Need for carbon prices alignment and rising prominence of ESG targets among 10 key green trade updates

Mon 12 Feb 2024
Posted by: Richard Cree and William Barns-Graham
Green Trade

The inherent tension between climate ambitions and economic realities have been on display recently. The UK Labour Party dropped (or “stood down”) a pledge to invest £28bn a year in the green economy and the EU pulled back some ambitious green plans in the face of widespread protests from farmers.

In the latest IOE&IT Daily Update green trade round up, we explore these and other, more positive, stories.

CBAM alignment needed

 Senior business representatives have told Politico’s Morning Trade bulletin that ministers need to link the UK’s carbon trading regime with the EU’s to ensure upcoming carbon taxes don’t harm UK businesses.

Unless there is alignment, UK exporters of cement, iron, steel aluminium, fertilisers, electricity and hydrogen will need to pay the difference between the UK and EU’s carbon prices from 2026, as a result of the EU’s carbon border adjustment mechanism (CBAM).

The UK is planning to introduce its own CBAM in 2027, but aligning carbon prices before 2026 is a “real priority for business”, Politico heard. Non-alignment would make “British exports less competitive in the EU”. 

Most manufacturers have ESG targets

new report from Make UK, in partnership with Lloyds Bank, has found that a majority of manufacturers (62%) have targets relating to environmental, social and governance (ESG) standards.

This marks a 48% increase since the last iteration of the body’s ‘ESG in UK Manufacturing’ report in 2021, though there was a 5% decrease in the number of firms that have audited their ESG reporting, now at 32%. Approximately three quarters (74%) of respondents now include ESG requirements in their procurement processes.

The report’s findings are based on quantitative and qualitive interviews and surveys with 150 manufacturers of varying sizes. The study’s authors conclude that ESG is rising in prominence in businesses’ agendas, but highlight obstacles relating to a “lack of consistent infrastructure for supply chain reporting” and a “lack of support” for firms with fewer resources or in-house ESG expertise.

Labour’s green love lost 

 Having previously made a hefty £28bn annual programme of green investment the cornerstone of an equally ambitious pledge to make the UK the fastest growing economy in the G7, the Labour Party last week bowed to both political and economic pressure to scale back these plans.

Less than a fifth of the original amount remains in its revised “Green Prosperity Plan”, with annual fresh investment now reduced to £4.7bn.

Having previously promised to be the UK’s “first green chancellor”, shadow chancellor Rachel Reeves is now more focused on being another “iron chancellor”, with the new investment plan (totally some £12bn) conveniently squeezing just inside her now all-important fiscal rules. These rules aim to see total debt dropping by the end of the next parliamentary term.

Supporters point out that the new plan includes all the main priorities and promises made in the previous iteration, apart from a major scaling back of home insulation plans (19 million homes reducing to 5 million).

Conservative critics say that there is still £11bn of borrowing in the new package and point out a willingness to U-turn on flagship policies.

Farmers use pester power to force policy changes

 There have also been significant reversals in climate policies on the other side of the Channel, as ongoing protests by farmers across the continent have forced concessions from the EU on several key aspects of its central ‘Green Deal’ legislation.

Having already delayed new rules around leaving land unused for environmental reasons, it also climbed down on a new set of rules halving the use of pesticides across the EU and made some sector-specific concessions on the reductions of emissions of greenhouse gases including methane and nitrogen.

There were inevitably polarised responses to the announcements, with green MEPs and climate activists decrying the moves, while agricultural representatives were broadly positive, although some remained sceptical and protests are ongoing in some countries.

“Only if we meet our climate and environment goals will farmers be able to make a living,” tweeted European Commission president Ursula von der Leyen. “Farmers are aware of this. We should place more trust in them.”

Warmest year on record

 New research published by the European climate research project Copernicus revealed that 2023 was the warmest year on record and sailed extremely close to 1.5 degrees above pre-industrial levels – the target set by the Paris Agreement as the maximum the earth can sustain.

More worrying was the huge leap in the average sea temperature for 2023 – also a new record high – and the fact that early figures for 2024 suggest things are off to an even worse start this year.

Red Sea crisis not so green

 Recent analysis by shipping data experts Sea Intelligence provides some substance to the obvious claims that having to reroute shipping due to the ongoing Red Sea crisis is having damaging environmental consequences.

As well as considerably upping the cost of a shipment, analysis firm Sea Intelligence claims that rerouting around the Cape of Good Hope and adding an extra 4,000 miles to each journey increases emissions by 260%, as reported in GreenBiz.

But the alternative of sending goods by air is even worse for the climate, with that option pushing emissions up by 354%.   

Green g’day

One of the conundrums at the heart of the energy transition is that many of the critical minerals needed to power new technologies present huge environmental challenges as they are mined and processed.

While battery-powered electric vehicles have fewer tailpipe emissions than fossil fuel alternatives, producing the lithium for their batteries is expensive and relies on using lots of harmful substances.

However, Australian company Novalith claims to have just pioneered a solution that is both lower cost and less environmentally damaging. Environmental innovation website Springwise reports Novalith’s technology reduces process costs by 65% and plant costs by 50%, while water use drops 90%.   

Renewables rising, but not fast enough

A paper from the International Energy Agency (IEA), reported in Global Trade Review, has found that the use of renewables in the fuelling of electricity, transport and heat increased by 50% in 2023 compared to 2022.

However, the rate of growth in the use of renewables does not yet facilitate the target of tripling the output of installed renewables to at least 11,000 gigawatts by 2030 – a pledge made by 130 governments at last year’s COP28 summit.

IEA points out that hydrogen use has been particularly slow due to slugglish investment and high production costs.

“Of all the projects announced worldwide to use renewables to produce hydrogen this decade, only 7% of the proposed capacity is expected to come online by 2030,” the IEA says.

Let’s end on a high

Recent news on the climate has been largely negative, so it’s worth ending on a positive note with a reminder there are still uplifting innovations occurring.

For example, Reuters reported last year that a Kosovan solar farm is using the most sustainable lawn mowers possible.

Swedish alcohol brand Absolut also recently announced that it has partnered with sustainable packaging experts Paboco to start selling its vodka in paper bottles. That’s the spirit.