When the carbon border adjustment mechanism (CBAM) adopted by the European Commission becomes fully effective in 2026, it will inevitably affect exports from China and other jurisdictions. The EU CBAM requires that imports into the EU carry a carbon price similar to that of items manufactured within the EU. Although China has a national carbon emissions trading system (ETS), its current carbon price is a mere fraction of that of the EU ETS. This article supports the expansion of CBAM crediting of carbon pricing in third countries by using an effective carbon pricing method that covers both explicit and implicit carbon prices. Two taxes collected in China, resource tax and consumption tax, can be considered as effective carbon prices, which could help reduce the CBAM cost on Chinese exporters. Nevertheless, this article points out that the gap between the EU’s and China’s effective carbon prices will still be significant even after taking indirect carbon prices into account. Advocating the expansion of the CBAM crediting rules can only be a stopgap approach compared with decarbonizing China’s economy.
Journal of World Trade