How will EU’s ‘green tariff’ impact China’s carbon market?

(China Dialogue, 6 Feb 2023) The EU’s newly agreed carbon border levy may act as an ‘external incentive’ to motivate China’s carbon market to grow.

European Union (EU) negotiators agreed in December to charge a carbon border tax on certain imports into the bloc, beginning in 2026.

Described by some media as a “green tariff”, the Carbon Border Adjustment Mechanism (CBAM) will require non-EU companies to pay a levy on some emissions-intensive products to make up the difference between the carbon price in their origin countries and that of the EU emissions trading system (ETS), the bloc’s key climate policy tool.

Although China is the EU’s largest trading partner, CBAM in its current form will have limited impacts on the country’s exports to the EU, various experts have told China Dialogue. But they expect it to act as an “external incentive” for China’s national ETS to grow so as to offset some long-term impacts.

The mechanism may motivate Chinese policymakers to improve the national carbon-accounting system, start obliging certain companies to pay for their emissions, and speed up the expansion of the national carbon market, experts say.

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China Dialogue, 6 Feb 2023: How will EU’s ‘green tariff’ impact China’s carbon market?