In December 2022, the European Parliament reached a provisional agreement with the Council of the EU, confirming that the EU’s Carbon Border Adjustment Mechanism (CBAM), also known as “carbon border tax”, will undergo a trial run starting in October 2023, with a trial period until the end of 2025, and it will be formally introduced in 2026, with full implementation by 2034. With this, the EU is set to become the world’s first economy to impose a “carbon border tax”. This also means that any high carbon emissions at any point in the supply chain will result in higher carbon control costs for exported products.

Currently, the EU’s CBAM primarily covers six sectors: steel, cement, aluminum, fertilizers, electricity, and hydrogen. In subsequent amendments, organic chemicals and plastics have also been included in its scope.

EU’s CBAM has the potential to reshape the global trade landscape.

The EU accounts for approximately 16% of the global total import volume and holds a significant position in global trade. The EU’s CBAM has the potential to lead to a repositioning and reshuffling of global trade, with countries and regions with lower emissions taking the opportunity to expand their export share and penetrate the EU market. Meanwhile, nations and regions with higher carbon emissions may be compelled to support affected industries in transitioning to reduce the risks posed by the EU’s carbon border tax. From a different perspective, the impact of the EU’s carbon border tax will be more significant for major manufacturing nations that rely heavily on industrial production and exports.

Are MDI suppliers ready?

In the first nine months of 2023, China exported 165.2 thousand tonnes of polymeric MDI to EU countries, representing a year-on-year growth of 6.8%, according to China Customs. In the full year of 2022, the export volume of polymeric MDI was 197 thousand tonnes.

As of now, the EU has not yet posed explicit carbon border tax measures for MDI products. However, MDI suppliers have been actively preparing for potential changes and impacts.

Covestro

In 2021, Covestro obtained ISCC PLUS mass balance certification for its site in Shanghai. In 2022, the company introduced Climate Neutral MDI. Hermann-Josef Dörholt, global head of Performance Materials at Covestro, stated, “Desmodur® CQ are important products in achieving our sustainability goals. Our climate neutral MDI has another major advantage: it is a drop-in solution – so our customers can use it immediately in their production without any changeover and a higher energy efficiency.”

As of now, Covestro has obtained ISCC Plus certification in its sites in Europe, North America, and China, enabling the provision of ISCC-certified products to downstream customers worldwide to support their climate-neutral goals.

In China, Covestro is actively promoting low-carbon products in collaboration with downstream manufacturers of MDI in sectors such as home appliances and ultra-fiber leather. In 2021, Covestro and Haier joined forces to launch the first energy-efficient refrigerator using low-carbon footprint insulation materials, aligning with Chinese “Double Carbon” goals and promoting the green transformation of the home appliance industry. In November 2022, Covestro and Midea introduced low-carbon green refrigerators at the China International Import Expo (CIIE). These refrigerators are insulated with more sustainable polyurethanes, which use low-carbon-footprint MDI through a mass balance approach from Covestro. It is reported that Covestro’s low-carbon-footprint MDI can generate 60 percent less carbon emission compared to fossil-based MDI.

In November 2023, Covestro and Huafon Group signed a memorandum of strategic cooperation at the 6th CIIE, aiming to actively explore the expansion of Covestro’s low-carbon raw materials in Huafon’s product range and jointly promote the development of the circular economy.

BASF

On February 14, 2022, BASF unveiled its first greenhouse gas neutral aromatic isocyanate, Lupranat® ZERO (Zero Emission, Renewable Origin), further expanding its range of MDI products. Lupranat® ZERO M 70 R has successfully obtained certification from TÜV Nord, marking an important step for BASF in advancing toward sustainability in the polyurethane value chain.

On March 27, 2023, BASF’s Yeosu site in South Korea, became the first facility in the Asia Pacific to achieve ISCC+ certification. This certification demonstrates that BASF’s Asian base will be able to provide bio-mass balance (BMB) and ChemCycling® products. In October 2023, BASF’s Korea site began supplying BMB MDI.

Recently, BASF announced that its Yeosu site in Korea has successfully produced the first batch of BMB MDI. This milestone development underlines BASF’s commitment to building a more sustainable MDI value chain.

Huntsman

On March 6, 2023, Huntsman announced that it has obtained ISCC Plus certification for its manufacturing facility in Rotterdam, the Netherlands. This certification allows the facility to provide MDI products produced using the mass balance approach.

Wanhua Chemical

On November 7, 2023, Wanhua Chemical disclosed that its MDI, TDI, IPDI, PMMA, TPU, and bio-based polyols have obtained ISCC PLUS certification. This signifies that the company now has the capability to supply products containing renewable and recyclable materials, further supporting the green and low-carbon development of numerous downstream industries as part of its commitment to sustainable development.