How will EU’s carbon tax policy affect China’s steel industry?

In July 2021, the European Commission proposed a carbon border adjustment mechanism (CBAM) in line with its goal to cut carbon emissions by 55% by 2030. The CBAM would tax imported goods sold in EU markets on the basis of their carbon content (the emissions required to produce them), which depends on their material and energy inputs.

While this measure could help the EU in reducing carbon emissions, it would also negatively impact the steel trade and export business of developing countries such as China.

The impact is mainly seen in six aspects-

• Trade: Chinese steel mills will face challenges like rising steel export costs to the EU, shrinking price advantages, and declining product competitiveness. In the short term, the EU’s carbon tax policy may lead to a decline in China’s steel exports to Europe. In the long run, it can promote the optimisation of China’s steel industry and product structure, and reshape the low-carbon competitiveness of products.
• Competitiveness: The EU’s carbon tax policy has limited impact on Chinese steel as its demand is strong in the domestic market. However, it will have a certain impact on the competitiveness of China’s steel products exported to Europe.
• Low-carbon development: The policy will promote low carbon steel production in China and improve carbon emissions statistics and management capabilities. It will boost China’s iron and steel industry to carry out an all-round, wide-ranging and deep-level low-carbon revolution through a market-oriented mechanism, and accelerate the realisation of the ‘dual carbon’ goal.
• Industrial structure: The EU policy will effectively promote the structural adjustment of China’s steelmaking process and will further increase the proportion of electric furnace steelmaking.
• Standards and certification: The policy will increase demand for Chinese steel companies’ standards for carbon footprint accounting of steel products and evaluation of low-carbon products. At present, China has not issued relevant standards for implementation, but now some are being formulated. In addition, the downstream industries in China are also paying more attention to the carbon emissions of steel products, and demand for carbon emission certification is constantly expanding.
• Downstream industry chain: The EU’s carbon tax policy will increase the cost of China’s downstream steel industry chain and weaken the competitiveness of foreign trade.