By He Jianwu, Department of Development Strategy and Regional Economy, DRC

Research Report, No.251, 2021 (Total 6316) 2021-9-8

Abstract: The European Union (EU) recently unveiled detailed proposals for the Carbon Border Adjustment Mechanism which seeks to levy or put a carbon price on products exported to the EU. Since the EU is China’s second largest export market and carbon emission of China’s exports is significantly higher than that of many other countries, related departments need to pay attention to the impacts of the mechanism on Chinese economy. Research findings show that the impacts are limited if the mechanism is only adopted on steel, cement, fertilizer, aluminum and electricity. However, all-round implementation of the mechanism will affect China’s economy and employment to a greater extent, accelerate the transfer of some traditional labor-intensive industries to Southeast Asia and South Asia, and drive the return of some technology-intensive industries to developed countries. To cope with the negative impacts of EU’s Carbon Border Adjustment Mechanism, China needs to counter EU’s unreasonable measures while step up its own efforts to reduce carbon emission.

Keywords: Carbon Border Adjustment Mechanism, carbon leakage, European Union