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A Storm in a Teacup: Impacts and Geopolitical Risks of the European Carbon Border Adjustment Mechanism

A Storm in a Teacup: Impacts and Geopolitical Risks of the European Carbon Border Adjustment Mechanism

Publish Date:
Apr 26, 2022
Grantee:
Sandbag
E3G

Energy Foundation China presents this report co-conceived and commissioned to European thinktanks Sandbag and E3G in 2021 to analyze the impacts of the European Carbon Border Adjustment Mechanism (CBAM) on Chinese stakeholders.

This report provides a quantified analysis of the impact of the European Union (EU) CBAM on Chinese trade and the competitiveness of Chinese exports on the EU market. If implemented in its current proposed form, it finds, the overall impact is likely to be small, as the current proposal only covers a small share of Chinese exports to the EU, and importers will recover most of the additional costs through higher prices in EU markets as EU products will also face a similar price increase due to the reduction of free allocations of allowances under the EU emissions trading system. The sectors covered by the current proposal represented 1.8 percent of Chinese exports to Europe in 2019, in value. Potential extensions could increase that share to 5 percent in an extreme scenario. Overall, the total net CBAM cost across all Chinese imports to the EU should barely reach €146 million ($172 million) in 2026 and €208 million in 2035, compared to a total volume of imports from China to the EU of €362 billion in 2019.

The report provides a quantified analysis of the economic impacts and geopolitical risks of the European proposal for climate and trade policymakers. Hopefully it can provide a valuable input to the relatively high attention and debate the topic has received.

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