Eric Wagner, partner and co-head of the ESG practice at Gleiss Lutz based in Stuttgart, Germany, and a panellist at the Inter-Pacific Bar Association session “Carbon Crossroads: Navigating the Legal Labyrinkth of a New-Zero Future”, shared his thoughts with India Business Law Journal on approaches to managing carbon emissions and achieving net-zero targets.
IBLJ: What kind of role do corporates have in carbon emissions around the world?
Wagner: Corporates play a very important role because they generate a significant share of emissions – whether through manufacturing products, producing energy, or other activities. At a minimum, we can expect corporates to comply with their statutory obligations, including maximum thresholds for carbon dioxide and other greenhouse gas emissions.
However, I also see many corporates, which take their responsibility very seriously and genuinely want to go beyond the minimum standards prescribed by law. Companies have realised that climate change affects all of us, and that reducing emissions has become a competitive factor in business. Consumers are increasingly scrutinising carbon footprints and emissions when making purchasing decisions.
IBLJ: What are the best practices that effectively control carbon emissions from corporates?
Wagner: It is difficult to identify universal best practices from a global perspective. Looking at it from a European and German standpoint, I think it is fair to say that we have relatively high standards compared to many other regions.
For example, under the Carbon Border Adjustment Mechanism (CBAM), companies seeking to import certain products into the European market must purchase certificates to compensate for carbon dioxide emissions generated during production. This works alongside the European Emissions Trading System (ETS), which operates within Europe. Whenever you emit carbon dioxide in the production of certain products in Europe, you must purchase a corresponding number of certificates; otherwise, you would be in breach of the law. The number of available certificates is limited and will be reduced year on year, meaning they will become increasingly expensive over time.
The European Union (EU) wants to prevent so-called “carbon leakage”, a situation where manufacturers say, “We will simply produce our goods outside Europe because it is cheaper and we will not have to buy certificates.” This is where CBAM comes into play: if you want to import a product into the European market, you must pay the same amount for certificates as you would have if you had produced it within the EU.
This creates an incentive for companies to reduce pollution and carbon dioxide emissions; otherwise, their products will become more expensive.
Under the European Green Deal, the EU aims to achieve complete carbon neutrality by 2050, and Germany is even more ambitious, currently targeting 2045. Accordingly, the scope of emissions trading systems within the EU will soon be broadened to cover additional sectors, such as transportation and the private building sector, including residential heating.
IBLJ: What kind of role does technology, especially AI and data centres, have in carbon emissions and where are we heading?
Wagner: This is not a straightforward question. In principle, AI can genuinely help us find faster ways to reduce carbon dioxide emissions. On the other hand, AI is largely used not for this purpose but for entirely different applications. The growing use of AI, and the energy consumption that accompanies it, has a significant impact on overall energy demand. If you look solely at AI usage itself, its environmental footprint may outweigh its positive effects.
However, if you also consider other developments, such as the steep increase in renewable energy capacity, which may be able to offset the additional consumption, then I believe AI will ultimately contribute to paving our way towards a net-zero future.
IBLJ: When we speak about the world’s net-zero ambitions, greenwashing may also play an important role. What is the regulatory framework like in Germany?
Wagner: Recently, the EU adopted new legislation in the form of the Directive on Empowering Consumers for the Green Transition (EmpCo). This directive aims to raise the bar for green claims and provide guidance to corporates in this area. However, even before EmpCo has taken effect, German courts have already been applying high standards to the use of green claims. In landmark cases, our highest court, the Federal Court of Justice, has ruled that if you make green claims, for instance, if you sell products in the EU or Germany labelled as climate neutral, eco-friendly, or similar, you must be very transparent and specific about what you mean.
This is because there is no legal definition of these terms; they can be interpreted in different ways. German courts have therefore ruled that companies must be explicit about their claims on the packaging itself. For example, you must specify whether you have only accounted for emissions caused by the product’s use, or also those generated during its manufacture.
Another key point is that compensation is not the same as reduction; reduction is always preferred over compensation. This means that if a company can only meet its targets by compensating for its emissions, it must explicitly disclose this.
In Germany, some companies have announced that they will achieve climate neutrality by 2035 or 2040, but on closer examination, it became apparent that they were relying primarily on compensation rather than reduction. Such claims have been found unlawful under German law.
This is something that companies seeking to enter German markets need to be aware of.
