China to be impacted as EU lawmakers adopt carbon market reform

The European Parliament has approved a package of legislation to reform the European Union's Emissions Trading System (ETS), with the aim of reducing carbon emissions by an ambitious 62% by 2030 compared to the 2005 levels, according to an official press release published on April 18.

The package includes several deals, such as the introduction of a carbon border tax (CBT) on imports, the phase-out of free allowances for carbon emissions in the ETS during 2026-2034, and adjustments to the carbon trading systems of marine and aviation sectors.

Under the new Carbon Border Adjustment Mechanism (CBAM), the EU will begin to collect CBT on imports from January 2026, based on the greenhouse gases emitted during the production of the goods. The initial product list covers iron, steel, cement, aluminum, fertilizers, electricity, hydrogen, as well as indirect emissions under certain conditions.

However, the adoption of CBAM may deepen the trade imbalance between developed and developing countries, as many companies in developing countries have yet to establish their effective management systems for carbon emissions, according to an analysis report from a Chinese research agency.

China, the world's largest carbon market and one of the EU's major trading partners, will also be significantly impacted by the CBT - most of China's exports come from those industries with high carbon emissions, which will inevitably incur a heavier cost burden under the implementation of CBAM, the report noted.

During January-February this year, China's trading value with the EU totaled Yuan 851 billion ($123.5 billion), with exports reaching Yuan 552.8 billion, according to the data from China's General Administration of Customs.

As such, Chinese companies will need to step up efforts to build carbon management systems. This should involve various links, such as the quantification of greenhouse gases emitted during production, the tracking of carbon footprint, and the optimization of supply chain management, the analysis report suggested.

Written by Anthea Shi, shihui@mysteel.com

Edited by Zhenqi Yang, yangzhenqi@mysteel.com

Note: This article has been written in accordance with an article exchange agreement between Mysteel Global and SteelMint.