Triggered by the EU's defensive green trade tools, China is exploring a strategic long-term approach in its policy planning as it slowly moves toward a decarbonized economy. By discussing a full life-cycle carbon footprint tracking system, Beijing is thinking even further than the EU’s Carbon Border Adjustment Mechanism (CBAM). If implemented, this could make CBAM look rudimentary in comparison.
While the international trading system is slowly moving towards a green future, Beijing is exploring and developing its own policies (foreign trade, green tech trade, foreign climate policy, etc). This domestic and global decarbonization toolkit, tailored to China’s own circumstances, comes as the European Union (and the United States) develop their defensive green trade instruments, often aimed at China.
The European Parliament and the Council of the EU reached a provisional agreement on a Carbon Border Adjustment Mechanism (CBAM) framework in December 2022. Since then, debate in China on carbon mitigation measures and on how to comply with CBAM has intensified. Although the official line on CBAM has labeled it an "unnecessary" and "unilateral trade barrier," some comments, including a recent one by a Ministry of Commerce staffer, have downplayed its negative impact on Chinese exports to the EU in the initial stage, implying its positive impact on decarbonization.
One policy instrument China can use to face CBAM obligations is its national emissions trading system (ETS). It can accelerate the expansion of ETS sectors, which would subject more industries to a carbon price, and make them more CBAM-compliant. However, China's still-nascent ETS is currently the only instrument it has to respond to CBAM, and so far, its expansion has been repeatedly delayed with no specific timeline. This situation does not give China much leverage or options to provide reliable data on carbon emissions once CBAM comes into effect.
Triggered by CBAM, Chinese government and expert circles are also discussing the introduction of a full life-cycle carbon footprint tracking system, or life-cycle assessment (LCA). The LCA would radically change that situation and give back China some of the initiative to respond to CBAM.
The LCA is a similar but also quite different policy instrument compared to CBAM. While CBAM in its early stages will urge importers to measure (and later pay for) carbon emitted by companies only during the production process, the LCA focuses on measuring products’ carbon footprint during their whole life cycle. It follows a (still emerging) approach to measure all CO2 emitted during production (direct and indirect), consumption and after-life. While the difference between the two instruments was rather confused in earlier stages of the debate in China, where the LCA was referred to as a “response” to comply with measures such as CBAM, Chinese stakeholders have begun to recognize the difference and have pointed it out more explicitly in recent comments.
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