Potential impact of EU and US carbon regulations on solar exports and countermeasures

With growing global commitments to low-carbon transitions, the EU and the U.S. have introduced measures like the Carbon Border Adjustment Mechanism (CBAM) and the Clean Competition Act (CCA). Although these regulations haven't significantly impacted the PV industry, carbon management is becoming more important, and some companies have begun to prepare in advance. This article will explore the impact of these regulations and carbon pricing trends and offer suggestions.
 

EU’s CBAM: Certificate prices tied to carbon market; early impact assessment needed

The EU's CBAM began a two-year trial last October, covering industries like cement, steel, and aluminum. Currently, companies are required to report carbon emissions data and calculate the number of certificates needed, without imposing any actual carbon tax yet. However, significant changes will occur in 2026, when CBAM will take into force, requiring companies to buy CBAM certificates corresponding to the carbon price that would have been paid, while the EU will reduce free carbon allowances.

The price of CBAM certificates will be calculated depending on the weekly average auction price of EU ETS allowances. Reduced free allowances could affect the overall demand for carbon reduction and the price of CBAM certificates, potentially increasing carbon costs. Given stricter regulations, the inclusion of more industries, and the phase-out of free allowances by 2034, InfoLink estimates the EU carbon border tariff will be at least EUR 160 per tonne by 2034, possibly exceeding EUR 200 per tonne.
 

Figure 1. EU carbon border tariff rate trend

Even though CBAM hasn't been implemented and the current mechanism does not regulate the PV industry directly, the long-term development will inevitably be impacted. Managing carbon cost risks is therefore crucial for future growth, and some companies are preparing for possible new EU measures and environmental requirements for imported PV products.
 

CCA: Expected to have greater impact than CBAM with no trial period, but timing is unclear

The Clean Competition Act (CCA) introduced by the U.S. was initially set to take effect in January this year, but the actual implementation date remains uncertain. However, given the clear direction of low-carbon policies and the requirement to include carbon emissions from electricity, glass, and other materials used in solar production, the PV industry should prepare for potential impacts. The CCA will start earlier than the CBAM, cover a broader range of products, and lack a free carbon allowance mechanism. As a result, the initial impact of the CCA could be greater than that of CBAM.

Unlike CBAM certificates, which fluctuate with carbon market prices, the CCA sets an initial carbon price of USD 55 per tonne in 2024. This price will increase annually by the inflation rate plus 5%. Based on the Federal Reserve System's 2% inflation target, carbon prices will reach at least USD 80 per tonne by 2030. Given the ongoing inflation risks in the U.S., prices could exceed USD 90 per tonne.

Figure 2. U.S. carbon tax rate trend

To cut carbon tax costs, reducing carbon intensity of products is key. Some forward-thinking PV companies are investing in R&D and production of more efficient cells, advanced manufacturing process, and eco-friendly materials. This helps meet regulations and boosts competitiveness in the market.
 

Impact on the cost and profitability of PV products

Given the CBAM, CCA, and the trend toward stricter carbon emissions regulations, InfoLink quantifies the impact of carbon costs on the profitability of PV products, using modules as an example. According to data from various national verification bodies, the carbon emissions of modules range from 400 to 600 kg of CO₂ per kW. Analysis will be based on the average of 500 kg of CO₂ per kW.

Considering rising carbon prices, better module efficiency, and the EU’s planned 26% reduction in free carbon allowances by 2030 (figure 3), the chart below (figure 4) shows how carbon tax might increase the cost per watt of modules.

Figure 3. CBAM and free allowance phase-out timeline

Based on InfoLink’s calculations, EU carbon costs will rise sharply by 2030, increasing the risk of higher costs for modules exported to Europe. By 2034, carbon tax could add around USD 10 cents per watt to the cost, making carbon emissions a major factor in module costs, surpassing production expenses.

Figure 4. Cost increase under carbon tax

Analyzing the impact of carbon tax on modules with different carbon emissions (600 g CO₂/w, 500 g CO₂/w, and 400 g CO₂/w), using the CBAM as an example, shows that the cost increase per watt could vary by EUR 4 cents. This highlights the importance of moving towards lower-carbon products in the future.

Figure 5. Cost increase for modules with different carbon emissions under carbon tax
 

The era of low-carbon PV

As the world moves towards low-carbon practices, carbon taxes will affect the profitability of modules, despite no direct regulations yet. This shift also opens new opportunities like module recycling. To stay competitive, manufacturers should understand and reduce carbon emissions, and create strong carbon management plans. InfoLink offers some strategies to help envision the path forward.

(1)    Review carbon emissions embedded in raw materials and explore alternatives

To reduce carbon emissions in production, start by examining the materials. For example, in glass-glass modules, polysilicon, glass, and aluminum frames are major sources of emissions, making up about 70%.

Developing new materials, thinning or optimizing existing materials is one approach to reduce carbon emissions. For instance, thinner wafers have been a trend in recent years due to rising polysilicon prices. The wafers have been thinned down from 170µm (p-type) in 2021 to 130µm (n-type) today. This change helps control costs by reducing polysilicon consumption and lowers carbon emissions.

Another approach is to use materials with lower carbon footprints. For instance, FBR granular polysilicon has a better carbon footprint compared to other polysilicon. As production capacity expands, the global market share of granular polysilicon is expected to rise from 5-10% to 15% this year. Increasing the use of granular polysilicon in ingot pulling process could further reduce carbon footprints.

(2)    Improve product efficiency or process flow

Improving a product's efficiency also helps reduce its carbon emissions. For example, n-type TOPCon modules have replaced p-type PERC modules as the mainstream cell technology since late 2023. TOPCon modules have higher efficiency than PERC modules, which improves the carbon performance of the product.

For low-carbon modules, HJT is gaining popularity due to its low-temperature processes and streamlined production. HJT technology offers further opportunities for reducing thickness, making it a promising area to watch for future developments.

(3)   Implement green factories to reduce emissions

With rapid growth in global PV demand, new factories are built not only in China and Southeast Asia but also in the U.S. Adopting green factories in new facilities can enhance carbon cost competitiveness. A green factory considers environmental impacts from the start, including building design, equipment, and future water and electricity needs. 

For PV manufacturers, understanding polysilicon usage and electricity needs during ingot-pulling can help estimate future carbon emissions. By incorporating green design, renewable energy, and energy storage into factory planning, companies can better manage and reduce their production emissions.

Given future carbon pricing, every emission will come with a cost. In addition to improving manufacturing to reduce emissions, it's important to consider emissions from other activities with lower impact, such as transportation and distribution. By considering all sources of carbon emissions, companies can develop the best strategies for product promotion and market expansion, making low-carbon practices a key driver of long-term growth.