Next, we have the great privilege
of welcoming Tim Figures, Associate Director
of Global Trade and Investment of Boston Consulting Group.
Tim is right up there.
Hello, Tim.
Well, good morning, everybody.
So Tim is based in London,
so this is getting into the evening time for him.
And he's he's joining us virtually today.
Of course, as a senior expert on geopolitics,
geopolitics and trade impact within BCGs global Advantage practice.
He's also a founding member of BCG, Center
for Climate and Sustainability Policy and Regulation.
Tim brings 25 years of experience at the intersection of public policy,
international geopolitics, business regulation and strategy,
and has sectoral experience in international aviation,
manufacturing, energy, transport and the digital economy.
Tim has been a lead author for several publications in the field
of sustainable trade, most recently, and this is newly minted.
Tim, I think you shared this with me last week.
It is a publication entitled
What Future for Climate and Trade
Scenarios and Strategies for Carbon Competitiveness.
It's published in collaboration with the World Economic Forum.
Importantly for
all of us here to know, Tim also served for more than a decade in the UK
government, including a stint as the ministerial advisor on EU affairs
and trade to the UK Secretary of State for Business, Energy
and Industrial Strategy following the 2016 Brexit referendum.
Let's give Tim a warm welcome.
Thank you very much, Liane.
And I hope everyone can hear me okay and also see my slides.
So a conscious that I am speaking to an audience.
People involved with customs, trade and logistics.
I'd really like to focus my remarks on supply
chains, something that I'm sure all of us are very familiar with
and how they can be a game changer
on the road to net zero.
But just before I get into the details,
let's just take a couple of steps back and remind ourselves
why we are seeing a globally significant and a significant increase
in the focus on regulation by governments,
whether it is in the UK or the European Union or in North America.
We're seeing increasing efforts, whether it's through regulation
or incentives, to try to drive businesses to decarbonize.
And that's essentially because
two years ago at the COP26 conference in Glasgow, in Scotland,
and then again last year at Sharm el-Sheikh in Egypt,
the world's leading economies committed to net zero target.
So that's dates by which that economies will be net zero.
And for most developed economies, that date is 2050.
And having committed to do that in an international context,
governments went back and started thinking about, well,
what do I actually need to do in order to shift my economy
from where it is today to one that fulfills this international commitments
I've made to be net zero by 2050.
And there are really only six things governments
can do to get from where we are now, see where we need to be to align
with those UN FCCC commitments.
You could and this is the most this is the focus in Europe in particular.
You could focus on carbon pricing, say,
charging people to emit CMT.
And in Europe there is a long established carbon price which does that.
You could start to think about extending that carbon price to imports
as the European Union is going to be doing from October this year.
And I'll come back to talk a little bit more about that in due course.
But there are also a range of other things towards the right hand
side of this slide.
You could give out subsidies or grants of various sorts,
such as the very significant tax breaks
now being offered under the US Inflation
Reduction Act, an Investment Infrastructure and Jobs Act.
You could have standards and mandates such as the Clean Fuel
Standard, that that exists in certain parts of the United States.
Or you could have in the US.
Federal government is a big user,
obviously that you could have government procurement requirements
that mean that you can only buy green goods and services
however you define those with government money or government funded programs.
So all of these things are going on now to a greater degree or a lesser degree,
depending on which country in the world you're looking at in order to drive
regulation.
But those things are mostly
focused on what goes on in our country.
But the reality is that we are seeing different degrees
of commitment to achieving net zero depending on where you are in the world.
So developed economies going for net zero by 2050
with clear plans in place, but other parts of the world less so.
And when you have this differential between by and large developed
or emerging markets in terms of how quickly or how effectively
they'll get to net zero, that creates a bit of a problem because
it's not just
emissions domestically that we need to worry about,
it's also emissions that come through supply chains.
And what we tried to do a few years ago with BCG building on some data
that the Organization for Economic Co-operation and Development produce.
And let's just get an idea about how money or how much embodied emissions
you find embedded in global supply chains.
And not really surprisingly, you can see that the US and Europe import
significant amounts of CO2 in products that are made in places like China
and India, where the current climate arrangements and carbon prices
are lower or different compared to Western economies.
So that means that we shouldn't just concentrate on what we do domestically.
We have also got to look at how we can decarbonize our supply chains
if we're able to genuinely decarbonize global trade.
And of course, just a quick reminder
about some of the terminology that we tend to use here when we do this.
I'm sure you'll be be familiar with this
if you're looking at how emissions are categorized
as scope one, which is your direct emissions
from your industrial process, Scope two, which is electricity mainly.
But those red arrows I showed you on the previous slide, all what we showed
here on the left in the yellow arrows, the scope, three upstream emissions
which are related to things like travel and transport emissions,
but also the emissions that went into products
that you bought upstream and then fed into your supply chain.
When you try to
drill down into those supply chain emissions,
actually you find that there are eight supply chains
that are responsible for slightly over half of all global emissions.
And you can see them here food, construction, fashion, fast moving
consumer goods, electronics, automotive, professional services and other freight.
And you see on the right hand side of this slide,
freight and manufacture sharing are key elements within that,
but also for some of the more energy intensive products.
So for example, construction uses a lot of steel,
which is an energy intensive good in itself.
So if you focus on these
eight supply chains and working out
how we can decarbonize those, then that actually
can make a significant impact on reducing global emissions.
So if you in the room involves without looking at any of these
eight sectors, then I'd suggest this is a priority
that you might want to focus on looking at these various elements.
And I would just say in order to focus on where to take action.
Now, it's not just
voluntary measures that are happening.
There are quite a lot of shifting regulations taking place globally,
which will require companies, logistics providers and others
with long supply chains to focus on decarbonization and emissions.
One such measure, which I spend a lot of my time thinking about,
is the EU carbon border tax or carbon border adjustment mechanism
to give it its proper title, which is starting in October this year.
A number of other jurisdictions around the world are looking at doing
similar things.
By 2030 we might have five or six similar
measures in place worldwide about the EU carbon border adjustment mechanism.
Mechanism does is apply for the first time
effectively an import tariff
based on embedded carbon emissions
contained within certain energy intensive goods, including things like steel,
aluminum, cement, fertilizers, electricity and hydrogen.
And that tax or tariff is calculated not as a percentage
of the value of the product, but by multiplying the carbon
content of that product, the embedded emissions contained within it
by the EU carbon price,
which is a euro amount per tonne of carbon, which fluctuates,
it's currently around €90,
so 95 USD per tonne of carbon.
So from October this year, progressively this will be introduced
and that really requires
producers and importers,
including customs representatives
involved in those supply chains, to calculate
and declare embodied emissions and in due course, pay a tax on them.
And if other countries around the world do something similar,
then that really I think will start focusing the minds of everyone
involved in supply chains on exactly how much carbon
is being transported around and what it's going to cost
in terms of these compliance taxes.
But there are also a range of other drivers
such as investor pressure.
So in particularly in Europe,
a focus on ESG advancements
and investors making clear
they would prioritize investments in companies with good ESG scores.
I appreciate the debate is a little bit a little bit different
in North America in that companies
receiving a discount on their financing
if they are deemed to be great, alternatively a financing penalty.
If they are not, we are seeing new carbon and climate
disclosure rules, particularly for listed companies
by regulators such as the SEC
and ESMA and in Europe
we see new rules coming into force in a couple of years time,
which will require larger companies to undertake
ESG due diligence through their supply chain.
So also tightening product
and carbon footprint standards
and also the increase subsidy conditionality,
meaning that only products that meet certain environmental standards
would be eligible for subsidies and
or could be sold on the market.
So electric vehicle batteries in the European Union
and are a good example of this.
So importers of those products need to understand and verify the supply
chain emissions upstream in order to be able to sell them on the market.
And also we see consumer pressure in particular campaigns
by various NGOs against high impact products
such as those, for example, made on land subject to deforestation.
So all of those regulatory, financial
and investor drives are at play.
But there's also the fact,
as we found out in our research, that it is possible to abate around
40% of the emissions in those eight key supply chains, relatively low cost.
So this is something that's probably cheaper to do anyway,
irrespective of all these regulatory drivers and obligations.
The may be we all at first thought and if you try to say, well, okay,
well what might this mean in terms of the cost per unit?
Well, we think about less
than a dollar increase on a $40 pair of jeans,
2% average cost increase on a car,
maybe $5 increase
on $150,000 construction cost.
These are relatively small amounts.
When you look at them in percentage terms compared to the costs of these products.
Now, taking
all of that, how actually might we deliver
a decarbonized supply chain?
Well, we've looked at this in some detail,
particularly around the implementation
of the EU carbon border tax that I was discussing earlier.
We think data is the key because supply chains,
as you all know, are very complex and involve a number of partners.
So this little map on the left
we look at, we imagine
some steel being sold in the EU.
It starts off as iron ore mines in Australia is
then set to Japan where it's turned into steel.
It's then sail to Rotterdam where it's imported into the European Union,
then goes to Germany,
where it's made into a car that might be sold back to Japan again.
You never know where Australia.
So there could be a complete circle in the emissions in that supply chain.
So making sure that at every stage in a complex supply chain like this,
there is accurate, verifiable data about the emissions that can
then be added up and transport transferred forward as the product is
is transformed, is going to be is going to be critical.
And you can see on the right hand side here
examples of some of the questions we think that producers,
logistics providers and other supply chain participants should be asking
in order to get to this new reality.
Because without data, without secure, transferable
and reliable data, this is not is not going to work.
It also means if you are engaged in trade compliance,
that the trade compliance process is going to become
a little bit more complicated
because things like carbon border restrictions,
other ESG aspects such as human rights and so forth,
are increasingly
going to be things that will be checked and regulated at the border
and your trade compliance arrangements and process is need to be set up
in order to cope with these things rather than just the traditional issues
such as have I got the right tariff, I've, I got my certificate of origin, have I,
did my know my customer, have I avoided sanctions, people
and all of that sort of thing that you're used to enforcing at the border.
Carbon will increasingly become a border issue and a trade compliance issue.
So just finally
for me, four steps for next steps
that we'd suggest customs agencies in the logistics
sector should be thinking about, particularly if you are in the logistics
business, it's really important to understand your own emissions footprint.
So, for example, the emissions from ships or planes or trucks that you operate
because your scope one emissions or your customer scope three emissions,
your customers increasingly are going to want to know the emissions
footprint of the goods they buy and they will start asking you
for this information if they have not done so already.
Secondly, as I as I was mentioning,
carbon is going to become something increasingly that is calculated,
assessed and enforced at the border and sometimes behind the border.
That is going to require new systems and processes,
whether you are a customs agency or whether you are a logistics provider
or anybody else involved at the border
in order to prepare and enforce that.
Thirdly, are really important to collect,
share and analyze data
right throughout
supply chains about carbon footprints
in order to improve efficiency and transparency, not just for you,
but for your customers who are increasingly going to require that
for their own reporting and strategic purposes.
And then finally, really, really important to set targets
for emissions reductions,
both for your own emissions and those embedded in your supply chains
to benchmark against competitors and peers to see how you're doing compared to them
and be prepared to transparently and openly report progress so
everyone can see how we're getting on in what will need to be a global endeavor
to make sure we get to the net zero supply chains of the future.
Thank you very much for your time today.
I hope that was helpful and be grateful.
I'll be very happy to respond to any quick questions or comments.
Thank you. On one hand, back to Liam.