Practical Handbook for Responding to the EU

Time:  2023.12.28    |    Source:  JJTZ-Dual Carbon Research Center

Connotation of CBAM

CBAM, known as the Carbon Border Adjustment Mechanism, aims to incentivize non-EU producers to reduce emissions by imposing a carbon tariff on goods imported into the EU.

CBAM is an important part of the "Fit for 55" package, a set of proposals to revise and modernize existing EU legislation to ensure that EU policies are in line with the EU climate targets (to reduce net greenhouse gas emissions by at least 55% by 2030).

The draft CBAM plan was first published in July 2021, and after more than a year of discussion and gambling, on December 13, 2022, the Council of the European Union and the European Parliament reached a provisional political agreement on the Carbon Border Adjustment Mechanism (CBAM). In April 2023, the CBAM bill was formally adopted and implementation.

From October 1, 2023, CBAM entered into a transition period. During this period, importers will only be required to fulfill their reporting obligations and will not be required to pay carbon tariffs. Starting from 2026, January 1, CBAM will be officially implemented, when importers will not only be required to continue submitting reports on time, but will also be required to pay the corresponding carbon tariffs, and at the same time, the Emission Allowances of the EU ETS will be reduced gradually until 2034 when they will be withdrawn completely.

Levy Scope of CBAM

According to the CBAM Act, six major categories of imported goods, namely steel, cement, fertilizers, aluminum, hydrogen and electricity, are currently involved. During the transition period, the EU will also continue to evaluate other products in the light of the effects of implementation, and may expand the scope of the levy when it is formally implemented.

CBAM Pricing Mechanism

CBAM Carbon Tariff = CBAM Certificate Price x Carbon Emissions.

Where the CBAM certificate price is the average of the closing price of EU ETS allowances per calendar week on the auction platform, which will actually be measured as the difference between the carbon price in the EU market and the carbon price in the recognized producing country, and the carbon

emissions are equal to the actual carbon emissions of the product minus the free carbon allowances received for similar goods in the EU. In other words, importers will be able to deduct the CBAM carbon tax if they can prove that they have paid the carbon cost in the country of production.

EU importers are directly regulated by CBAM, and carbon tariffs are also paid by the main body, EU importers. Exporters are required to fulfill their obligation to report the carbon footprint of their products, and if the carbon emissions of their products are not measurable, the default value of the average emission intensity of the exporting country is preferred for the calculation; if this data is also not available, the average emission intensity of the worst-performing X% of the European Union is used as the default value and X should be kept at an appropriate level.

CBAMCarbon Leakage and True Motivation

Carbon Leakage

Carbon leakage describes the phenomenon where emission reduction efforts in one region are partially or fully offset by increased emissions in other regions. There are three typical scenarios of carbon leakage:

1. The implementation of strict emission reduction policies in a country objectively raises the cost of emissions in the country, and enterprises often choose to move their production activities to countries with low emission costs in order to obtain cost advantages, which is manifested as "relocation of enterprises".

2. The implementation of strict emission reduction policies in a country increases the production costs of domestic enterprises and weakens the competitive advantage of their products, thus making imported products with low emission costs hit the domestic market, which is manifested as "carbon dumping".

3. The implementation of stringent emission reduction policies by a country will objectively reduce the demand for high-carbon energy, depress global fossil energy prices, and indirectly promote the increase of fossil energy consumption in countries with lax emissions, leading to the intensification of global greenhouse gas emissions.

When there is no CBAM constraint, importers only need to pay the production cost. In contrast, producers within the EU will not only have to pay for production costs, but also need to buy EU carbon allowances, with a higher total cost, and intra-EU firms will lose price competitiveness.

After the application of CBAM, importers need to pay the cost price and additional carbon price no matter they buy products inside or outside the EU. This move is intended to set up trade barriers from the carbon dimension to avoid carbon dumping of imported products from other countries and squeezing the survival space of local enterprises, and at the same time, through the pricing mechanism, to promote the construction of the global carbon market and the global emission reduction process.

Therefore, the carbon border adjustment mechanism, as a kind of institutional arrangement to prevent "carbon leakage", is essentially a trade policy, and its logical motive is to solve the problem of international coordination of carbon emission reduction.

No CBAMCarbon Leakage

With CBAMNo More Carbon Leakage

CBAM Response Strategy


CBAM is both an opportunity and a challenge for businesses.

On the one hand, enterprises should actively establish a carbon emission management mechanism, grasp their own carbon emission data, reassess product costs and selling prices; accelerate the application of green production technologies to reduce product carbon emissions and improve product competitiveness.

On the other hand, enterprises should pay attention to international, especially European and American low carbon rules, and make timely response to market changes; at the same time, they should explore more sales markets to resist the risk of single market.


First, the pace of carbon market construction should be accelerated, and relevant industries should be included in the national carbon market. The Ministry of Ecology and Environment has held several working meetings related to the "Special Study on Expanding the Scope of Industry Coverage in the National Carbon Market", and the inclusion of relevant industries in the emission control market is imminent. If it can be proved that the carbon cost has been paid in the country of origin, CBAM allows the deduction of emission tax.

Secondly, China's carbon price should be controlled in a reasonable range. At present, China's carbon market has not yet established a perfect price discovery mechanism, carbon pricing is too low, will not be able to play an effective role in restraining enterprises, affecting the process of realizing the dual-carbon goals; carbon pricing is too high, it is easy to hit the enterprise's enthusiasm for low-carbon production, weakening the competitiveness of the enterprise, and harming China's economy. Only an appropriate carbon price can steadily promote high-quality carbon peaking and sustainable development of China's economy, and at the same time, help enterprises effectively respond to the challenges brought by CBAM and avoid the risk of double taxation.

Finally, the establishment of an international mutual recognition system for carbon prices should be promoted. China's current quotas are issued free of charge, and it is difficult to be recognized as having paid carbon costs. The Government should actively engage in external communication, enhancing the power of discourse on carbon rule-making, and promote China's carbon pricing mechanism to be recognized by the international system, so as to avoid enterprises being subjected to multiple carbon constraints that make it difficult for them to survive. This is not only related to the ability of enterprises to flexibly respond to the increasing challenges of green trade barriers in the future, but also to the green and healthy development of our economy.


The Double Carbon Research Center is rooted in the engineering consulting industry, introducing the "carbon dimension" into its consulting framework. It explores the fusion of "carbon + engineering" in service offerings and delves deep into the forefront of digitalization and decarbonization. By embodying the concept of double carbon throughout the entire service process, the center aims to facilitate efficient industry-academia research collaboration, leading the industry's digital and ecological development. The ultimate goal is to contribute to the realization of the 3060 targets through the strength of enterprises.

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