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The EU Green Deal will be game changer for global Supply Chain networks

Thursday 14/01/2021
Supply Chain EU

While the impact of the Corona pandemic and the Brexit is still making headlines in most media, Supply Chain Managers are facing yet another hurdle to take. 

Now that the first contours of the EU Green Deal are becoming visible, it is clear that there will be an impact on Global Supply Chains. The attention for the subject is growing among Supply Chain Managers and business leaders. What is coming our way?

An inspiring evening in Brussels

It was 11 December 2019, on a rainy day in Brussels, and just a few months after being elected as President of the Commission, that Ursula Von der Leyen made a passionate speech on the EU Green Deal in European Parliament. She outlined the green future that she wants to create for Europe. Europe must be climate-neutral by 2050, she said. Europe, the old continent, will take the lead in reducing greenhouse gas emissions. The EU will make a significant contribution to securing our planet for future generations. Ursula Von der Leyen kicked off a new world. 

A new economic framework

The bar is deliberately set very high. Becoming climate neutral in 30 years is no less than a revolution. A revolution that requires courage and a clear guideline. The EU wants to create a new and clear framework for society and the economy, so that they can prepare as soon as possible, for this fundamentally different context in which they will find themselves. The practical implementation of the Green Deal will, of course, have a huge impact on people and society. But it is also clear that the impact on industry, global trade and logistics networks in particular will be significant.

Impact on industry and global Supply Chain networks

In order for the green ambitions to be successful in the fight against climate change, measures must be taken with the utmost caution. Indeed, merely imposing strict emission regulations on industrial activities that take place on European territory, would only lead to a further shift of such activities to parts of the world where less strict CO2 regulation (or enforcement) applies. Europe is therefore looking for a regulation mechanism that effectively reduces greenhouse gas emissions at a global level without harming the European economy. Not an easy task.  

Carbon Border Adjustment Mechanism will put pressure on global manufacturing and logistics networks

In order to be truly effective without harming European industry, Europe will develop a Carbon Border Adjustment Mechanism (CBAM). A CBAM would ensure that goods imported into the European Union are subject to a C02 tax. Consequently, any importer of products with excessive emissions would be subject to an additional tax on the basis of these emissions. The CBAM needs to be conceived so that it is a truly effective measure against greenhouse gas emissions, but at the same time, it should also prevent the transfer of carbon-heavy activities outside of Europe. 

There is a double financial driver: on the one hand, CBAM would provide tax revenues for the EU to invest in its own green transformation programme. In addition, CBAM will also provide a price correction that will gradually push unsustainably produced and distributed goods out of the market...

Finding new balances in the global trading networks

The paths taken by international trade in recent decades will be tested against this new reality. New balances will have to be found, because the starting point is that globalized logistic flows must become much more sustainable, or else they will be penalized. 

In some sectors, this could lead to certain activities being brought back to the West. The evolutions in industry4.0, especially in manufacturing, together with the energy revolution (there will be massive investments in hydrogen) will support this shift of manufacturing activities towards an ageing Europe. As a result, the logistics chain will effectively become shorter and more sustainable in a number of sectors. 

A tight timeline

The EU is serious about its green ambitions. In order to emphasize the European climate goals even more, it already has been decided, to tighten up the target for 2030. At the European Summit of 11 December 2020, the European Heads of State and Government endorsed that the EU must achieve a reduction of not less than 55% in CO2 compared to the 1990 benchmark. This is a much more ambitious target than the previous 40% reduction. The elaboration of the CBAM is also given a tight timeline: a legislative framework must be on the table by 31 June 2021

Of course, there are still a number of things to be clarified, including the development of a measuring instruments for determining the CO2 footprint of all import flows. But also the roll-out of a CBAM valuation model that is strict but does not violate the WTO agreements, and so on. There is still a lot of work to be done, but Brussels is in for the challenge.

Keep up to date

If you would like to stay informed about the further developments of the Green Deal and its impact on logistics networks or industrial sectors, please let us know or subscribe to the Moore Supply Chain Newsletter.

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Joël Wijns

Joël Wijns

Partner Business Consulting

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