On May 15, 2023, the European Union’s Carbon Border Regulation Mechanism Act, also known as the “Carbon Border Regulation Mechanism Act”, was passed.The carbon tariffsThe implementation of this bill indicates that “carbon tariffs” may become an important factor affecting international trade in the future.

For Chinese export companies, this is both an opportunity and a challenge. The opportunity is that China’s accumulation of technology and leadership in the field of new energy can help companies gain a competitive advantage in the process of reducing carbon emissions. The challenge is that the “carbon tariffs” in developed economies may have higher requirements for product production monitoring, data quality, third-party evaluation, which poses new requirements for China’s export companies, third-party assessment agencies and regulators.

The EU’s CBAM bill will go into a transitional period in October this year, with imported goods required to declare their implicit carbon emissions under the CBAM Act, but no actual payment required. From 2026, the EU will gradually abolish free carbon quotas and impose “carbon tariffs” on imported goods. This provides a window period for Chinese exporting companies to better understand and become familiar with the systems under the laws and find ways to cope with future international carbon markets and international trade changes.

If Chinese export companies can prove that they have paid carbon costs in China in a way that is recognised by the EU, they may be able to reduce the total amount they may pay CBAM based on this fact. This requires companies to actively explore and practice to find the best response strategy for their situation.

Overall, the implementation of the EU’s “carbon tariffs” presents both challenges and opportunities for Chinese export companies.