2022 saw a range of climate disasters and extreme weather events around the globe, a number of international climate and biodiversity summits, and fresh alarming reports of global temperature rise heading towards 2.5°C before the end of this century. The past year has also offered hopeful news in terms of agreements and treaties to protect the environment and reduce pollution, alongside achieving a significant acceleration in renewable energy production.
World’s First Carbon Tariff
In December, EU negotiations led to an agreement introducing climate trade tariffs on carbon intensive goods entering its market – the Carbon Border Adjustment Mechanism (CBAM). CBAM will be a completely new form of trade tariff, serving to protect European companies obliged to comply with increasingly strict climate laws within the EU. A carbon tax, mirroring the EU’s own domestic carbon price, will be imposed on carbon intensive goods produced outside of the EU.
The mechanism will initially apply to imports of iron and steel, cement, aluminium, fertilisers, electricity and hydrogen, as well as indirect emissions under certain conditions, and some downstream products. Unless a company importing these goods into the EU can prove the carbon emissions embedded in these goods have been accounted for in the country of production, they are obliged to buy certificates to cover the emissions. Companies have to purchase CBAM certificates and then surrender the required amount to cover the corresponding emissions each year. There are no limits on the number of CBAM certificates an importer may purchase so as to avoid imposing restrictions on trade.
The tariff will be effective from 1 October 2023, for an initial reporting test period before the full taxation is launched. The mechanism will in turn replace the EU Emissions Trading Scheme (EU-ETS).
Historic Deal to Protect Nature
Representatives from more than 200 countries gathered in Montréal, Canada, in December for the UN Biodiversity Conference, COP15, where the historic Kunming-Montreal Global Biodiversity Framework was signed. Under the framework, nations agreed to protect one third of the planet for nature by 2030, while recognizing indigenous and traditional territories to enable effective protection, restoration and investment in important natural environments. Global targets to achieve the 30x30 target include:
- Restoring 30% of degraded ecosystems globally, on land and sea
- Conserving and managing 30% of terrestrial, inland water, and coastal and marine areas
- Reducing risk from pesticides, and nutrients lost to the environment by at least 50%
- Eliminating extinction of known species
- Reducing global footprint of consumption
At the 2024 UN Biodiversity Conference, all nations must present updated National Biodiversity Strategies and Action Plans as well as National Biodiversity Finance Strategies, and their aggregated impact will be evaluated against the global targets of the Biodiversity Framework.
Updated EU Rules for GHG Emission Cuts
The EU settled on an increase in Member States’ binding annual GHG emission reduction targets in November, from 29% to 40% by 2030 compared to 2005 levels, for sectors not covered by the EU-ETS, i.e. road and domestic maritime transport, buildings, agriculture, waste and small industries.
Earlier this year, the EU Parliament and the Council of Ministers agreed on new legislation to phase-out the sale of new fossil fuel-powered cars. As of 2035, no new combustion engine vehicles may be sold. These two agreements are part of the ‘Fit for 55’ package to deliver the EU Green Deal, aiming to cut GHG emission by at least 55% by 2030 and reach a carbon neutral EU by 2050.
United States Inflation Reduction Act
The Inflation Reduction Act, signed into law in August, will channel nearly US$370 billion over the next decade into energy transition and clean energy programs, with the target to cut emissions by 40%. The climate and tax deal focuses on boosting electric vehicle sales and renewable energy production, development of alternative energy sources, as well as investments in burdened communities.
Electric vehicle incentives
Target to reach 50% electric vehicle sales by 2030, through federal tax credits effective as of January 2032. Funding for zero-emissions school buses, heavy-duty trucks and public transit buses.
Methane gas emissions penalty
The first fee on any GHG emissions in the US will apply to energy producers exceeding a certain level of methane gas emissions, and will come into effect in 2024.
Funding to enhance clean energy manufacturing includes production tax credits to boost domestic manufacturing of solar panels and wind turbines etc., investment tax credits to manufacturers of electric vehicles and clean energy technology, and hydrogen production tax credits.
Investment in pollution-burdened communities
Investments to address the unequal effects of pollution and climate change on low-income communities, and grants for zero-emissions technology and community-led initiatives.
Agriculture emissions reduction
The deal includes funding for programs to cut emissions from the agriculture sector, with the aim of a 50% decrease by 2030.
Plastic Pollution Treaty
Representatives from UN Member States sanctioned a historic resolution at the UN Environment Assembly (UNEA-5) in Nairobi in March to end plastic pollution and establish an international legally binding agreement by 2024. The resolution presents the development of a treaty that allows for global requirements throughout the full lifecycle of plastic, including its production, design and disposal, the design of reusable and recyclable products and materials, and the necessity of international collaboration.
Other Key Sustainability Success Stories
An exceptional increase in renewable energy technology and production has been seen this past year. According to the IEA, 90% of new electricity production in the coming years is expected to be from renewable sources, and funding for solar and wind power in the coming five years is estimated to equal the funding of the past two decades.
- Installed solar power has increased by almost 50% in Europe in 2022, with new installations resulting in a record-breaking 41.4 GW. Germany was the number one installer, adding more than 7 GW during the year.
- November’s COP27 focused on adaptation and fair climate financing.
More: Energy Market Commentary, COP27, Energy Regulation, European Union Emissions Trading Scheme (EU ETS), Fit for 55 Package, Greenhouse Gas (GHG)
- COP15 | Convention on Biological Diversity
- EU reaches agreement on national emission reductions
- Inflation Reduction Act of 2022
- Nations commit to develop a legally binding plastic pollution agreement