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Exposure of Chinese Exports to Border Carbon Adjustments

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Exposure of Chinese Exports to Border Carbon Adjustments

China is one of the world's largest carbon emitters and is its largest exporter, and thus must be included in any discussion of border carbon adjustments (BCAs).

This study examines the size of the impact of potential BCAs on Chinese exports. First we focus on carbon flows through Chinese exports, then we discuss how emissions could be captured by a BCA scheme. We apply the methodology developed by the Intergovernmental Panel on Climate Change and an input-output analysis to evaluate carbon emissions in exports from China. Based on existing assessments of vulnerability to leakage, we made reasonable assumptions about which industrial sectors might be subject to potential BCAs imposed by the United States and European Union. Our results show that carbon emissions captured by BCA schemes are only a small fraction of China's exported emissions. Nonetheless, for certain sectors or subsectors, the volume of exports covered by BCAs, and the value of impacts, might be significant. However, Chinese exporters may find that it is both possible and more cost-effective to divert carbon-intensive production to other regions rather than pay the charges applied under a BCA. We also discuss the pros and cons of input-output analysis as a method of assessing carbon content in products.

A Policy Brief is also available that summarizes the key messages from the longer analysis.