The Impact of the EU Carbon Border Adjustment Mechanism on China’s Exports to the EU

Abstract

The EU Carbon Border Adjustment Mechanism (CBAM), which is regarded as the EU’s key policy tool to address carbon leakage, might have a non-negligible impact on China’s exports, as China is an important trading partner for the EU’s carbon-intensive products. This paper uses the GTAP-E model to simulate the impact of the EU CBAM on China’s exports to the EU from four aspects, export price, trade structure, trade value and terms of trade, by setting up multiple scenarios. The results show that the EU CBAM reduces the export prices of China’s taxed sectors to the EU, and that the export prices of other sectors show the same change characteristics. The export volume of China’s taxed sectors decreases differently with the export transfer effect and export inhibition effect. In terms of trade value, the EU carbon tariffs not only reduce China’s export value but also lead to a reduction in EU exports. The implementation of the EU CBAM improves the terms of trade of the EU and worsens the terms of trade of China. An expansion of the scope of taxation and a change in the calculation method of carbon emissions would aggravate the change in the terms of trade. The results suggest that feasible measures should be taken to strengthen international cooperation, promote the construction of a unified national carbon market and export diversification, and establish a firm carbon emission accounting system in order to mitigate the negative impact of the EU CBAM.

Keywords

• carbon border adjustment mechanism
• China-EU export
• GTAP-E model