China and the European Union’s Carbon Border Adjustment Mechanism: Cultivating Mutual Benefits for the EU and China

The report analyzes the EU's proposed CBAM, which will impose fees on carbon-intensive imports starting in 2026. It finds that the overall impact on China's exports will be moderate due to the limited number of covered sectors, primarily aluminum, iron, and steel. The authors recommend that China expand its national emissions trading system (CN ETS) to reduce exposure to fees and enhance competitiveness. For the EU, the report suggests dedicating CBAM revenues to technical assistance for developing countries and recognizing non-price-based decarbonization policies to reduce international tensions.

• The EU CBAM is designed to address carbon leakage and competitiveness by charging fees on imports based on emissions intensity, with a pilot phase starting in 2023 and border fees beginning in 2026.
• The initial scope of the CBAM is limited to five industries: iron and steel, aluminum, cement, fertilizer, and electrical energy, covering only direct emissions.
• CBAM-covered products represent a small portion of China's total exports to the EU, approximately 1.8%, with aluminum and iron/steel making up 99% of those covered exports in 2020.
• Quantitative modeling from 'A Storm in a Teacup' suggests that the net cost to China—accounting for carbon price pass-through—will be between €150 million and €200 million, representing 0.04% to 0.06% of total EU exports.
• China can mitigate CBAM costs and improve global competitiveness by expanding the CN ETS to include sectors like aluminum, iron, and steel, which would lower emissions intensity and reduce the carbon price gap with the EU.
• The EU is encouraged to dedicate a portion of CBAM fees to technical assistance and decarbonization investments in developing countries to address equity concerns and the principle of 'common but differentiated responsibilities'.
• The report recommends that the EU evolve the CBAM to credit 'shadow' carbon prices—implicit costs derived from non-price policies like energy efficiency standards—to avoid friction with partners like China.

APA

BUSCH, C., MIN, H., & MEIAN, C. (2022). China and the European Union’s Carbon Border Adjustment Mechanism: Cultivating Mutual Benefits for the EU and China. Energy Innovation. https://energyinnovation.org/wp-content/uploads/China-and-the-EUs-Carbon-Border-Adjustment-Mechanism.pdf

Chicago

BUSCH, CHRIS, HU MIN, and CHEN MEIAN. China and the European Union’s Carbon Border Adjustment Mechanism: Cultivating Mutual Benefits for the EU and China. Energy Innovation, 2022. https://energyinnovation.org/wp-content/uploads/China-and-the-EUs-Carbon-Border-Adjustment-Mechanism.pdf.

Wikipedia

{{cite report |last1=BUSCH |first1=CHRIS |last2=MIN |first2=HU |last3=MEIAN |first3=CHEN |title=China and the European Union’s Carbon Border Adjustment Mechanism: Cultivating Mutual Benefits for the EU and China |publisher=Energy Innovation |date=April 2022 |url=https://energyinnovation.org/wp-content/uploads/China-and-the-EUs-Carbon-Border-Adjustment-Mechanism.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{busch2022china, author = {BUSCH, CHRIS and MIN, HU and MEIAN, CHEN}, title = {{China and the European Union’s Carbon Border Adjustment Mechanism: Cultivating Mutual Benefits for the EU and China}}, institution = {Energy Innovation}, year = {2022}, month = apr, url = {https://energyinnovation.org/wp-content/uploads/China-and-the-EUs-Carbon-Border-Adjustment-Mechanism.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }