive advantage in the market: Once the carbon tax is implemented, OEMs that adopt low-carbon measures may gain a competitive advantage. Consumers are increasingly concerned about environmentally friendly products, while reducing carbon emissions may be seen as an advantage for brand image and market competitiveness.

OEMs can take the abovementioned measures and pay close attention to relevant policy and regulatory changes to reduce the risks brought about by carbon tax. In addition, cooperate with other stakeholders such as the government, industry associations, and environmental protection organizations to jointly promote the carbon emission reduction and sustainable development agenda to reduce the negative impact of a carbon tax on enterprises.

REFERENCE:

1. 2022-12-07, Business Today﹒The future of sustainable investing： https://esg.businesstoday.com.tw/catalog/233997

2. Huang, Zheng-Zhong, 2017, KPMG in Taiwan, Sustainability Perspective: Constructing Enterprise Carbon Asset Management Capabilities, https://kpmg.com/tw/zh/home/insights/2017/12/201712-carbon-asset-manage-ability.html

3. Deng J, Luo X, Hu M. Implications of a Carbon Tax Mechanism in Remanufacturing Outsourcing on Carbon Neutrality. Int J Environ Res Public Health. 2022 May 2;19(9):5520. doi: 10.3390/ijerph19095520. PMID: 35564917; PMCID: PMC9106033.

4. Richstein JC, Neuhoff K. Carbon contracts-for-difference: How to de-risk innovative investments for a low-carbon industry? iScience. 2022 Jul 1;25(8):104700. doi: 10.1016/j.isci.2022.104700. PMID: 35856036; PMCID: PMC9287801.

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