Quantitative Assessment of the Carbon Border Adjustment Mechanism: Impacts on China-EU Trade and Provincial-Level Vulnerabilities

Abstract

The implementation of the Carbon Border Adjustment Mechanism (CBAM) carries profound implications for China’s export trade with the EU. However, a comprehensive analysis of CBAM’s impact on provincial export trade, particularly one grounded in industrial linkages and incorporating diverse policy scenarios, remains limited. To address this gap, this study develops a mechanistic framework based on industrial linkage theory and dynamically integrates key factors such as the scope of industries covered by CBAM, carbon emission accounting boundaries, and carbon pricing into a multi-scenario quantitative model. Leveraging a refined multi-region input–output (MRIO) model, we quantitatively assess the effects of CBAM on China’s provincial exports to the EU under various scenarios. The findings show that CBAM significantly raises export costs, leading to a pronounced decline in the competitiveness of five highly vulnerable industries. As CBAM expands to include sectors covered by the EU Emissions Trading System (EU ETS), the total levies on affected industries increase considerably, ranging from USD 0.07 billion to USD 2.25 billion depending on the scenario. Conversely, seven provincial industries, such as the chemical industry in Shanxi, experience only limited impacts due to their low direct carbon intensity and minimal overall increases in carbon tariffs. Then, the study underscores the pivotal role of China’s domestic carbon pricing mechanism in mitigating the effects of CBAM. Higher domestic carbon prices enhance China’s capacity to respond effectively, thereby reducing the overall impact of the mechanism. By adopting an inter-industry linkage perspective, this study provides new insights into assessing the multidimensional impacts of CBAM on China’s exports to the EU across provinces under different policy design scenarios, providing lessons for different categories of provinces on how to cope with CBAM.