CBAM in the Chinese and European eyes: Challenging or supporting carbon pricing policies?

The EU Carbon Border Adjustment Mechanism (CBAM) is designed to assign a cost to the embedded emissions of products imported to the EU from third countries without equivalent climate measures. The border levy will establish a CBAM certificate, equivalent to one ton of CO2 emissions, that must be surrendered by year’s end corresponding to the total emissions for a specific imported product. These CBAM certificates will closely reflect the price paid for EUAs in the EU ETS. In the event that the jurisdiction from which the product originates has an established, explicit carbon pricing scheme this may be used to reduce the total CBAM obligation by the carbon price already paid.

The EU’s CBAM will be the first of its kind under any jurisdiction. While lauded by many environmental groups, third countries have eyed its development with caution. This article examines CBAM in the context of trade with the EU’s largest trading partner, China.