CBAM was designed for steel. So why am I thinking about bioeconomy?

Good Thursday afternoon!

It’s Christin again, your bioeconomy enthusiast, and it’s time for some bioeconomy reading! Here’s a quick roundup of the stories, developments and discussions that shaped the field this week.

At a press conference reviewing India’s progress in science, technology, and innovation over the past 12 years, Science Minister Jitendra Singh announced that India has become a significantly stronger nation in science and biotechnology. The country’s bioeconomy has grown from approximately $10 billion in 2014 to over $190 billion today, and it is targeting $300 billion by 2030. This growth is driven by advances in biotechnology, genomics, diagnostics, and biopharmaceuticals; government initiatives, such as the BioE3 framework; and closer links between research institutions, like the Council of Scientific and Industrial Research (CSIR), industry, startups, and agriculture. (Orissa Diary)

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Cross-border

Since climate policy did not make it onto this week’s G7 agenda, it felt like a good moment to address it.

As climate debates evolve, the focus is increasingly shifting from energy systems alone to industrial systems more broadly: how we produce materials, source carbon, and redesign value chains.

From my perspective, this is where the bioeconomy becomes particularly interesting. Because it can support climate neutrality in several ways: by replacing fossil carbon with biomass; by using biotechnology to make industrial processes more efficient; and by closing carbon loops through the circular use of biomass, industrial side streams and carbon utilization. In other words, the bioeconomy is not only about greener energy. It is also about redesigning industrial production systems.

However, one uncomfortable reality remains: many fossil-based products are still cheaper. Part of the challenge lies in market conditions. Environmental costs are still only partially reflected in prices, and low-carbon alternatives often have higher upfront costs.

This challenge is particularly visible in sectors that depend on carbon as a feedstock. Recent analyses of the chemical industry suggest that alternative carbon sources such as biomass, recycled carbon and CO₂ utilization will be essential for climate neutrality, yet continue to struggle to compete with fossil feedstocks under current market conditions.

Which brings us to the question of how these economics could change. To answer that, we need to take a brief detour into current EU climate policy.

In April 2023, the EU adopted the Fit for 55 package, which included a significant reform of the EU Emissions Trading System (EU ETS). As carbon prices rise and free allowances for emissions-intensive industries are gradually phased out, concerns about carbon leakage have grown – the risk that production and emissions will simply move to countries with less stringent climate policies. To address this issue, the EU introduced the Carbon Border Adjustment Mechanism (CBAM), which entered its full implementation phase this year. In simple terms, CBAM extends carbon pricing to select imports, ensuring that imported goods face a carbon cost comparable to that of products manufactured under the EU ETS. At present, CBAM applies to six sectors considered both carbon-intensive and at risk of carbon leakage: cement, iron and steel, aluminium, fertilizers, electricity and hydrogen.

Free emission allowances for CBAM-covered sectors will be phased out by 2034. The underlying logic is straightforward: if imports are subject to a comparable carbon cost, then there is less justification for shielding domestic producers with free allowances.

Reading these debates left me with a different question: How companies might respond if instruments such as CBAM begin to alter those competitive dynamics? How would firms react if costs started to shift along value chains?

Let’s consider this for a moment.

If a company determines that its current fossil-based production route will face significantly higher carbon-related costs in the future, it has several options.

One is switching suppliers. As differences in embedded emissions become apparent in procurement decisions and ultimately in costs, companies may increasingly favor lower-carbon suppliers. Interestingly, trade modelling suggests exactly this dynamic: trade shifts moderately towards cleaner production pathways.

Some observers also argue that this could encourage more regionalized supply chains. Firms may prefer suppliers whose emissions data is more easily verifiable, whose reporting systems are compatible with EU requirements, and whose carbon pricing systems may eventually be recognized under CBAM rules.

Another possibility is relocating emissions-intensive upstream production stages. Analysts have warned that firms may seek to minimize CBAM exposure by restructuring value chains or moving certain processing steps outside the mechanism's scope. Concerns about such circumvention strategies are one reason why the EU is already expanding CBAM to additional downstream products.

However, a possibility is that companies may decide to rethink their feedstocks and production processes altogether. And this is where I started wondering whether there could be a connection to the bioeconomy. As companies optimize supply chains and production pathways based on CO₂ costs, how will bio-based and biotechnological alternatives be incorporated?

The logic could be as follows: CBAM internalizes carbon costs, changes relative prices, and creates incentives for lower-emission inputs and production processes. Under certain conditions, this could improve the competitive position of bio-based alternatives in several areas.

One is chemicals. If CBAM is gradually extended towards more downstream products and chemical value chains, bio-based feedstocks could become more attractive for certain applications, though their availability will remain limited.

Another area is industrial biotechnology as a process innovation. Many biotechnology-based production processes operate at lower temperatures, require fewer fossil inputs, and can reduce process emissions. As suppliers face increasing pressure to reduce their carbon intensity, the demand for these low-carbon processes could grow.

A third area is fertilizers and agricultural inputs. Fertilizers are already covered by CBAM. Over time, this could make biological inputs, resource-efficient nutrient systems, and alternative production pathways more attractive if conventional, gas-intensive routes become more expensive.

However, the crucial point is that CBAM does not reward products for being bio-based. It rewards lower embedded emissions.

Bio-based solutions only offer benefits when they genuinely reduce emissions, replace carbon-intensive inputs, or result in a smaller carbon footprint than available alternatives.

Following this line of reasoning led me to a second question: even if lower-emission production pathways become more competitive, how do they become visible in the first place?

Measurement.

An often-overlooked aspect of CBAM is that it not only puts a price on emissions but also establishes a value for verifiable carbon performance.

Companies now have a stronger incentive to invest in primary emissions data, carbon accounting, and life-cycle assessments. Without robust data, firms may be assigned conservative default values that do not reflect their actual performance. In contrast, companies that can document lower emissions may be able to demonstrate lower CBAM liabilities.

The logic becomes: Carbon reporting capability → lower reported embedded emissions → lower CBAM costs → competitive advantage.

This could be particularly relevant for bio-based and biotechnology-enabled production pathways. A company that uses waste streams, biogenic carbon sources, renewable process energy, or highly efficient fermentation processes may have a genuine emissions advantage, but only if it can demonstrate this advantage with robust primary data and life-cycle assessments.

Thus, the competitive benefit may not arise solely from the technology itself, but rather from the ability to measure and verify its environmental performance.

More importantly, these benefits only matter if the methodology can recognize them. They must be measurable, reportable, and verifiable.

At first glance, this may seem like an open question. Yet, CBAM already provides an interesting signal. According to the current implementing rules, biomass can be assigned an emission factor of zero if it complies with the sustainability and greenhouse-gas saving criteria of the Renewable Energy Directive (RED). In other words, biogenic carbon is not automatically treated the same way as fossil carbon.

Unlike biomass, CBAM does not contain a dedicated category for biotechnology. Any advantage of biotechnology-enabled production pathways must therefore emerge indirectly through lower embedded emissions.

This is where measurement becomes strategic. How do different low-carbon production pathways become visible within the accounting system?

Broad rules are established through EU legislation. The CBAM Regulation defines which emissions are counted, which sectors are covered, and under what conditions primary data can be used. However, many practical details may still be developed through implementing rules and technical methodologies.

In practice, these methodological choices will help determine which production pathways become visible, which emissions reductions are recognized, and which technologies receive a competitive advantage.

At that point, we find ourselves back at industrial policy.

CBAM creates a market for products with demonstrably lower emissions. Bio-based products and biotechnology-enabled processes may benefit if they genuinely reduce emissions, and if these reductions can be credibly measured and captured by regulatory methodologies.

Therefore, when considering industrial decarbonization, it is important to consider not only carbon pricing, but also carbon accounting.

For the bioeconomy, recognizing biogenic carbon flows, renewable feedstocks, and biotechnology-enabled production pathways becomes a strategic regulatory question.

To be clear: CBAM is not a bioeconomy instrument. But it could become a significant mechanism that shapes the conditions under which parts of the bioeconomy scale. This would not be because it rewards bio-based solutions, but rather because it alters the interaction between carbon, data, and competitiveness.

That’s it for this week’s Bioeconomy Snap.

If you found this useful, share it with colleagues who are working on or are interested in bioeconomy policy..

Have a wonderful week ahead!