As global low-carbon transition accelerates, InfoLink Consulting, a leading renewable energy research and consulting firm, has launched the carbon cost assessment, which provides enterprises with tailor-made competitiveness analysis based on latest progress of carbon-related policies in various countries, assisting them in developing carbon strategies in face of risks associated with low-carbon transition.
While Southeast Asia has been the preferred location for many multinational corporations to set up factories due to its cost advantage, there is another important factor that companies must also consider nowadays - carbon cost. It refers to costs incurred by carbon emissions of a company and its products, which is priced through a carbon tax or carbon trading system.
For example, Southeast Asia is home to many garment factories whose products are exported to Europe and the U.S. With the enforcement of the EU Carbon Border Adjustment Mechanism (CBAM) and the U.S. Clean Competition Act (CCA), carbon emissions from exports must be declared and fees paid accordingly.
Carbon costs can affect businesses in three ways. The most immediate and direct impact is a decrease in gross margins, as product costs increase with the imposition of a carbon fee (tax) on emissions from products and the organization itself. Even if companies are not subject to a carbon fee (tax) in the early stages of policy implementation, they may still face the risk of increased costs if companies in their supply chains are required to pay under carbon tax regulations.
Another issue is site selection. The cost of emissions varies significantly across countries and cities due to different energy mixes. For example, if one kilowatt hour of electricity is used, its carbon emissions in Indonesia will be 150 grams more than in Thailand, equivalent to a price difference of US$0.0151 , thus affecting the operation cost and the ability to achieve net zero for businesses when choosing locations for expansion.
The last aspect is carbon reduction pathway planning. While carbon reduction actions are imperative, the schedule may vary for different industries given the urgency and cost of carbon reduction (such as replacement of equipment and raw materials). Therefore, companies need to take actions at the appropriate time to reduce costs and maximize the effect of carbon reduction.
Data-driven cost estimation for efficient carbon reduction planning
Taking Company A, an exporter of nuts to Europe and the U.S., as an example, InfoLink predicts the potential carbon tax2 it may face in the future based on the carbon footprint and annual export volume of its products, while also considering existing mechanisms such as free allowances. The estimated data will be presented in a visualized chart (as shown in Figure 1 below) to make the carbon cost data more comprehensible at a glance.
Infolink also estimates the carbon cost based on various carbon reduction pathways. For instance, as shown in Figure 2 below, if Company A can reduce its carbon footprint by 30% by 2030, it could save US$3 million in carbon costs. With this data, companies can assess the costs of carbon reduction and carbon fees more accurately, enabling them to make the most appropriate choices. Additionally, InfoLink's database can assist companies in identifying the ranking of their products' carbon footprints in Europe and the U.S., allowing them to understand the gap with their competitors (see Figure 3 below).
Figure 1. EU carbon tax forecast for Company A from 2027-2030 (by rates in positive, neutral, and conservative scenarios)
Figure 2. Potential carbon costs for Company A under different carbon reduction progress from 2024 to 2030 (by neutral pricing)
Figure 3. Competitiveness analysis for Company A
Since the development of the carbon market varies greatly from country to country, multinational companies are faced with challenges in terms of the differences in carbon emission factors and accessibility of renewable energy certificates, especially those engaged in export business.
InfoLink’s carbon cost assessment can help businesses understand the specific impact of carbon costs on themselves and gain insight into the regulations concerning green energy and carbon reduction in various countries, allowing them to manage risks and establish future strategies effectively to maintain their competitiveness.
To learn more about InfoLink’s carbon cost assessment service, please visit https://www.infolink-group.com/
1 It is assumed that the products are exported to the EU and are based on its carbon price. This price will fluctuate due to regional differences in carbon pricing.
2 This service is customized according to the needs of companies and uses InfoLink's estimated carbon prices for calculation. The carbon cost values may vary depending on the amount of carbon footprint of the product.