Sustainable Trade Europe: Internal Carbon Price and Raw Materials

Source: Transport & Environment

Soft Cap Oleochemical Impact

The passed document reiterates the 1.7% soft cap on Annex IX Part B feedstocks in road transport including used cooking oil (UCO) and animal fats. The soft cap is good news for biofuel producers, whose renewable feedstock blend ratios are afforded flexibility by the non-rigid target.

For producers of oleochemicals, however, the news may not be so good. Besides being fuel additives, vegetable/animal oil (and fat-derived) oleochemicals find use in applications as diverse as soaps and automotive tires.

Raised biofuel targets will squeeze UCO and animal fats supply chains. These vital sustainable oleochemical components are likely to be snapped up by biofuel producers keen to create markets that will meet these latest targets.

It is an issue Ribbins explored while presenting at an American Fuel and Petrochemical Manufacturers (AFPM) conference earlier this year.

"...Companies are subject to multi-angled pressure to be proactive in a net zero future. They need to be acting now..."

~ Fionna Ribbins

"The global fight for low carbon-intensity feedstocks is upon us," Ribbins told delegates at the International Petrochemicals Conference in March. With Europe's latest vote to ramp up its decarbonization blueprint, the competition for renewable raw materials will only intensify. 

Increasingly, "companies are subject to multi-angled pressure to be proactive in a net zero future. They do not have the luxury of waiting for decarbonization to happen around them," says Ribbins. "They need to be acting now to come up with a strategy that will deliver net zero results."

Pinpoint an Internal Carbon Price

By mapping the expected value of carbon going forward, companies can begin to plan how to implement a carbon mitigation timeline. "The best way to make the curve is to look at the forward curve of traded markets," explains Ribbins.

European EUA futures markets - explained in ECB Economic Bulletin, Issue 3/2022 - are an indicator of where the market currently considers the future value of carbon to sit.

"Using this market metric means that firms are taking a wider market view, rather than just creating an internal figure that could be way off what other market participants are thinking regarding carbon values," Ribbins says.

Ultimately, for industries that operate under the EU ETS, when the all-in cost of carbon capture for a specific process is less than the level at which the credits are trading, it will be a commercially justifiable decision to mitigate the carbon emissions instead.

Prioritize Value Chain Emissions

"Companies will need to prioritize value chain emissions reduction rather than offsetting going forward. This means the physical reduction of emissions in a firm’s operations and product lines. Only once that has been achieved should firms start using beyond value chain mitigation solutions like offsets," says Ribbins.

The second priority is for firms to look through their supply chain to highlight the different areas where emissions are generated. Before any emission reduction methods can be assessed, first it is crucial to have a good understanding of all the different sources of emissions in the supply chain.

Prima Markets produces a weekly Carbon Mitigator report that collates all visible opportunities to present a broad macro picture of solutions for a net zero future.

The Prima CarbonZero platform carries information about value chain emissions reduction, tracking the price and sustainability credentials of the main pathways used for value chain mitigation in road, marine and aviation applications.

It provides a cost-benefit analysis of new and future fuels. The platform also carries searchable databases on all the major international policy frameworks and revenue potential.

Learn more about how Prima CarbonZero can help you on the path to decarbonization.