The Carbon Border Adjustment Mechanism (CBAM)
11 min
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In this article we’ll explore what the CBAM is, why it’s been created, and what importers need to know ahead of its introduction.
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Why Companies Pretending to Be Carbon Neutral Cause Harm
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As the effects of climate change become increasingly evident, people around the world are looking for ways to cut down on their own environmental footprint. This is something that’s being reflected in purchasing patterns, as more and more consumers opt for products that claim to be carbon neutral. Unfortunately, some companies are seizing on this opportunity and are using such claims to mislead consumers into buying their products or services.
👉 In this article we’ll explore why companies are using claims such as carbon neutral to boost their profits, and how this is not only harming the environment but also their business.
What does it mean to be carbon neutral ?
“ Companies, products and services become carbon neutral when they calculate their total carbon emissions and compensate for any unavoidable emissions they’ve released via carbon offsetting projects. It requires that their carbon dioxide output has a net neutral impact on the environment - ie. that the same amount of CO2 released into the atmosphere is removed, leaving a zero carbon balance. ”
It’s important to note that the term doesn’t mean that the company or product is carbon free. Carbon free products or services are those that don’t produce any carbon emissions during their lifecycle (ie. from manufacture to disposal), whereas carbon neutral allows for carbon emissions, it simply requires that they are then offset in order to reach carbon neutrality.
How does it differ from other environmental claims?
Before we drill into the details on why false claims of being carbon neutral are harmful, it’s useful to make a couple of distinctions when it comes to other environmental terms that are commonly confused with this.
Nowadays there are a slew of different terms that companies use when trying to promote their goods or services: carbon negative, zero carbon, net zero… the list goes on. But what do these terms actually mean and how do they differ from carbon neutrality?
Carbon negative: a carbon negative company removes more carbon from the atmosphere than it releases. It requires that a company goes beyond carbon neutrality and adopts a more aggressive approach. A carbon negative status can be achieved via a number of methods such as carbon sequestration and carbon offsetting through third parties, and also by engaging in activities that directly reduce carbon dioxide emissions.
Zero carbon: Zero carbon is a term that is most often applied to buildings and transport methods that are carbon neutral. Like the term carbon neutral, it requires that any unavoidable carbon emissions are offset.
Net zero: Net zero is similar to carbon neutral but goes one step further. For a company to be able to claim that it is net zero it must go beyond carbon emissions and ensure that the net effect of all its greenhouse gas emissions (eg. methane, nitrous oxide and other hydrofluorocarbons) is zero. This will usually require some form of carbon offsetting to counteract any unavoidable emissions.
Why do companies claim to be carbon neutral?
Now more than ever consumers, investors and employees want to do their part for the environment. In fact they’re actively looking to engage with companies who also hold these values. Research shows that consumers are willing to not only pay more for products that don’t harm the environment, but that they’re prepared to stop buying from their favorite brands altogether where they refuse to measure and reduce their carbon footprint.
It’s therefore unsurprising that companies across the board are taking action to become more environmentally conscious. However, just because a company claims to be carbon neutral, that doesn’t automatically mean it’s true.
Keen to profit from the ‘eco-trend’, companies are exaggerating their climate action to attract more customers and make more money. This means that they’re advertising claims of carbon neutrality to push their product or service.
Greenwashing
The problem with carbon neutral claims is that they can be difficult to substantiate and verify. The claim can vary hugely between companies and the average consumer isn’t able to easily differentiate or verify whether or not the claim is true. Carbon neutral claims and labels almost never outline how the carbon footprint was calculated, which emissions were included and which were excluded, what reduction measures were implemented, and what carbon offsets were purchased. This information is really important if we’re to be able to assess the validity of any carbon neutral claims because there can be huge differences in a company’s definition of what it means to be carbon neutral.
When companies deliberately mislead consumers like this through a lack of information, using loopholes, omitting data, or by just outright lying, this is what's known as greenwashing.
The main harm that comes from practices of greenwashing is that it can manipulate and mislead people into acting unsustainably. If a company claims to be carbon neutral and you base your purchasing decision on this claim, but it turns out to be false, you’ve not only been duped into buying a product you wouldn’t otherwise have purchased, but you’re contributing to the harm of the environment.
False claims harm companies too
It’s not just consumers and the environment that are harmed by misleading environmental claims, it’s the actual company too.
Greenwashing and false environmental claims can seriously damage a company’s reputation and brand identity, which can ultimately lead to a drop in sales and profits. Consumers and clients are a lot more switched on than they used to be, and they’ll express their dissatisfaction with their wallets.
Regulation of carbon neutral claims
Thankfully, false, misleading, and unsubstantiated environmental claims are increasingly being prohibited under laws that govern consumer protection and advertising. Companies that are found to deliberately use claims that are false, exaggerated or vague may find themselves facing severe legal consequences.
In the UK for example, consumers are protected from misleading environmental claims under the Competition and Markets Authority Green Claims Code and the Advertising Standards Authority rules. Since the implementation of the code, the ASA has taken action against companies where it has found that they’re making unsubstantiated environmental claims.
In the US, environmental claims are regulated by the Federal Trade Commission. Section 5 of the FTC Act prohibits unfair or deceptive acts or practices, which means that unsubstantiated environmental claims in advertisements and product packaging may be found to be in breach of the law, and can even result in substantial financial penalties.
Genuine commitments?
Not all companies are being deliberately misleading. We’ve seen a real shift in recent years from companies towards genuine commitments to achieving carbon neutrality. The issue lies in the fact that there is no singular standard guideline for achieving carbon neutral emissions, and in many countries companies can essentially create their own definitions.
Another issue is that the very core of the carbon neutrality claim is in some ways misleading. Many consumers take this to mean that the company or product does not produce any carbon emissions. However, this is not the case at all. Carbon emissions are still being produced, what it means is that a company offsets these emissions through carbon offsetting, something that is not without its own criticisms.
What's the issue with carbon offsetting? Unfortunately not all carbon offsetting projects are created equal and there are those that don’t live up to their claims. Critics also point out that it’s actually a distraction from real solutions to climate change (ie. stopping GHG emissions from entering the atmosphere in the first place) and allows companies to continue their harmful behaviour under the guise of ‘helping the environment’.
This means that even where a company has all the best intentions in the world when it comes to reducing emissions, consumers still need to take claims of carbon neutrality with a grain of salt and to do their own research to determine how genuine the claims actually are.
How can companies achieve genuine carbon neutrality?
Global warming is the defining challenge of our lifetime, and one that will require the contribution of every government, company, and individual if we’re going to be able to mitigate its worst effects. So how can a company, who genuinely wants to play their part, reduce their carbon footprint and to achieve a state of carbon neutrality?
Step 1: Measure
The first step that a company should take is to accurately measure the total amount of greenhouse gas emissions that it produces. This should include not only direct emissions resulting from day to day operational activities, but should also include a company's entire value chain.
Calculating a company’s carbon emission can be time consuming and complex. Thankfully, a number of companies now exist to do the heavy lifting. Greenly uses carbon accounting techniques to accurately measure your carbon emissions accurately and efficiently.
Step 2: Reduce
Once a company has an accurate picture of its carbon emissions, it will be able to create a strategy to cut back emissions wherever possible. There are numerous ways that companies can reduce their emissions: from switching to a renewable energy plan, to sourcing sustainable materials and resources, to switching to electric vehicles… the list is endless. Why not check out our article for more information and ideas on reducing the carbon footprint of your business.
Step 3: Offset
Inevitably, most companies will find that there are some carbon emissions that they simply cannot avoid. Therefore, in order to reach carbon neutrality they have to offset these emissions. The purchase of carbon offsets or carbon credits is a mechanism that allows companies to compensate for their carbon emissions. Measured in metric tons (tonnes) of carbon dioxide equivalents, for each metric ton emitted carbon credits are used to fund activities to prevent or reduce a tonne from being emitted somewhere else.
When selecting an offsetting project companies need to do their homework in order to verify that the project is one of quality. This means ensuring that the project is certified by an international or national standard and that the emission reductions and removals are independently verified by a qualified third party.
Communicate
Proof of your climate action is not only helpful for letting stakeholders know what's going on but can also encourage other companies to work towards carbon neutrality too.
Carbon neutral certification
Carbon neutral certification is an official label or documentation that proves a company’s carbon neutral status over a full 12 month reporting period. It shows that a company has measured their carbon emissions over a defined period and that they have worked to reduce as much of their carbon footprint as possible, any unavoidable emissions must be negated through the purchase of carbon credits from a verified carbon offset project.
A carbon neutral certification demands that a series of steps be taken, and that claims of carbon reduction and offsetting are accurate and credible. Companies can seek an international or national certification, however, there are also numerous companies offering their own carbon neutrality certifications - though most tend to follow the same national and international standard’s methodologies and requirements.
Beware. Not all carbon neutral certifications require the same thing. Companies should take care to read the details when it comes to the methodology and the standards upon which their certification is based. One of the most important things to consider is the emission boundaries of the calculation (ie. what activities are considered as part of the carbon footprint calculation, and what activities are omitted). Some will only consider direct carbon emissions and omit emissions produced from the companies value chain (ie. emissions that are outside the direct control of the company), this can mean that the majority of their emissions are not even considered as part of the calculation!
Determining whether or not a carbon neutral certification is potentially misleading means that you have to go deep into the details of the certification, and understand the different terminology and meanings. This can be challenging not only for companies, but for consumers too. Which begs the question: how can we expect consumers to make informed decisions on the environmental impact of their purchasing decisions if there is even ambiguity when it comes to the very certifications that are supposed to protect them from misleading claims?
Looking forward
As the world wakes up to climate change and consumers try to play their part by purchasing more environmentally sustainable products, there is an increasing risk that companies will take advantage by pushing misleading claims such as carbon neutral and net zero.
These are relatively new terms when it comes to marketing and so legislatures are currently having to play catch up to regulate environmental marketing and advertising claims. A lot of the issue also stems from the fact that terminology such as carbon neutral is often poorly defined and lacking in global consensus. Thankfully, governments and bodies such as the EU are starting to take action in this area, which means that companies will find it much harder to get away with making unsubstantiated claims.
What about Greenly?
At Greenly we can help you to assess your company’s carbon footprint, and then give you the tools you need to cut down on emissions. Why not request a free demo with one of our experts - no obligation or commitment required.
If reading this article has inspired you to consider your company’s own carbon footprint, Greenly can help. Learn more about Greenly’s carbon management platform here.
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