How circular startups are set to gain from the EU’s carbon border tax

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Rotterdam is at the forefront of the transition to a circular economy — what does the new carbon border tax imply for the city and for others trying to follow the same model?

The Dutch city of Rotterdam has a goal: for the circular economy to be common practice by 2030 and to reduce the primary use of raw materials by 50%. Startups in the city are leading the way in this transformation, with the support of the city’s proactive policies and other initiatives.

But business cases of circular business models can often be hard to make profitable. A shift towards true pricing, as with the EU’s new Carbon Border Adjustment Mechanism (CBAM), could force companies to take a different approach to their resources — boosting those that already run on circular economy principles.

What does the new legislation mean for circular startups, especially in cities like Rotterdam that are at the forefront of the transition to circularity?

Good news for circular startups

The EU’s CBAM is meant to be a tool to encourage cleaner production and will enter into force on October 1, 2023. It will initially apply to imports of certain goods whose production is carbon intensive, such as cement, iron and steel, aluminium, fertilisers, electricity and hydrogen.

CBAM will nudge traditional companies to either adapt or pay a premium

Lori Goff, founder of Outlander Materials, a biotech and material science startup based in Rotterdam, says that CBAM is a levelling mechanism that forces companies to account for their true environmental costs. “CBAM will nudge traditional companies to either adapt or pay a premium. This creates a market opportunity for us and our peers to provide sustainable alternatives.”

She gives the example of a Rotterdam-based startup working on repurposing textile waste into new garments. “They face similar challenges as us, in terms of production costs. But CBAM could give consumers a reason to reconsider fast fashion made with unsustainable practices and turn to these alternative, circular options.

“When you factor in the external costs of unsustainable materials, suddenly we [circular products] are not the expensive option — we’re the smart one.”

Sabine Biesheuvel, cofounder of BlueCity, a Rotterdam-based hub for circular entrepreneurship, says that CBAM could be great for a port city like Rotterdam that sees a lot of import and export.

“It can make local production more competitive with other markets where labour is cheaper. It can help companies that are scaling to make sure that their production spaces remain in Europe — and that’s not only important from an impact perspective, but we need strategic access to resources also for geopolitical reasons,” she says.

Goff adds that it’s not just about competition; it’s also about investment. CBAM can be a significant factor in attracting venture capital or securing grants for circular startups. “Let’s face it, the first thing investors ask about is the profitability model. With CBAM, our lower carbon footprint becomes an asset, a selling point.”

Aligns with beneficial policy

Marjanne Cuypers, founder of BlueBlocks, a Rotterdam-based startup that produces bio-based materials, says that it’s also important for cities to have regulation that supports the goals of the CBAM.

The Dutch government has also been exploring similar measures like carbon pricing and the Carbon Border Tax

Goff agrees that Rotterdam and CBAM are in strong regulatory alignment. “The Netherlands has been a forerunner in pushing for sustainable practices, even imposing taxes on waste to discourage landfill and incineration.

“The Dutch government has also been exploring similar measures like carbon pricing and the Carbon Border Tax that fit well with the shift in preference for climate and competitiveness considerations in trade policy.”

Goff also gives examples of initiatives such as the Rotterdam Circular Initiative, which is a city-wide governance and business support programme, supporting the city’s ambitious goal of circular economy approaches becoming “standard practice” by 2030. There’s also Upstream Festival, which offers opportunities to collaborate with like-minded startups and scaleups, and Innovation District, which functions around the port of Rotterdam and runs incubators and accelerators for companies that align with its goal of a low-carbon economy.

“While there are challenges that circular startups like us face, the support and regulatory alignment we see in Rotterdam, compounded by the introduction of CBAM, offer us an advantageous position that far outweighs the hurdles,” says Goff.

Still room for improvement

While there’s enthusiasm about CBAM, it’s crucial to discuss both the opportunities and the hurdles, says Goff.

CBAM can only get you so far; you still need to win over the consumer.

She says that scale is the nut to crack. “CBAM will help us to an extent by internalising some of the external costs of carbon-intensive products, but it doesn’t eliminate the higher upfront costs that circular startups face. That’s something we need to crack, and for that, we need capital.”

Biesheuvel agrees that high price points present the biggest challenge to the complete adoption of circularity in Rotterdam. “Right now, sustainability and the circular economy are still topics for the lucky few. There are a lot of people in the city for whom because of lower access to financial means, they also have less headspace.

“If you worry about money, you don’t think about sustainability. So that’s a challenge, but it’s also an opportunity — because in the long term, we should make the circular economy an inclusive economy.”

Consumer adoption is another hurdle. “CBAM can only get you so far; you still need to win over the consumer. And while the younger generation is more open to sustainable alternatives, the market is far from captured. There’s a real need for education and advocacy, showing consumers that the slightly higher cost of circular products is a long-term investment in their own future,” Goff says.

Cuypers says circularity is a challenge and an opportunity in Rotterdam. “There are a lot of material streams that are still unused, that can be valorised. It’s a big city, so a lot of streams and goods come in and out — so there’s a lot more to be won.”

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