Key Insights from the Webinar on the EU CBAM's Implications for China

On 10 June 2026, the ENTICE and EU-CHINA BRIDGE projects jointly organised the webinar "From Trade Frictions to Green Cooperation: Unpacking the EU CBAM's Implications for China." The event brought together more than 60 participants from academia, policymaking, industry, and civil society to discuss the implications of the EU Carbon Border Adjustment Mechanism (CBAM) for China and the broader trade-climate nexus.

The webinar was moderated by George Xexakis (HOLISTIC). Researchers and experts from Europe and China shared their diverse perspectives on the economic, industrial, environmental, and policy implications of the CBAM.

Presentations

The presentation titles below are clickable and link directly to the presentation slides, which are available for download.

• Introduction to ENTICE and EU-CHINA BRIDGE by Dr. Maro Baka (E3-Modelling) and Dr. Chun Xia-Bauer (Wuppertal Institute):  The opening presentation introduced the objectives and activities of the two Horizon Europe projects, highlighting their complementary work on trade, climate, industrial decarbonisation, modelling, and international cooperation.
• A Brief Introduction to the Chinese Industrial Context by Ms. Xinyi Shen (Centre for Research on Energy and Clean Air, CREA): The presentation provided an overview of recent developments in China's industrial sector and decarbonisation efforts, outlining key trends shaping the country's transition towards a lower-carbon economy.
• Expanding Carbon Pricing Boundaries and the EU CBAM: Insights into China and India
  by Dr. Paola Rocchi (CMCC): The presentation explored how expanding carbon pricing mechanisms and the evolution of the CBAM could affect major emerging economies, particularly China and India, with implications for competitiveness, trade patterns, and climate policy design.
• Structural and Economic Impacts of EU CBAM and a Potential CBAM Expansion by Zoi Vrontisi (E3-Modelling): This presentation examined the structural and economic impacts of the current CBAM and possible future expansions, highlighting how broader sectoral coverage and stricter carbon accounting requirements could reshape production and trade across major economies.
• Trade War to Cooperation: Scrutinising China's Strategies to the EU CBAM by Dr. Marc Vielle (EPFL). Drawing on modelling work focused on steel and aluminium production, the presentation assessed different Chinese response strategies, including trade measures, domestic carbon pricing, and investments in renewable electricity. The findings highlighted the potential of climate policy and industrial transformation measures to address CBAM-related challenges.
• The Impacts of CBAM on International Trade and Policy Responses from an Economic and Environmental Equity Perspective by Prof. Pu Wang (Chinese Academy of Sciences). The presentation examined the impacts of CBAM on international trade competitiveness and carbon-economic inequality. It also explored policy responses such as domestic carbon pricing and trade diversification, while raising broader questions about fairness and responsibility within global value chains. 
• Quantifying the Long-term Interactive Impact of CBAM and Chinese Steel Industry by
  Ms. Xueye Liu (Institute for Global Decarbonisation Progress, iGDP). Using a dedicated modelling framework, the presentation analysed the long-term interaction between CBAM and China's steel industry, highlighting the importance of EU carbon prices, developments in China's emissions trading system, and the pace of industrial decarbonisation in shaping future outcomes.

Insights

Collectively, panelists presented fascinating analysis. As any good research, however, the analysis and discussion prompted new questions. Lukas Hermwille (Wuppertal Institute) provided the following recap of this exciting and insightful exchange, covering the puzzles emerging from the webinar:

• CBAM is a 3D game that can have unexpected feedback mechanisms. For example, Paola's presentation highlighted how one third country advancing their carbon pricing (e.g., China) could affect the business opportunities of another third country (e.g., India). At least theoretically, this could lead to reinforcing policy feedback: the more countries implement carbon pricing the harder it will be for the others.
• But CBAM can be a 3D game when it comes to other sectors, as well. For instance, Zoi's presentation showed how CBAM affects other non-CBAM sectors too, attributing this impact to model behaviour (in terms of automatically reallocating resources to other sectors, if CBAM sectors become less attractive). However, this makes also sense from a Ricardian perspective, in which relative comparative advantages matter. If one reduces the comparative advantage of one sector, the relative comparative advantage of other sectors can be enhanced.
• Another puzzle lies in the relatively limited economic impacts in the presented analysis, potentially not justifying the massive political attention that CBAM receives—both in the EU and outside the bloc. This might hint at non-economic (e.g., political) factors driving this attention.
• Finally, the discussion demonstrated the increasing significance of sectoral considerations. For instance, Pu Wang's presentation showed how the chemical industry is the elephant in the room: although currently economic impacts on Chinese economy appear limited, this might change with the inclusion of the sector; however, the inclusion of the chemical industry is also highly contested within the EU—first and foremost by industry itself. Finding a way to avoid carbon leakage effectively and fairly is, therefore, a key policy challenge that must be addressed.

Q&A session

Finally, Alexandros Nikas (ICCS) coordinated/moderated a follow-up exchange and Q&A session with the panelists, drawing on the excellent, targeted questions received during the webinar by attendees.

Q1: How do current CGE models deal with sub-national or provincial heterogeneity within large producing countries and what are the barriers to introducing such level of detail? Taking Chinese steel as an example, its carbon intensity can differ substantially across provinces because of differences in energy mix, production routes, and decarbonisation pathways. How could resource shuffling within China and other exporters affect the results?

Paola Rocchi: This is a very relevant point, and it highlights one of the main limitations of many current CGE assessments. Most CGE models operate at the national level, with only a limited number including sub-national or provincial level of detail. This is mainly because introducing regional heterogeneity dramatically increases data requirements and computational complexity. As a result, models that incorporate a high degree of regional detail often need to simplify other important dimensions, such as sectoral coverage or temporal dynamics, and many regional CGE models remain static rather than dynamic. In the case of the Chinese steel industry, this issue is particularly important because carbon intensity varies substantially across provinces due to differences in energy mixes, production technologies, industrial structures, and decarbonisation pathways. Aggregating China into a single representative producer inevitably smoothens these differences and may conceal important distributional and adjustment effects occurring within the country.

The question also raises the critical aspect of resource shuffling. In principle, exporters could redirect lower-carbon steel towards markets covered by CBAM while selling more carbon-intensive production elsewhere. A model representing China as a single aggregate region would have difficulty capturing these internal reallocations and could therefore underestimate the scope for strategic responses to carbon border measures. More broadly, this points to the need for greater granularity in future research, whether at the territorial, sectoral, or firm level. One promising avenue would be to combine CGE models with more detailed territorial or bottom-up analyses, allowing us to retain the economy-wide consistency of CGE frameworks while better capturing regional heterogeneity and adjustment mechanisms. Rather than replacing CGE models, such hybrid and multi-scale approaches can be a particularly fruitful direction for future work.

Q2: Some of the featured studies presented in the webinar introduced scenarios of CBAM and carbon pricing configurations in the EU’s trade partners. As an increasing number of countries adopt CBAMs and carbon pricing mechanisms for emissions-intensive sectors, while other major economies refrain from implementing equivalent policies, there is a risk of growing regulatory fragmentation—with divergent rules, monitoring requirements, and administrative burdens resulting in a complex and inefficient system for internationally active industries. How can greater consistency and rationality be restored to the governance of carbon pricing and border adjustment measures? And should this objective be pursued through multilateral coordination or through a network of bilateral agreements?

Marc Vielle: This issue is particularly important given the global emergence of CBAM-style policies. Questions arise over the compatibility and interoperability of these new frameworks. Divergent regulatory approaches, integrated emissions calculation methodologies, monitoring/verification requirements, and administrative procedures could result in significant compliance costs for exporting companies and be perceived as creating new trade barriers. The institutional framework for achieving such harmonisation remains uncertain. The US current position on climate policy, as well as its influential role within international organisations and fora, could limit the prospects for comprehensive global coordination in the short run. Nonetheless, from a governance perspective, involving the WTO in cooperation with the UNFCCC would seem both logical and desirable. The EU is likely to play a central role in leading this process, given its pioneering experience with both the EU ETS and the EU CBAM. At the same time, industry organisations such as the Global Cement and Concrete Association can make valuable contributions. From an optimistic perspective, these developments can be seen as a first step towards the gradual convergence of carbon pricing frameworks in energy-intensive sectors.

Q3: Why does introducing CBAM on top of NDCs seemingly lead to more pronounced fluctuations in your results, whereas the effects appear considerably smoother when introduced on top of current policies? Also, why is Bulgaria seemingly highly affected in the GDP analysis but not in terms of emissions, in your results?

Zoi Vrontisi: Indeed, in our analysis, we see more fluctuations across countries, and with some higher intensity in the NDC/LTS implementation. Some countries (e.g., Russia) display negative implications as the CBAM rate is now higher (difference in carbon prices vis-a-vis no major changes in their carbon intensity of production); others have positive effects as they gain competitiveness upon increasing their mitigation efforts (higher domestic carbon price and lower carbon intensity). Bulgaria seems among the most affected EU countries in our quantitative analysis. In macro terms, we see a drop in exports driving the impacts, predominantly from downstream sectors. Production (and thus emissions) of CBAM sectors and power supply increase but overall emissions remain as in a current policy-driven regime, owing to a counter-balancing effect from decreasing emissions in transport sector (indirect and induced economic effect).

Q4: What can we do to make CBAM fairer for developing countries?

Pu Wang: While CBAM aims to promote a de facto global carbon price and prevent carbon leakage, its current design raises concerns over fairness. The EU can thus improve the design of the CBAM framework to promote a fairer allocation of carbon responsibilities. According to Regulation (EU) 2023/956, EU importers are liable for all embedded emissions from defined processing stages, even if precursor materials are imported from third countries. Once these materials are processed and exported to the EU, the full carbon responsibility is assigned to the exporting country. This overlooks the processing role of many developing economies in global value chains and leads to a disproportionate transfer of carbon burdens to downstream economies, resulting in a mismatch between emission obligations and actual contributions. To address this, developing countries may advocate for a more equitable accounting system inspired by existing EU customs regulations. Article 256 of Regulation (EU) No 952/2013 (EU Customs Code) stipulates that goods imported into the EU for inward processing and re-exported to third countries are exempt from customs duties. This provision reflects the EU’s institutional recognition of the unique role of the processing stage in global value chains, thereby avoiding duplicate levies and undue burdens on enterprises. Accordingly, developing countries should negotiate with the EU to incorporate a similar mechanism into the CBAM framework: for CBAM-covered products that contain precursor materials imported from other countries (including the EU), exporting countries should be allowed to report emissions from imported precursors and domestic processing separately, and only the latter should be subject to CBAM certificate obligations. Exemptions for the precursor-related emissions would be conditional on traceability requirements or third-party verification.

Xinyi Shen: CBAM was not primarily designed as a development instrument. Its core purpose is to support the integrity of the EU ETS, reduce the risk of carbon leakage, and create a level playing field between domestic and imported products as free allowances are gradually phased out. From this perspective, there may be limits to how far CBAM can be adjusted to address all concerns related to equity and development while still fulfilling its original objectives. At the same time, discussions about fairness remain important. In my view, fairness should not only be understood in terms of exemptions or reduced obligations for developing countries. It should also be considered in terms of enabling access to low-carbon technologies, improving emissions accounting capacity, facilitating green investment, and supporting industrial upgrading. More broadly, the global steel industry and many other energy-intensive sectors are already undergoing structural transformation driven by decarbonisation. The key challenge for developing countries may therefore be less about adapting to a specific policy such as CBAM and more about ensuring they remain competitive in an increasingly carbon-constrained global economy. In this context, international cooperation on technology, finance, standards, and capacity building may be more effective than focusing solely on exemptions from carbon-related trade measures. In this sense, the discussion may be less about creating exemptions and more about enabling a successful low-carbon industrial transition.

Xueye Liu: Although the current mechanism establishes default carbon intensity values for distinct production routes, these country-specific defaults fail to reflect the actual technological levels and carbon intensities of developing nations. Building upon existing research, the European Commission should extensively consult recent scientific literature and actively communicate with exporting governments towards constructing a fair and dynamic framework for default product carbon intensities. This is crucial to prevent high verification thresholds from causing an unfair trade squeeze on SMEs, which lack independent carbon verification capabilities. Moreover, to eliminate redundant institutional friction within emissions accounting systems, as well as resolve calendar misalignments between EU reporting deadlines and third-country carbon market compliance cycles, government-to-government mutual recognition agreements should be established. CBAM should be adjusted to accept sovereign carbon market compliance certificates (e.g., clearance vouchers from national ETS) from exporting nations, fully recognising the actual carbon costs paid locally and removing the need for costly, duplicative secondary verifications by EU-accredited bodies. The mechanism design also requires temporal elasticity by introducing a 24-to-36-month retrospective deduction window. This would allow enterprises to temporarily settle obligations using default values and subsequently claim refunds or offsets upon presenting their official sovereign compliance credentials, ensuring the scientific integrity of carbon cost deductions.

The webinar recording is available here 

In addition, a series of blogs based on the presentations, questions, and discussions from the webinar will be available on the ENTICE and EU-CHINA BRIDGE websites, providing further insights into the topics explored during the event.