In the near future, Chinese companies may face comparable decarbonization requirements as European ones, especially in connection with the challenges they will face from the EU's CBAM mechanism, i.e. carbon border tax, says Forum Energii expert Lidia Wojtal.
Competition from Chinese companies is severe, including: for the European chemical industry, which supplies many industries with products for further processing. According to data from the Polish Chamber of Chemical Industry (PIPC), over the last 20 years China has taken over the role of the world leader in the chemical industry. She pointed out that “they gained approximately 44% share in the global chemical market, while Europe's share dropped from 27 to 13%.”
“If China continues its current trend towards electrification, sector integration and export of low-emission products and technologies, an effective ETS market will become crucial for its economic and trade policy. It will also support China's position as a leader in global climate policy, while enabling access to emission-regulated markets – such as the EU,” said Lidia Wojtal, International Energy Forum Program Coordinator.
The CBAM mechanism (Carbon Border Adjustment Mechanism), i.e. the carbon border tax, is to cover importers from outside the EU, including: from China. From January 1, 2026, in order to import goods covered by the CBAM mechanism into the EU customs territory, the importer or the indirect customs representative of this importer will have to have the status of the so-called authorized reporter. The first settlements by importers under the CBAM mechanism are to take place in 2027 for 2026.
CBAM aims to include the costs of CO2 emissions in the prices of imported goods at EU borders. It will be imposed on goods entering the customs territory of the European Union from the following sectors: cement, electricity, fertilizers, cast iron and steel, aluminum and hydrogen. In the case of the chemical industry, CBAM will only apply to some chemicals related to the production of fertilizers.
The president of PIPC, Tomasz Zieliński, pointed out in one of his comments for PAP that The Chinese have started to focus on green investments and are able to demonstrate a low carbon footprint of their products, and we are unable to verify what it actually is.
Lidia Wojtal pointed out that the Chinese National Emissions Trading System (CNETS) was launched in 2021. Previously, since 2013, pilot systems had been operating in 8 provinces.
“It has a more centralized structure (than the European EU ETS – PAP), can introduce changes faster and more flexibly. Even though the EU ETS system is currently more developed, forecasts indicate that Chinese entities may face a comparable level of decarbonization requirements in the near future, especially in the context of export challenges related to the EU CBAM” – the expert told PAP.
Lidia Wojtal also pointed out that the Chinese CNETS aims to reach the peak of CO2 emissions by 2030 and achieve climate neutrality by 2060. The system aims to reduce emissions in the sectors covered by it by 18%. by 2025 compared to 2020. She explained that Chinese issuers from the energy and industrial sectors settle their emissions every two years, and for settlement they receive free allowances based on the results from previous periods, with the option of selling the excess.
“The system initially covered only the energy sector, and then was extended to three new industrial sectors (cement, steel, aluminum), thus increasing the number of covered entities to 3,700, emitting 15 percent of global emissions. In the following years, new energy-intensive industries will be included. Further development of the system is to include tightening the rules and introducing emission limits,” Wojtal said.
The expert stated that the EU Emissions Trading System (EU ETS), operating since 2005, is a mature market with developed infrastructure and institutions monitoring its operation. She recalled that the EU ETS aims to reduce four greenhouse gases in four sectors (energy, industry, aviation, maritime transport – PAP) and in all industrial sectors.
“Unlike the EU ETS, the Chinese CNETS system is still in the development phase, with two implementation phases planned until 2030. This system covers emissions from selected industries, corresponding to 60% of China's emissions of three greenhouse gases (CO2 from the energy sector, and from 2025 from the cement industry, and two fluorinated gases from the steel and aluminum industry – PAP),” Wojtal pointed out. She emphasized that reduction goals are determined at the level of individual installations. However, the expert pointed out that emission allowances are granted free of charge. “This differs from the European approach, where most of the allowances must be purchased at auctions. The Chinese system is also less transparent,” she said.
When asked about the prices of allowances on the Chinese market, Wojtal noted that they depend on the stage of development of the CNETS market. “In 2023, the average allowance price fluctuated at CNY (Chinese yuan) 79.42 (EUR 10.2) per tonne of emissions. In April 2024, it exceeded CNY 100 (EUR 12.84) for the first time,” she said.
She added that China's plans to introduce a rigid pool of allowances for settlement and its auctions will result in significant increase in allowance prices.
“For comparison, prices in the EU ETS have been subject to large fluctuations since 2005, and only in the last 7 years have they permanently exceeded the limit of EUR 10 per tonne of emissions,” Wojtal added. November 28 this year the price per tonne of CO2 emission allowances in the EU ETS was EUR 81.87.
Wojtal noted that in China financial institutions are not involved in emission allowance trading, but in her opinion this may change after further reforms.
Anna Bytniewska (PAP)
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