Quotes and opinions

The concerns

• “The CBAM was introduced to address carbon leakage and maintain the competitive edge of EU products. However, after analyzing the operational rules of CBAM, it becomes evident that this mechanism effectively creates practical consequences for industrial competition. It is an emerging ‘green barrier’ and indeed, a veritable ‘carbon tariff’.”
  “Given the current scope of goods covered by CBAM, the total trade volume affected may not be significant. Nevertheless, the situation becomes much more serious when considering the industries and companies it covers. As the global industrial chain and supply chain dynamics continue to evolve, the range of taxed products may continue to expand. Given China’s rapid strides in the export of electric vehicles and power batteries in recent years, what deserves more attention is the enforcement of the EU’s new Battery Regulation.”
  – Yang Pingjian, Director of the Environmental Sociology Research Department, Chinese Research Academy of Environmental Sciences

• “It is crucial to emphasize that the EU has, over a long period of time, equipped its energy-intensive electrolytic aluminum production lines with green electricity, thus earning the ‘green aluminum’ label for its products. However, this strategy has notable downsides: it protects the industry’s obsolete capacity, thereby dampening the incentive for technological upgrades. In contrast, China is using energy-efficient techniques, although some production lines still rely on conventional power sources.”
  “For the EU’s aluminum industry, the priority should be a substantial reduction in carbon emissions during the production process. The EU does not impose a carbon tax on local companies whose energy efficiency is below the world’s average, instead, it introduces a carbon tariff on China’s aluminum materials produced with higher energy efficiency. In that case, it is difficult not to view CBAM as a veiled maneuver in favor of trade protectionism.”
  – Ge Honglin, President of China Nonferrous Metals Industry Association

The responses

• “Chinese companies were somewhat prepared for trade-related investigations as there were signals of growing pressure from the EU. Some Chinese EV manufacturers have already planned to build local manufacturing facilities in the EU to avoid potential anti-subsidy tariffs and to better meet the demands of the European market. Following the EU’s recent move to defend its own auto industry, although Chinese companies haven’t made an explicit statement yet, they will certainly accelerate their pace in establishing overseas factories.”
  “Not only car manufacturers, but also Chinese EV battery manufacturers have long been planning to set up factories in Europe. In the future, both upstream and downstream players in the EV industrial chain will need to further localize their investments and operations in order to tap the European market.”
  – Zhu Yulong, Automotive Industry Analyst  

• “In the pursuit of carbon neutrality, it is necessary to leverage our net-zero strength. China is undeniably a global leader in areas such as wind and solar power, energy storage, electric vehicles, and heat pumps. Currently, developed countries recognize China’s unparalleled position in wind and solar power, energy storage and electric vehicles. However, China is also facing criticism, with concerns raised about the impact on the security of their supply chains. This raises a key question: should climate morality take precedence, or should industrial security be the focus? It’s important to articulate and clarify the common principle that should guide our approach.”
  – Pan Jiahua, deputy chair of China’s National Expert Committee on Climate Change

• “In the EU, carbon allowances have historically been provided free of charge to the industrial sector. In order to shift to auctioning of allowances and maintain the competitiveness of the region’s industries, it is imperative to introduce a carbon tariff. In essence, this means expanding the boundaries of the EU carbon market and introducing cross-border management.”
  “Beyond its impact on industries and companies exporting products to the EU, the CBAM imposes specific demands on the development of China’s carbon market. Going forward, when Chinese steel companies export products to the EU, emission data reports must align with the standards of the EU carbon market. This requires China’s carbon market to rapidly expand its industry coverage and introduce auctioning of allowances.”
  – Zhang Xiliang, Director of Institute of Energy, Environment and Economy, Tsinghua University

Turn pressure into progress

• “Faced with increasing trade requirements for recycling rates and the use of renewable materials, Chinese battery manufacturers find it relatively manageable thanks to their existing work. However, calculating the carbon footprint within their supply chains is a task that departs from traditional production methods and is relatively unfamiliar to most companies.
  “On the other hand, carbon footprint standards and databases are still underdeveloped, both nationally and globally. This may be a unique opportunity for Chinese battery companies to take the lead or participate in carbon footprint standard setting, and thus increase their influence in the field of sustainable development.”
  – Zheng Ying, Invited Researcher at China Society of Automotive Engineers

• “In China, people often see certain regulations in Europe and the United States as obstacles. If these regulations only categorize certain entities as unreliable, we can indeed see them as barriers. However, if the legislation is applied uniformly, it should not be seen in this way.”

• “It is important to study and understand these regulations. If you prepare in advance, you basically put on a bulletproof shell. This helps you to stay ahead of your competitors, and instead of being an obstacle, such legislation becomes a catalyst for competition.”
  – Wu Hao, Director of Strategic Operations for the International Business Division, Gotion High Tech

• “It is crucial to seek the EU’s acknowledgment for China’s relevant energy and climate policies. In addition to carbon pricing in the carbon market, China has also implemented various emission reduction measures, including reducing carbon intensity, optimizing energy consumption structure, and improving energy efficiency. Furthermore, China has already set goals for carbon peaking and carbon neutrality. China should encourage the EU to recognize these energy and climate policies through negotiations, positioning them as implicit carbon costs to offset a portion of carbon tariffs under the CBAM.”
  – Wei Xudong, Strategic Planning Department, Energy Investment Group

Thank you for reading!

Authors: Zhe Yao, Siyin Li and Diego Montero

If you have any questions, please contact ttp@igdp.cn