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The impact of EU’s Carbon Border Adjustment Mechanism on Chinas economy

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  • He, Jianwu
  • Li, Shantong

Abstract

In 2021, the EU announced a detailed proposal for the "Carbon Border Adjustment Mechanism (CBAM)". The EU is China's second largest export market, and the carbon emission intensity of China's export products is significantly higher than that of many other countries. Therefore, it is necessary to analyze the impact of the carbon border adjustment mechanism on China's economy. In order to assess the macro-economic impacts of the CBAM, this study will use ENVISAGE model. In this paper the model covers 16 countries and regions, and 27 sectors. The ENVISAGE model is used to compare CBAM policy against a baseline scenario (without CBAM), and the difference represents the impact of CBAM on the global economy. As for the uncertainties, two scenarios of CBAM are designed to analyze the impacts of CBAM. The first is the partial scenario, that is, the scenario in which both the coverage of product and the embedded carbon emission are narrow. The second is the comprehensive scenario, that is, the CBAM will cover all primary products and industrial products, and the carbon emissions of products include both direct and indirect carbon emissions. This report calculated the carbon emissions of products (incl. direct and indirect carbon emission) for 15 countries and regions based on the GTAP 11 database, and then calculated the carbon tariffs in the two scenarios based on product coverage and the difference of carbon price between the EU and other countries and regions. The carbon tariffs will be feed into the ENVISAGE model to simulate the economic impacts of the CBAM scenarios. The results of the simulation show that if the carbon border adjustment mechanism is limited to five types of products such as steel, cement, fertilizer, aluminum and electricity, its impact on China will be very limited; and once the carbon border adjustment mechanism is fully implemented, it will lead to a loss of GDP by 0.64% and about 2.3 million manufacturing jobs in China in the short term.

Suggested Citation

  • He, Jianwu & Li, Shantong, 2022. "The impact of EU’s Carbon Border Adjustment Mechanism on Chinas economy," Conference papers 333491, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:333491
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    Keywords

    Environmental Economics and Policy;

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