Carbon leakage
Carbon leakage describes a scenario in which companies may relocate production to countries that have less stringent emissions regulations due to climate policy costs, which can potentially result in an increase in overall emissions. This issue is particularly relevant in energy-intensive sectors, where the risk of carbon leakage is more pronounced.
Carbon Leakage is one of the greatest challenges in the global fight against climate change. It occurs when strict climate protection measures in one region raise production costs, prompting companies to relocate their production to countries with more lenient environmental regulations. This shift offsets, or even surpasses, the initial emission reduction in the regulated region, as production increases in countries with less sustainable practices.
An example of this is energy-intensive industries, such as steel or chemical production, which, due to strict emissions regulations in the EU or the US, may move operations to countries like China or India, where regulations are less stringent. This leads to what is known as "carbon leakage," meaning global emissions increase rather than decrease, despite reductions in emissions within the regulated countries.
Countries and organizations are working to prevent carbon leakage through various mechanisms, such as the EU's "Carbon Border Adjustment Mechanism" (CBAM). This mechanism aims to ensure fair competition between companies across countries by imposing a CO₂ tax on imports from nations with lower climate protection standards.
Industrial companies, particularly in sectors like steel, mechanical engineering, and chemicals, that import or export large amounts of CO₂-intensive products, are directly impacted by CBAM. For these companies, it is essential to record their CO₂ emissions transparently and accurately to avoid additional costs and meet CBAM requirements. Tanso assists these companies in accurately measuring and reporting their emissions along the entire supply chain, especially Scope 3 emissions. By complying with CBAM requirements, companies can not only reduce regulatory risks but also achieve their sustainability goals while securing their international competitiveness.
