EUC Forum: EU Green Deal and New Prospects for EU-China Cooperation

In the context of the global economy's pursuit of sustainable development, the introduction of the EU Carbon Border Adjustment Mechanism (referred to as "carbon tariff") has become the focus of attention from all walks of life. In this regard, the China (Shenzhen) Institute of Comprehensive Development recently held the "China-EU Cooperation Forum: EU Green New Deal and New Prospects for China-EU Cooperation", focusing on the possible impact of EU carbon tariffs on global trade, global climate policy, and China-EU relations, and providing policy suggestions for cooperation between the two sides. The meeting was chaired by Guo Wanda, Executive Vice President of China (Shenzhen) Comprehensive Development Research Institute.

Fan Gang, President of China (Shenzhen) Comprehensive Development Research Institute, first pointed out that as a new legislation of the European Union, the implementation of carbon tariffs should take into account the actual conditions of different countries, take into account the legitimate concerns of developing countries and less developed countries, and promote the achievement of more just and effective greenhouse gas emission reduction measures. Regarding the future cooperation between China and the EU in the field of carbon tariffs, he mentioned that there are many gaps between developed and developing countries in carbon system construction and carbon pricing mechanisms, and there is no unified global standard to account for the carbon emissions of each country. When countries with different emissions negotiate carbon tariffs with the EU, they may involve issues such as the different export volumes and emissions of each country, and the separation of obligations of developed and developing countries in reducing emissions. In this regard, he suggested that China and the EU should conduct dialogue on the transparency of carbon tariffs, the accounting system, the working mechanism and the harmonization of WTO rules, advocate the rational distribution of emission reductions between producing and consuming countries, strive to establish a new carbon emission reduction responsibility standard based on historical emissions and per capita carbon consumption, and clarify the emission reduction responsibilities of different countries. At the same time, the taxes collected should be used as financial support to help developing countries, and more technology transfer should be carried out, and developing countries should be encouraged to make more efforts on issues such as climate change.

Doris Fishcer, vice-chancellor of the University of Würzburg in Germany and chair professor of Chinese economic studies, believes that carbon tariffs are not only an environmental issue, but also an economic one. In the future, we should pay attention to the expected impact of the implementation of carbon tariffs to address the uncertainty that this policy will bring to the global economy. One of the most important objectives of carbon tariffs is to prevent carbon leakage, that is, to prevent high-emitting enterprises from moving outside the EU, but there are several issues that need urgent attention: First, the impact on international trade, carbon tariffs may trigger trade disputes, or cause importing countries to take countermeasures against exporting countries, which will have a negative impact on the global economy. Second, the impact of international investment, the manufacturing industry as a whole will also respond to this, or invest in developing countries with abundant carbon emission indicators, resulting in greater pollution; It may raise the cost of investment for developing countries, making it difficult for them to effectively attract and utilize foreign investment. How to determine the carbon emissions of imported products is a difficult point in the supervision of carbon tariffs, it is difficult to ensure the authenticity and fairness of relevant data, and it is easy to cause distrust among enterprises and governments. On the whole, carbon tariffs have obvious advantages in promoting global emission reduction and environmental protection investment, but there are uncertainties in international trade, investment and supervision, and it is necessary to better weigh the pros and cons to ensure the fairness and effectiveness of policy implementation.

Georg Zachmann, a senior researcher and senior energy expert at the Bruegel Institute, believes that the current carbon tariffs should not be regarded simply as a tool for the EU to address climate change, but need to be considered in the broader economic environment and international context, and the EU and China should find a convergence of interests in the field of carbon tariffs. He pointed out that the current problem of the EU's excessive dependence on a single country in the economic and energy fields, and the policy priorities of the next EU leader are not yet known, these factors will affect the implementation of the EU's carbon tariffs. In addition, the EU's expectations for China's development have also changed, on the one hand, the EU believes that the economic competition between the two sides in key industries such as intelligent manufacturing and automobile manufacturing will intensify; On the other hand, the EU fears that the volatile Sino-US relationship will plunge the EU into a sustained geopolitical conflict. Despite the above factors, both the EU and China have a strong will and commitment to address climate change, and have a good foundation for cooperation, and the next step can be joint cooperation to jointly promote the improvement of carbon tariff standards, not only can be used by the EU, but China and the rest of the world can use the carbon tariff tool to protect their products from the impact of low-energy cost production of domestic products, and at the same time jointly promote the realization of decarbonization plans and take stronger actions to combat global climate change.

Lu Xuedu, former chief expert on climate change of the Asian Development Bank and academic committee member of the International Finance Forum, believes that the introduction of EU carbon tariffs will have far-reaching global impacts, which should be viewed rationally and objectively and dealt with with scientifically. First, unlike the targeted policies adopted by many international industry organizations for different industries, carbon tariffs are more comprehensive, and the introduction and implementation of the bill is likely to systematically promote greenhouse gas emission reductions in various industries around the world. Second, in addition to helping to solve the problem of carbon leakage, carbon tariffs will also bring more additional public revenue to the EU and enhance the market competitiveness of enterprises in related industries in the EU. Third, while the direct impact of carbon tariffs on EU-China trade is limited in the short term, the impact will be long-term and profound as they are extended to all sectors covered by the EU ETS. Fourth, the introduction of EU carbon tariffs will actually create a new international carbon emission reduction system outside the UNFCCC, which not only violates the basic principle of the UNFCCC on "common but differentiated responsibilities" between developed and developing countries, but also violates the EU's own commitments under the Convention and the Paris Agreement. He stressed that all parties need to abide by the principles established by the United Nations Framework Convention on Climate Change and maintain and strengthen political mutual trust among countries, which is particularly important for global cooperation to promote the challenge of climate change. For the prevention of carbon leakage risks, all parties should negotiate an acceptable way to solve the problem, such as negotiating new trade agreements or arrangements involving greenhouse gas emissions to solve the problem of carbon leakage. In fact, technical means to solve the problem of carbon leakage can also be explored.

Joseph Francois, President of the Swiss Institute of World Trade, pointed out that the EU carbon tariff still has many shortcomings at the technical and operational levels, and the EU and China can cooperate in the efficiency and precision of carbon tariff implementation, jointly improve the carbon tariff mechanism, and promote the global climate action process. At present, EU carbon tariffs mainly target CO2 emissions from materials and energy, with limited understanding of the entire supply chain, supply chain carbon flows and their impacts. For some products with complex production links and long supply chains, if the carbon flow of the supply chain cannot be accurately tracked, on the one hand, the so-called "downstream carbon transfer" will occur, that is, when the downstream of the supply chain or the end products are subject to carbon tariffs, the high-carbon emission production links may be transferred to upstream countries, which will also lead to a decline in the willingness of enterprises to use clean energy, insufficient motivation for upstream enterprises to optimize production, and a decline in downstream industry support for carbon tariffs. Therefore, in the next stage, it is necessary to more accurately measure carbon emissions in all links of the supply chain, and deal with economic, technical, regulatory and other challenges in actual operation. In addition, it is also necessary to reduce the cost of corporate carbon tariff compliance, so as to enhance the motivation of enterprises to promote technological innovation and meet carbon emission standards, especially for small and medium-sized enterprises.

Xu Jintao, vice president of the National Institute of Development and director of the Center for Environment and Energy Economics at Peking University, pointed out that in order to achieve the goal of climate action, countries' economic policies must play a role. The introduction of carbon tariffs will have an important impact on China's economic policymaking. On the one hand, the implementation of carbon tariffs is to effectively deal with carbon leakage, but to truly control carbon leakage, carbon tariffs must be extended to all industries and cover all products in the next ten years. This poses a test to the economic development of all countries. On the other hand, carbon taxes have become an important tool in China's climate action. At present, China's emissions trading mechanism is not yet sound and mature, and it is difficult to implement and expand. Based on this, in the future, China should introduce a unified national carbon tax in a timely manner according to the actual situation. Like environmental and resource taxes, carbon taxes can also be used as incentives for local governments to increase their public revenues. Therefore, local governments also have more incentive to seriously monitor carbon emissions, which is conducive to China's more effective implementation of the "dual carbon" goal. Of course, the implementation of carbon tariffs will also have some negative effects. If the carbon tariff is further extended in the future to achieve full coverage of the industry, then the cost in China will be higher. For China, economic restructuring is very important, but it requires huge financial support, which is a difficult problem that industry and policymakers must deal with. China needs to adjust the level of its carbon pricing with a reasonable time frame to gradually reach international levels in the next 10-20 years.

Liu Yu, executive director of the New Energy and Low-Carbon Development Research Center of the China (Shenzhen) Comprehensive Development Research Institute, believes that as a global trading power, improving the national carbon market will be a favorable policy tool for China to cope with the carbon tariff mechanism. He pointed out that carbon tariffs, as unilateral measures, will pose challenges to basic principles such as common but differentiated responsibilities, the basic principles of respective capabilities, and the arrangement of nationally determined contributions. With the gradual strengthening of carbon tariffs, the export costs of carbon-intensive industries will rise sharply, weaken the price advantage of export products of developing countries, and relocate EU enterprises to return to China, resulting in a chain reaction in the global industrial chain. Recently, the United States, Britain, Japan, Canada and other countries have considered their own carbon border adjustment plans, which is also easy to trigger a wave of global "carbon tariffs". In this regard, China should work to establish a better carbon market to cope with the uncertainty caused by this mechanism. For example, the carbon market should be expanded to cover industries and increase market participation. At the same time, explore the setting of carbon emission targets and gradually introduce the mechanism of paid auctions. In the next stage, a unified and standardized carbon emission statistical accounting system should be established, the MRV mechanism of the carbon market should be improved, and the innovation of various carbon financial products should be actively promoted, and carbon financial instruments and products should be developed in an orderly manner on the basis of spot trading. Improve the carbon emission quota issuance mechanism and optimize the market price discovery mechanism. Finally, consideration should be given to strengthening communication with the EU and the international carbon market, and actively promoting cooperation in the international carbon market. At the same time, communication and collaboration with the EU or the international community based on the establishment of a more integrated carbon pricing mechanism should be promoted.

Giulia Cretti, a senior researcher at the Centre for European Union and International Affairs at the Netherlands Institute of International Relations, pointed out that the EU and China can start by cooperating to establish a diversified carbon pricing system, simultaneously promote the development of China's emissions trading system capabilities and policy formulation, help align carbon tariff standards between the two sides, and further consolidate the international trade partnership between the two sides. According to the World Bank's 2022 analysis, there are 68 carbon pricing measures in force around the world, such as carbon taxes, emissions trading systems, and fuel taxes. Its variety is diverse, which puts forward higher requirements for the establishment of a diversified carbon pricing system. First, we should develop a policy system that is transparent, accountable and differentiated, as well as international standards covering carbon emission measurement, reporting and verification, clarify the basis for identifying carbon leaks, and improve the credibility of the carbon pricing system through the publication of carbon emissions and related economic data. Second, a carbon pricing system that meets WTO standards and has better compatibility will encourage more countries to accept and adopt carbon pricing measures to eliminate the negative impact of carbon tariffs on international trade; Third, the proceeds of EU carbon tariffs should be converted into green financial instruments to provide financial and capacity building support to vulnerable countries and developing countries to help them establish or improve their own carbon pricing measures and achieve decarbonization targets, so that they can apply for relief from EU carbon tariffs and reduce their international trade compliance burden.