The future of carbon regulation: what businesses need to know

The evolving nature of carbon regulations is a response to the dynamic interplay of scientific, technological, economic, and societal factors. Regular updates help ensure that regulations remain effective, relevant, and capable of addressing the challenges posed by climate change.

How has carbon regulation evolved in the recent past?

Carbon regulations were evolving globally in response to the pressing need to address climate change. However, the specific developments and changes can vary by country and region. Here are some general trends and areas in which carbon regulations were evolving:

Emission Reduction Targets

Many countries were increasing their commitments to reduce greenhouse gas emissions under international agreements like the Paris Agreement. This involved setting more ambitious targets for emissions reductions and carbon neutrality by mid-century. This extended to businesses as well and commitments such as SBTs.

Renewable Energy Promotion

Regulations and policies to encourage the adoption of renewable energy sources, such as wind, solar, and hydroelectric power, were becoming more widespread. This included subsidies, feed-in tariffs, and renewable portfolio standards. This can also extend to renewable energy certificates (RECs) too.

Learn more about renewable energy certificates.

Energy Efficiency Standards

Governments were imposing stricter energy efficiency standards on various sectors, including transportation, buildings, and industrial processes, to reduce carbon emissions. Carbon regulation and energy efficiency standards are interconnected components of efforts to promote a more sustainable approach to energy use. 

Carbon Disclosure and Reporting Requirements

More businesses were facing carbon disclosure and reporting requirements to track and disclose their emissions, leading to increased transparency and accountability.

• Securities and Exchange Commission (SEC) in the US
• Streamlined Energy and Carbon Reporting (SECR) in the UK
• Corporate Sustainability Reporting Directive (CSRD) in the EU

It’s also worth noting that the International Sustainability Standards Board (ISSB) is leading the way with regards to interoperability. In July 2023, they issued two new inaugural standards; IFRS S1 and IFRS S2.

IFRS S1

IFRS S1 requires companies to communicate the sustainability risks and opportunities they face over the short, medium, and long term. The requirements are designed to ensure that companies provide investors information relevant to decision-making.

IFRS S2

IFRS S2 is designed to be used with IFRS S1. It applies to climate-related physical or transition risks to which the company is exposed, as well as climate-related opportunities. It is effective for annual reporting periods beginning on or after January 1, 2024.

Learn more about carbon reporting regulations.

Looking to the future

Carbon regulations and guidelines are forever changing as they flex in line with the latest available data at the time to suggest how countries are tracking against the overarching climate objective. Because of this, predicting what regulations may look like in the future isn’t simple - but given the history of them thus far, we can begin to piece together how things are already starting to evolve.

Changes to Carbon Border Adjustment Mechanism (CBAM)

The Carbon Border Adjustment Mechanism (CBAM) is a policy tool aimed at addressing carbon leakage and ensuring that domestic industries that are subject to strict carbon pricing and emissions reduction measures are not put at a competitive disadvantage in the global market. 

As of 1st October 2023, the European Commission approved regulations for the execution of the Carbon Border Adjustment Mechanism (CBAM) in its interim phase until the end of 2025. This means:

• Businesses associated with a number of high emission sectors will need to have an increased awareness on the carbon impact of select materials if they are importing/exporting them across the EU border. 
• May drive sustainable innovation in high emission sectors such as steel production

Paris Agreement

There is no specific information on how the requirements of the Paris Agreement may change in the future. The agreement aims to limit global warming to well below 2 degrees Celsius above pre-industrial levels, with efforts to limit the increase to 1.5 degrees. However, the specifics of the agreement, including its requirements and targets, are subject to negotiation and review by the participating countries.

It is not out of the question that in light of new science, the previous level of ambition is not deemed strong enough, and more drastic commitments and measures must be made.

Learn more about the Paris Agreement.

Product Carbon Footprinting

As consumer awareness around climate change increases, it is likely that governments will mandate carbon life cycle assessments on many products - and that this information is clearly communicated to customers and businesses alike. This will require improved data collection and calculation methodologies to ensure this can be done at scale. 

How Minimum can help

Minimum can help organizations to understand their existing carbon output, and create plans to mitigate climate related risks in the future.  Our Emissions Data Platform seamlessly collects and processes emissions data from every corner of your organization and supply chain - no matter the format. Making it the ideal platform for emissions audits and all-round business intelligence. 

Learn more about how Minimum's Emission Data Platform can help to power you all the way to Net Zero today.