How should companies respond to the EU's carbon tariffs?

Recently, the European Union has released a series of legislative proposals and implementation details related to the Carbon Border Adjustment Mechanism (CBAM, also known as "carbon tariffs"), including setting default values for carbon emission intensity and plans to expand product coverage. According to the EU adjustment plan, the carbon border adjustment mechanism will expand the previously established basic materials such as aluminum, cement, electricity, and steel to downstream products such as steel and aluminum, adding 180 new downstream products, involving industries such as machinery, hardware and metal products, vehicle parts, household appliances such as washing machines, and construction equipment. This new change means that future exports of cars, home appliances, and other products to the EU will face additional carbon costs.

Direct and significant impact

The expansion of CBAM has a direct and significant impact on Chinese export enterprises.

Recently, a spokesperson for the Ministry of Commerce stated on issues related to the EU's carbon border adjustment mechanism that the EU ignores the huge achievements of China's green and low-carbon development, sets significantly higher basic default values for the carbon emission intensity of Chinese products, and will increase them year by year in the next three years. This is not in line with China's current actual level and future development trend, and constitutes unfair and discriminatory treatment towards China. The actions taken by the European side not only violate the principles of "most favored nation treatment" and "national treatment" of the World Trade Organization, but also contradict the principle of "common but differentiated responsibilities" established by the United Nations Framework Convention on Climate Change.

Professor Song Wei from the School of International Relations at Beijing Foreign Studies University pointed out that the most obvious change for Chinese enterprises is the change in cost structure. Importers need to purchase certificates for the implicit carbon emissions of their products, which will inevitably lead to a significant increase in export costs.

The relative weakening of market competitiveness is another major impact. The increase in costs directly weakens China's price advantage in exporting products such as the 'New Three Samples', and there is a risk of market share being squeezed, "said Song Wei.

We need to take multiple measures to deal with it

Faced with the expansion of CBAM, Chinese export enterprises need to take multiple measures. Experts provide the following suggestions on how to build a systematic response strategy.

Supply chain collaboration is the primary task, and enterprises need to establish a supplier carbon data sharing mechanism, optimize raw material procurement strategies, select low-carbon raw material suppliers, and promote digital upgrading of the supply chain to achieve real-time monitoring of the procurement and supply chains.

Low carbon technology transformation is the core measure. Enterprises should accelerate the replacement of green electricity, innovate production processes, improve product energy efficiency, and accelerate the rapid innovation and transformation of low-carbon technologies.

Diversified market layout is the key to risk diversification. While continuing to deeply cultivate the EU market, enterprises should actively expand into emerging markets such as Southeast Asia and the Middle East, and reduce their dependence on a single market. Currently, some domestic enterprises have begun to implement this strategy.

Establish a systematic management system

In the long run, Chinese companies need to be prepared at multiple levels to address the challenges of CBAM. Establishing a systematic carbon management system has become a task that enterprises must face. This requires enterprises to integrate resources from multiple departments such as logistics, supply chain, production, and carbon management, establish cross departmental collaboration mechanisms, and establish clear data management processes.

Participating in international rule making is an important way to enhance discourse power. Song Wei stated that enterprises should actively participate in the formulation of international carbon accounting standards, strive for the right to speak on rules, and at the same time, building a green brand image will become a new competitive advantage for enterprises, driving the low-carbon transformation of energy through compliance and enhancing green competitiveness.

For Chinese companies, CBAM is no longer just a trade compliance issue that needs to be addressed, it is driving a comprehensive green revolution from supply chain collaboration to production technology. Only enterprises that take the lead in completing low-carbon transformation and establishing transparent carbon data management systems can seize the opportunity in this global green competition.