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Xu Jintao: Carbon Tariffs Loom Large for China’s Exports

Aug 16-2021   



China's exports might run into serious challenges due to upcoming carbon tariffs to be levied by the EU and the US, says Prof. Xu Jintao in a media interview. He is Associate Dean of the NSD and Director of PKU Environment and Energy Economics Institute.

 

The EU has just instituted a mechanism which from 2023 will start to impose carbon tariffs on exports from countries which has a lower carbon price than the EU. Since 2020 the EU member countries have reviewed their carbon reduction pledges by setting significantly higher goals. Not only is much less carbon emission allowed, but also carbon prices have gone up to 40 euros on average and could hit 50 euros in 2023. A non-EU country with a lower carbon price will have to pay carbon tariffs on its exports to the EU, in what’s known as ‘border-adjustment mechanism’.

 

To avoid such tariffs being collected by the EU, China will need to put carbon tax on its own manufacturers. Foreseeably, companies will see their carbon costs shoot up at the expense of their bottom line.

 

In the US, President Joe Biden has promised to halve carbon emissions by 2030. If the carbon price in the US goes up to the EU level, China’s exports will be hard hit on two fronts. Prof. Xu worries that such daunting challenges will have a severe impact on the Chinese economy given the weight of its exports.

 

The silver lining, though, is that China’s fire-power plants might incur a 50% decrease in capacity and cede ground to renewable energies and photovoltaic power generation; the latter two are seeing idle capacity at 30-40% of their total.

 

The carbon prices in the EU and US come as a surprise for Prof. Xu, for such a level was previously expected for 2030 and onward. In China’s carbon trading markets, the highest price is 70 plus yuan (around ten euros). To achieve carbon neutrality, the price has to move up to 500 yuan.

 

Given the border-adjustment mechanism, trade frictions are bound to multiply between China, the EU and the US, despite the room for cooperation. The ultimate state could be that they all adopt the same carbon price of 50 euros. At such a price, China’s carbon emissions are bound to drop drastically and its pledge to reach peak carbon emissions years before 2030 will materialize.

Xu Jintao: Carbon Tariffs Loom Large for China’s Exports

Aug 16-2021   



China's exports might run into serious challenges due to upcoming carbon tariffs to be levied by the EU and the US, says Prof. Xu Jintao in a media interview. He is Associate Dean of the NSD and Director of PKU Environment and Energy Economics Institute.

 

The EU has just instituted a mechanism which from 2023 will start to impose carbon tariffs on exports from countries which has a lower carbon price than the EU. Since 2020 the EU member countries have reviewed their carbon reduction pledges by setting significantly higher goals. Not only is much less carbon emission allowed, but also carbon prices have gone up to 40 euros on average and could hit 50 euros in 2023. A non-EU country with a lower carbon price will have to pay carbon tariffs on its exports to the EU, in what’s known as ‘border-adjustment mechanism’.

 

To avoid such tariffs being collected by the EU, China will need to put carbon tax on its own manufacturers. Foreseeably, companies will see their carbon costs shoot up at the expense of their bottom line.

 

In the US, President Joe Biden has promised to halve carbon emissions by 2030. If the carbon price in the US goes up to the EU level, China’s exports will be hard hit on two fronts. Prof. Xu worries that such daunting challenges will have a severe impact on the Chinese economy given the weight of its exports.

 

The silver lining, though, is that China’s fire-power plants might incur a 50% decrease in capacity and cede ground to renewable energies and photovoltaic power generation; the latter two are seeing idle capacity at 30-40% of their total.

 

The carbon prices in the EU and US come as a surprise for Prof. Xu, for such a level was previously expected for 2030 and onward. In China’s carbon trading markets, the highest price is 70 plus yuan (around ten euros). To achieve carbon neutrality, the price has to move up to 500 yuan.

 

Given the border-adjustment mechanism, trade frictions are bound to multiply between China, the EU and the US, despite the room for cooperation. The ultimate state could be that they all adopt the same carbon price of 50 euros. At such a price, China’s carbon emissions are bound to drop drastically and its pledge to reach peak carbon emissions years before 2030 will materialize.