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The Back Story

Sam started off in data centre management, working on cloud infrastructure in Asian markets. When the wave of AI and GPU came in, he decided to move into sustainability.

“GPU markets are very power-hungry, energy solutions are forecast.”

During Carbon-13, he asked a sample of companies to assist with marketing research on their “problem spaces.” Together with his co-founder, Nick who is based in Greece, they reached out to sustainability leads in major retailers such as Puma, Nike, House of Fraser; banks including Citi and HSBC; finance companies like EPS, pension funds, and carbon project developers such as Blue Ocean which works on initiatives such as using algae for carbon capture.

He said of his experience working as a consultant, “I see a user mis-match, there is a lot of greenwashing between what companies report and what their true carbon footprint is.” Out of over 125 conversations with sustainability officers, they worked to establish common pain points and what firms were doing to address them.

The Carbon Border Adjustment Mechanism, or CBAM, is particularly significant for steel companies like JSW (based in India) and Tata Steel;  international mining conglomerates such as Rio Tinto, as well as an unnamed UK-based aluminium processor and US companies including General Motors and a number of Category 9 funds – those invested in sustainable solutions.

Brazil is working on its own set of trading standards, whereas India already has a carbon tax in place. Under the EU-India Free Trade Agreement, any tax which aluminium incurs in being exported is deducted from the amount falling due under CBAM. If the export tax is equal to the levy due under CBAM, no import tax will be due within the EU economic area. 

For example, if for one tonne of aluminium you pay £50 tax under CBAM and have already paid £20 in India, only £30 is deducted on arrival in Europe. However if £50 was charged in India, there is no net tax due under CBAM. In contrast, South Africa where there is no levy, there is a relatively higher CBAM entry requirement.

 Sam and Nick successfully advocated for sustainability officers to be allocated sufficient budget to accurately quantify their carbon emissions. But they still believe there is not enough data to get a full picture of emissions across a supply chain – “There is the potential for regulatory arbitrage.”

Previously with the threshold under CSRE, 50-70% of companies had to make reports, whereas now the number is around 10%, “meaning fewer companies have to report. The same thing is going to happen with CBAM soon.” The climate change denial movement in the US means funding is flowing out of sustainability solutions, although companies are still complying with CBAM.

Yet they “are not doing anything to get the granular-level data. Probably your company has a sustainability manager. Often they cited Scope 3 emissions as a problem, but they are not doing anything to measure or quantify it. But there is often no legislative penalty, no additional cost.” CBAM in their experience is mainly a problem for companies dealing with aluminium – they cite no discussions with fertiliser providers.

Their innovation was to create an AI plugin which understands carbon data and can provide you with a carbon footprint – “We are at the moment looking to build products for these companies – including the big steel companies.”

Carbon accounting is based on what emission factor to apply, based on the product. This is applied either to the unit quantity or product weight as a multiplier. They built an AI that can give you the emission factor based on the country where supply takes place: in the UK, the GHG Defra; for France, the ADENE and in Germany the OKEBAUDAT. In total there are 19-21 separate national standards sets, with 250,000 Emission Factors (EMFs), which they predict will reach 1million EMFs in the near future.

The carbon accounting plugin extracts the value from the database and applies it to internal recording, and “gives the auditor power to efficiently serve clients’ needs”. 

In response to the following questions:

1. How do your clients ensure compliance of their suppliers i.e. verifying reporting integrity?

They don’t. Nobody wants to do it. If I’m a bank and you’re one of my clients, and you give me your carbon data, I will take it. Because with greenwashing, if a penalty is incurred it will fall on the originator as that is how the contract is structured.

2. What safeguards are in place against misleading or inaccurate reporting of disposal of waste and residual materials?

Waste as a by-product of petroleum are waste which they then transport to other countries. If marked as waste, the importing country will have standards and regulations regarding the handling of waste. Most of the sustainability budget is allocated to doing this paperwork. 

3. What in your mind are the chief trading advantages for companies subscribing to CBAM?

CBAM is not a challenge for them, there are plenty of tools on the market. Solutions were available before the legislation came into force. Capex flows into compliance solutions.

4. Has the new regulation deterred exporters from outside the economic area from trading or have exporting countries used the opportunity to enact their own standards framework?

You need to push sustainability into the decision-making conscience… If you look at investment returns, renewables generate higher dividends than oil and gas companies. Not because of subsidies, because of AI. The infrastructure of AI is comprised of machines operating inside a data centre, and renewable energy is more consistent.

An Ikea representative in Bangkok said there was a problem with delivery – the vehicles based on oil and gas but the part of the delivery system that were electronic vehicles showed resilience.

In India, it is a billion-dollar problem. Liquid petroleum gas (LPG) is used in every household, supplied from Iran via the Strait of Hormuz. Since the blockade, many restaurants have run out of business. Piped Natural Gas (PNG) has been put forward as an alternative, which is a bio-gas. As an agricultural based economy this makes economic sense, but it does not come in a plug-in cylinder like LPG, it needs to come in a pipeline but there is now heavy investment in PNG as a solution.

5. If the usage of a product changes, how easy is it to report this adjustment?

House of Fraser which has an annual turnover of $5bn has a sustainability team comprised of just one lady, the sustainability lead, who creates targets using carbon auditing software. When suppliers come to have a meeting, the sustainability is last in line. It’s all sugar-coating, nothing really concrete.

If a company is penalised, others might stop doing business in that country. CBAM is a very noble initiative. If you’re not manufacturing inside the EU, and you want to import your product to avoid carbon emission penalties, CBAM ensures you won’t duck your carbon footprint with regulatory arbitrage. But you can’t force the issue or we would lose trade to China and the US.

6. Would you say compliance certification was fungible or is it not actively traded?

Microsoft until this point has made up 70% of the carbon offset buyer market, but they have announced their intention to stop buying. We have reached out to people responsible for capital allocation and they said this is not a good time and that many sustainability officers are being laid off.

They have also stopped their under-the-sea data centre project. A data centre needs a lot of water for cooling. They tried to make this carbon-saving venture profitable, but for reasons unknown they have stopped the project.