Glossary

The official name is the Carbon Border Adjustment Mechanism.

The system was introduced as part of the "Fit for 55" policy package announced by the European Union in 2021.Target departmentThe aim of taxing imported goods based on the amount of carbon dioxide (CO2) emitted during the Manufacturing process is to maintain a fair competitive environment with local companies and prevent carbon leakage.

Importers subject to the scheme will be obligated to purchase CBAM certificates in proportion to the amount of CO2 emitted during the Manufacturing of their products, which will apply the same cost burden as the carbon price in the EU to imported products.

CBAM will be gradually implemented from 2026, with full implementation planned by 2034.

The official name is the Corporate Sustainability Due Diligence Directive.

A directive enacted by the European Union (EU) to require companies to conduct due diligence regarding human rights and the environment.

This Directive can apply both inside and outside the EU, so Japanese companies need to know whether it applies to them, their subsidiaries and business partners.

The requirements are that within the EU, a company or ultimate parent company has a worldwide net turnover of more than 450 million euros and more than 1,000 employees, and outside the EU, a company has a net turnover within the EU of more than 450 million euros, or an ultimate parent company if the criteria are met across the entire group.

Application start date for non-EU companies:

- End of July 2027: Companies with net sales of more than 1.5 billion euros within the EU.

- End of July 2028: Companies with net sales of more than 900 million euros within the EU.

- End of July 2029: Companies in the EU with turnover of more than 450 million euros.

Companies are subject to the following two obligations:

(1) Human Rights and Environmental Due Diligence Obligations

(2) Obligation to respond to climate change

Companies need to be aware of their obligations under the Directive, as non-compliance with these obligations may result in sanctions and penalties.

The 26th Conference of the Parties to the United Nations Framework Convention on Climate Change was held in Glasgow, UK in November 2021. Currently, 197 countries and regions are members.

The conference adopted the Glasgow Climate Accord. This strengthened the goal of "keeping the global temperature rise well below 2 degrees Celsius above pre Industry levels and striving to limit it to 1.5 degrees Celsius," which was set out in the Paris Agreement adopted at COP21 in 2015. It also emphasized the need to phase out coal-fired power generation and review subsidies for fossil fuels. It also confirmed that financial support for climate change measures for developing countries would be expanded, and developed countries reaffirmed their goal of providing $100 billion per year.

Announced in 2021, Catena-X is an open ecosystem for data collaboration in the automotive industry. Its main objectives are to improve productivity across the industry by sharing data throughout the supply chain and to strengthen efforts toward sustainable production and decarbonization throughout the vehicle lifecycle. Catena-X is led by major European automakers such as Volkswagen and BMW. It provides standards for data interoperability between companies and enables peer-to-peer data exchange, enabling the secure use of compatible data. It also enables fair data exchange by making applications that comply with technical standards available from a marketplace.

“Corporate Sustainability Reporting Directive”

This is a directive that requires the EU to report on corporate sustainability. It was proposed in 2021 and is scheduled to be implemented in stages from 2023. The CSRD requires listed companies and large corporations to transparently disclose information on the environment, society, and governance. This directive will make it easier for investors and stakeholders to evaluate a company's sustainability. Reporting must be based on international standards, and companies will be required to provide reliable data. As such, third-party assurance will be mandatory.

Both technologies capture carbon dioxide without releasing it into the atmosphere, storing it underground or reusing it.

CCS is a technology that decomposes and captures carbon dioxide and stores it safely deep underground. CCU is a technology that further converts the captured carbon dioxide into fuel or chemicals for use. CCUS is the collective term for these two technologies. While CCUS can capture large amounts of carbon dioxide, it faces various problems, such as high costs and a lack of conversion technology.

Methane is a colorless, odorless gas composed of carbon and hydrogen, and a greenhouse gas. In nature, it is produced in wetlands, during animal digestion, and during fossil fuel mining. It is said to have 25 to 28 times the greenhouse effect of CO2. When methane is burned, it is broken down into CO2 and water, and can be used as an Energy source. In addition, since the CO2 produced during the production process can be captured, a technology called "methanation," which synthesizes methane from CO2 and hydrogen, is attracting attention as one of the efforts to achieve carbon neutrality.

Carbon dioxide is a colorless, odorless gas composed of carbon and oxygen that is widely present in nature. It is produced during processes such as respiration, combustion, and fermentation, but CO2 emissions, particularly from the burning of fossil fuels, are considered to be the main cause of global warming. As a greenhouse gas, CO2 plays a role in raising global temperatures, so reducing its emissions is an urgent priority. However, plants absorb CO2 through photosynthesis, so they also play an important role in maintaining the balance of the natural environment.

CDPs is an international environmental NGO based in the UK that provides environmental information disclosure programs to companies. As part of the program, it asks companies to answer questions about their GHG emission amount and reduction targets, and evaluates them based on the Contents of their responses.