The potential impact of carbon barriers and our country's countermeasures
Faced with the common challenge of global climate change, reducing greenhouse gas emissions and promoting green and low-carbon development have become the general consensus of the international community. However, as the game between major powers and strategic industrial competition intensify under the influence of geopolitics, the uncertainty and instability of global climate governance have increased sharply. "National security + green decarbonization" is becoming a new trend in industrial and trade policies in the United States and Europe, gradually forming a "carbon barrier" for developing countries 'foreign trade and low-carbon industrial transformation. On April 25, 2023, the Council of the European Union voted to pass three climate bills, including reforming the carbon emissions trading system, establishing a carbon tariff and creating a social climate fund. This is the first time in the world that climate regulation has been incorporated into trade regulations, which will affect global climate governance, international trade landscape, world industrial transformation and trade rules have new impacts.
The report of the 20th National Congress of the Communist Party of China emphasized the need to actively and steadily promote carbon peak and carbon neutrality, and proposed the strategic policy of "actively participating in global governance to address climate change." The "14th Five-Year Plan for the High-Quality Development of Foreign Trade" also clearly states that China should "actively respond to green trade barriers and participate in exchanges and cooperation on multilateral and regional green trade issues." Against the background of accelerating the global "decarbonization" process and China's realization of the "double carbon" goal, we must not only actively respond to the new challenges brought by carbon barriers, but also firmly grasp the new opportunities for low-carbon development.
Potential impact of carbon barriers
1. Impact of carbon barriers on global climate governance
Carbon barriers are actually a tool used by some developed countries to try to use their own or regional market forces to share the cost of carbon emission reduction to other countries. This violates the principle of "common but differentiated" in the United Nations Framework Convention on Climate Change and undermines international cooperation and mutual trust.
First of all, from a positioning perspective, developed countries bundle climate change issues with trade issues in the name of environmental protection, which is actually a new type of trade protection. This practice not only circumvents its own historical responsibility for greenhouse gas emissions, but also undermines the fair development rights of developing countries. Therefore, carbon barriers have not only failed to play a role in carbon emission reduction, but have instead become political and trade weapons used by developed countries to curb the development of developing countries, and have become a means of international political games and trade confrontation.
Secondly, judging from the global carbon emission reduction effect, carbon tariffs are at the expense of reducing global trade flows and welfare, especially those of developing countries. This approach is not an effective emission reduction tool. Carbon tariffs will lead to higher carbon emission reduction costs and carbon leakage rates, and can only be used as a threat to force developing countries to adopt carbon emission reduction measures.
Finally, from a trade perspective, international trade can play an important role in helping countries reduce emissions by improving the availability and affordability of environmental goods, services and technologies. But carbon barriers hinder trade and weaken the power of trade tools to deal with climate change.
Once the exports of developing countries are hindered by carbon barriers, a series of chain reactions such as poverty, unemployment, decline in government fiscal revenue, and foreign exchange imbalances that accompany the slowdown in economic growth will lead countries to lower their priorities in addressing climate change and the global climate is accelerating. Carbon border regulation mechanisms will also provide incentives for companies to shift production from countries without adequate climate policies to offshore or near-shore production, reducing the enthusiasm of high-emission countries for climate action.
Therefore, adopting unilateral carbon barrier measures is not in line with the requirements of global climate governance, and is not conducive to achieving the goal of all countries jointly addressing climate change.
(2) Impact of carbon barriers on international trade
There is no doubt that global carbon barriers will inevitably aggravate the imbalance of international trade and lead to changes in the global trade pattern. In terms of trade share, the proportion of exports of products involved in developing countries in total exports is generally higher than that of developed countries. Carbon barriers bring non-productive disadvantages to enterprises in developing countries. If the export products of developing countries do not meet the carbon emission standards set by developed countries, these products will suffer from trade barriers in the name of environmental protection, resulting in increased costs and reduced competitiveness of export products, loss of competitive advantages in target markets, and change trade flow. At the same time, developed countries have strengthened their monopoly position in the formulation of international standards and third-party institutions (such as law, certification, and green finance). Some developed countries may also use carbon barriers as a means of competitiveness adjustment to hinder the development of emerging economies.
Against the background of intensifying international trade frictions, unilateral measures to incorporate carbon emission standards into the trade field can easily constitute hidden new technical barriers to trade, thereby increasing the number and radiation scope of trade frictions. Developed and developing countries have not yet reached consensus on issues such as the sharing of carbon emission reduction obligations, the legitimacy of carbon tariffs, and the liberalization of trade in low-carbon products. The WTO's identification and coordination mechanism for climate trade policies is lagging behind.
The legitimacy, fairness, effectiveness and feasibility of the EU CBAM are still highly controversial, causing widespread concerns about trade protectionism among developing countries. The fairness of the EU CBAM has yet to be tested in terms of specific mechanisms, regulatory techniques and collection standards. Its implementation may have demonstration and proliferation effects on the quantity, products and regions of collection, which will surely lead some countries to follow suit or adopt corresponding countermeasures. Measures, thus forming a new round of trade protectionism and deteriorating the international trade environment. As a regional policy, the EU CBAM may force other countries to change their EU trade policies, causing geopolitical tensions and triggering trade disputes.
Therefore, on issues such as carbon emission reduction and carbon tariffs, countries need to strengthen communication and consultation and seek consensus to maintain the stability of the international trading system and jointly respond to global climate change challenges.
(3) Impact of carbon barriers on global industrial chains
First of all, in terms of the intention of setting carbon barriers, carbon barriers are not only to deal with climate change and prevent "carbon leakage", but also to use carbon barriers to force trading countries, especially emerging developing countries, in order to maintain their own industrial competitive advantages. The country bears the economic costs of carbon emission reduction, weakens the competitiveness of emerging economies, and ultimately promotes the localization of industrial chains and attracts the return of industrial chains. For example, in the power battery industry, if foreign products fail to pass the EU's carbon footprint certification requirements, the EU's local industry will gain huge opportunities. Analysis by Luo Bixiong and others shows that in the face of EU CBAM, the output of key global industries will show a trend of shifting from developing economies with high dependence on the export of high-carbon products to developed economies or developing economies with strong international competitiveness.
Secondly, in terms of the implementation effect of carbon barriers, carbon barriers have affected the right to speak in the global industrial chain. Carbon barriers are discriminatory against imported products. Developed countries that dominate the global industrial chain can use carbon barriers such as carbon labels to exclude some developing country trade suppliers from their dominant supply chains, further enhancing the role of domestic enterprises in the supply chain. Influence in the chain system. For example, Apple has strong market power and has set out responsibility standards for suppliers in greenhouse gas emission management, which is very unfavorable to companies in developing countries that are in the high-carbon manufacturing sector. These companies must invest in additional zero-carbon factories, dedicated investment further enhances its dependence on Apple's industrial chain.
Finally, carbon barriers have an impact on the flow and efficiency of potential investment. As suppliers in the global industrial chain, especially companies in industries targeted by carbon barriers, emerging economies may adjust their supply chain layout at the expense of efficiency in response to risks as export uncertainty increases. For example, domestic photovoltaic companies such as Jing'ao Technology and LONGi Green Energy have announced that they will invest and set up factories in the United States. Against the background of obvious efficiency and cost advantages in the domestic photovoltaic industry chain, these companies decided to expand manufacturing capabilities overseas, implying pressure to deal with export carbon barriers.
(4) Impact of carbon barriers on China's foreign trade
As China's largest trading country in the world, the continued spread of carbon barriers will surely have a widespread impact on China's foreign trade. However, judging from the current situation, carbon tariffs in European and American countries are mainly aimed at high-energy-consuming and high-emission products such as steel, cement, and aluminum. The export competitive disadvantages of these products have limited impact on China's overall foreign trade.
On the one hand, due to the optimization of domestic industrial structure and de-capacity policies, the export of these products is not encouraged, and external carbon barriers further encourage relevant companies to accelerate their low-carbon transformation. Taking crude steel as the representative, data from the National Development and Reform Commission shows that the task of reducing China's crude steel output in 2021 has been fully completed.
On the other hand, according to the latest data from the World Bank, China's overall CBAM risk index is very small, only 0.0028. The export share of CBAM covered products to the EU only accounts for 8.6% of the total exports of corresponding products. In the short term, affected enterprises will have a certain transition period to adapt and adjust. However, in the long run, the products and industries covered by CBAM are likely to further expand, and the scope of influence is no longer limited to primary products, and may even trigger other countries to continue to follow up and formulate different types of carbon barrier measures. In addition, if Western developed countries form a "carbon barrier alliance" on high-carbon products such as steel and mutually recognize and deduct carbon costs, China's exports in specific industries will become more difficult and industrial structural transformation will fall into a passive situation.
Compared with carbon tariffs, non-tariff carbon barriers such as carbon labeling and carbon emission reduction certification have a more urgent impact on China's trade. Trade barriers related to carbon footprints are part of the local manufacturing protection policies of developed countries, especially in new energy industries, and carbon barriers may further spread. Broadly speaking, non-tariff carbon barriers raise the entry threshold for Chinese products to export to carbon-barrier countries, directly determine whether products are allowed to be imported, and at the same time bring certain management and compliance costs to enterprises. Among them, the "three new things" of foreign trade, namely new energy vehicles, lithium batteries, and solar cells, are key industries with non-tariff carbon barriers, while the "three new things" of foreign trade are also the industries with the most active export momentum in China.
In practice, due to disputes over power grid emission factors, most products in China lack competitiveness in terms of carbon footprint. In addition, carbon emission data are needed in raw materials, product production, transportation and recycling and other links to establish a supply chain carbon footprint management mechanism. Due to the lack of mutual recognition between China and the EU in multiple key accounting processes such as accounting boundaries, accounting methods, and emission factors, carbon footprint Quantification still faces many challenges such as standard unification, database construction, and software standardization, thus expanding the risks of China's foreign trade supply chain system. But on the other hand, carbon barriers will also force the industry to enhance development and encourage leading enterprises to lead the green and low-carbon transformation of the domestic industrial chain. At present, some key industries and leading enterprises in China are actively exploring ways to deal with carbon barriers, including actively participating in international carbon reduction initiatives and building zero-carbon factories.
China's domestic strategies to deal with carbon barriers
1. Vigorously promote green energy transformation and the development of renewable energy power
Optimizing the energy consumption structure is a key strategy to deal with carbon barriers. Carbon tariff barriers are usually established based on the fact that the implementing country has a lower carbon emission intensity than its trading partners, thereby creating a competitive advantage. However, China's energy endowment, which is rich in coal resources and relatively scarce in oil and gas resources, makes it face challenges in terms of carbon emission intensity.
In view of China's strong energy demand and coal-based energy structure, increasing the penetration rate of new energy and building a diversified green and low-carbon energy supply system have become effective ways to promote enterprises to adopt green power production and reduce the carbon emission intensity per unit of product. In order to diversify clean energy supply, China needs to further strengthen the construction of green energy infrastructure and build a modern energy system. This includes orderly promoting the construction of large-scale wind power and photovoltaic bases, and improving relevant pipe network infrastructure to increase green and low-carbon energy supply.
Through these measures, companies can effectively reduce carbon emissions during energy use without increasing additional energy costs, prepare for rainy days to avoid risks and cope with the additional costs brought about by the establishment of domestic carbon management systems and accounting standards. In addition, corresponding service platforms are used to build smart energy projects and create zero-carbon industrial parks, such as microgrids, virtual power plants, green electricity, green certificate procurement and carbon trading, to reduce carbon and cost. Through these comprehensive efforts, we will occupy a favorable position in the challenge of international carbon barriers and achieve the goal of sustainable development.
2. Promote domestic convergence of international low-carbon rules
Faced with the challenges of carbon tariff barriers such as CBAM, China needs to learn from the experience of developed countries at the institutional level and continuously improve the carbon pricing mechanism that is in line with international standards.
First, the domestic carbon trading market system should be continuously optimized. Although pilots have been launched in the domestic market, further development is still needed in terms of trading entities, varieties and methods. Learn from the EU's mature experience in paid allocation of quotas, gradually expand the industry coverage of the carbon market, and conduct industry docking with European and American markets when conditions are ripe. Secondly, for high-energy-consuming industries such as petrochemicals, steel, and electricity, it is necessary to scientifically assess the total amount and structure of greenhouse gas emissions throughout their life cycle.
By comparing domestic and foreign carbon prices, sample companies are selected to calculate the economic burden of carbon emissions, an industrial development model based on carbon costs is constructed, and simulated stress tests are carried out to study effective response strategies and industrial policies. Finally, actively respond to EU CBAM regulations, carry out training for enterprises, and improve their carbon management levels.
In dealing with non-tariff carbon barriers such as carbon footprints, China should establish a certification system that adapts to the new trade situation and rules, and use accurate carbon emission accounting data to support effective response to carbon barriers. First, actively participate in the formulation of ISO14067, the International Organization for Standardization, a product carbon footprint certification standard, accelerate the establishment of China's national standards, certification and labeling systems for carbon footprint, and explore an autonomous carbon label certification system. Starting from local pilot areas, a carbon footprint evaluation standard system that is in line with China's regional development stage will be established for key products in current carbon barrier target industries to meet the needs of export trade.
Secondly, it should be compatible with the requirements of the EU and the international market system to achieve international mutual recognition at the market and even government level.
Finally, in order to effectively overcome carbon barriers, it is necessary to speed up the construction of a standardized carbon emission accounting system, promote the establishment of a basic carbon emission database for the entire life cycle of products, and unify the carbon label and carbon emission factor database to ensure the accuracy of carbon footprint accounting., providing a solid guarantee for the export of products made in China.
3. Develop low-carbon technologies and promote low-carbon transformation of foreign trade
The development of low-carbon technologies is seen as a strategic move to overcome carbon barriers. Although there are disputes over the compliance and rationality of carbon barriers, low-carbon production methods have become an important trend in line with the development of the times. In China, industry occupies the core position of the industrial structure, and as foreign carbon barriers increase, China is facing increasing pressure for low-carbon transformation. Considering that China has made a relatively late start in low-carbon production technologies, it is particularly urgent to develop low-carbon technologies, adhere to innovation-driven development strategies, reduce dependence on traditional energy, and reduce dependence on foreign low-carbon technologies.
First of all, China should accelerate the pace of innovation in green and low-carbon technologies, strengthen basic research, research and development layout of cutting-edge technologies, and scientific and technological research. Especially in key areas such as new power systems, hydrogen energy metallurgy and chemicals, and zero-carbon equipment manufacturing, the research and development of advanced green and low-carbon technologies should be accelerated, and smart digital technology should be combined to promote the rapid application and transformation of digital technology in the industry.
Secondly, China should apply green and low-carbon technologies to foreign trade, maintain and expand the competitive advantages of photovoltaic modules, new energy vehicles and other products in the international market, and seize the green and low-carbon development opportunities of reshaping the global industrial chain.
At the same time, we will take advantage of low-carbon technology to actively cross carbon barriers and participate in international competition. By promoting green energy-saving technologies, we strive to reduce the international competitive disadvantages of high-carbon products such as steel and aluminum, thereby occupying a favorable position in the global low-carbon economy.
The author Fu Dahai is an associate professor at the School of International Economics and Trade, Central University of Finance and Economics, Wang Yan is a doctoral candidate at the School of International Economics and Trade, Central University of Finance and Economics, and Zhang Ying is an associate researcher at the Institute of Economics, Chinese Academy of Social Sciences
