EU Carbon Tariff Starts Closing Loopholes! China's Auto and Home Appliance Export Costs May Surge, How to Break the Deadlock?

On the 17th, the European Commission announced an adjustment plan for the Carbon Border Adjustment Mechanism (CBAM), intending to expand the scope of the CBAM.Automotive parts, household appliancesThe inclusion of downstream products in the taxation list marks the most significant expansion since the mechanism was proposed in 2021, signifying that the EU is extending carbon tariffs from raw materials to industrial manufactured goods.

Source: Green Carbon Harmony

This globally pioneering carbon border tax policy will be implemented.2026 The comprehensive implementation has currently covered six high-carbon emission industries: steel, aluminum, cement, fertilizer, hydrogen, and electricity. The new proposal aims to close the "downstream assembly" loophole, preventing companies from avoiding taxes by exporting high-carbon raw materials to a third country for assembly into finished products before importing them back into the EU.

01 Expansion of Tax Scope: Which Products Will Be Affected?

The essence of the EU Carbon Border Adjustment Mechanism is an environmental policy tool that aims to achieve two objectives: preventing "carbon leakage" and protecting the competitiveness of domestic industries by imposing carbon emissions taxes on high-carbon-intensive products imported into the EU.

According to the latest draft,The EU will expand the scope of taxation to downstream products that heavily use steel and aluminum.A total of 180 new downstream products have been added, covering industries such as machinery, hardware and metal products, vehicle components, home appliances like washing machines, and construction equipment.

Specifically, it can be divided into two major categories:

 Industrial supply chain products (accounting for 94%）：The average content of steel and aluminum is 79%, with a focus on heavy machinery, industrial radiators, automotive drive shafts, pipe profiles, and fasteners (screws, bolts), etc.

According to customs data, in 2024, China's exports of machinery and automobile parts to the European Union exceeded 500 billion yuan, accounting for 18% of total exports to the EU, and will face the challenge of carbon tariffs in the future.

Household products (accounting for 6%)）：Typical examples include household appliances such as washing machines, refrigerators, ovens, and gardening tools like lawnmowers. For instance, in a drum washing machine, steel and aluminum materials account for over 65%, and based on the current carbon price, each machine may incur an additional carbon cost of 20-50 euros.

In 2024, China's total exports of household appliances to the EU are estimated to be around 320 billion yuan, and the price competitiveness of these products will be directly affected.

What will happen if I don't declare it?

The EU plans to take strict measures to combat carbon tariff evasion.Once it is verified that emission levels have been underreported, the EU may impose restrictions on related products from the countries involved.“Default emission valueThis will lead to a significant increase in the amount of carbon border tax that enterprises need to pay.

The calculation of carbon tariffs is based on embedded carbon emissions, deducting the carbon price already paid in the country of origin. Importers must report the carbon dioxide emissions associated with the production process of imported products to the EU authorities. If the emissions exceed European standards, they must purchase "emission certificates" according to the carbon price of the EU's Emissions Trading System (ETS).

02 Why do we need to plug loopholes?

The design concept of the EU Carbon Border Adjustment Mechanism demonstrates its refined and systematic characteristics.

The transitional phase of the mechanism begins in October 2023, requiring importers to report carbon emission data only, without the need to pay any taxes or fees.

In January 2025, the declaration platform will be open, and exporters can fill in the data themselves.

By 2026 The mechanism will be fully implemented.Importers must register as authorized declarants, declare emissions, and purchase certificates to pay taxes and fees.

The core of the new proposal targets the "downstream assembly" loophole.

Previously, the CBAM only covered six basic materials: steel, aluminum, cement, fertilizers, electricity, and hydrogen.

However, the EU has identified a key loophole: domestic companies that use these materials to produce downstream products (such as using steel for washing machines and aluminum for automotive parts) have to bear the carbon costs of the EU carbon market (ETS), which currently stands at around 80 euros per ton.

Imported finished washing machines and automobile parts, because their raw materials are not within the scope of CBAM regulation, do not have to pay this carbon fee, directly leading to domestic companies being at a disadvantage. According to EU estimates, this cost difference may reduce the competitiveness of domestic manufacturing by 10%-15%.

What's more troublesome is that this cost difference may lead to "carbon leakage."

In order to reduce costs, EU companies may move their production lines to countries with lenient climate policies and no carbon pricing; or directly import cheaper high-carbon downstream products, ultimately resulting in no reduction in global carbon emissions, merely "shifting from the EU to other countries," which severely hinders the achievement of the EU's 2050 climate neutrality goal.

Therefore, this expansion essentially aims to place imported downstream products and domestic products "on the same starting line of carbon costs," closing loopholes while forcing a low-carbon transformation of the global industrial chain.

The EU expects by 2030.In that year, this tax will generate 2.1. One billion euros in revenueThis makes the CBAM one of the important climate-related financial tools in the EU. The Brussels authorities also plan to allocate 25% of the revenue from the carbon border tax to subsidize European manufacturers investing in low-carbon manufacturing processes.

03 Dual Purpose: Both an Environmental Tool and a Trade Barrier

The EU carbon border tax policy has had a dual nature since its inception: on one hand, it is an innovative tool for global climate governance; on the other hand, it serves as a trade barrier to protect domestic industries.

The original intention of this policy is to protect domestic industries in Europe.to shield it from the impact of low-priced imports from countries with relatively lenient climate regulations.

From the perspective of climate governance, CBAM aims to align the cost of imported goods with the carbon price within the EU, incentivizing foreign manufacturers to decarbonize. As a leader in global climate change policy, the EU extends climate costs to the trade sector through the carbon tariff mechanism, attempting to promote the establishment of a global carbon pricing mechanism.

From the perspective of trade protection, carbon tariffs are essentially a form of green trade barrier. They increase the cost of foreign products entering the EU market, weakening their price competitiveness.

The European Union is China's second-largest trading partner.In the first 10 months of 2025, China's trade surplus with the European Union surpassed that with the United States for the first time, and this policy adjustment has had a particularly significant impact on China. Trade partners, including China, India, and South Africa, have criticized the policy as discriminatory, arguing that it places disproportionate pressure on emerging economies. The cost of industrial transformation is higher for these countries, and they have relatively limited access to clean technology.

04 How significant is the impact on Chinese enterprises? Rising costs, reduced orders, and the pressure to transform coexist.

As one of the European Union's largest trading partners, China will be significantly affected by carbon tariff policies.

China is one of the largest exporters of products covered by the EU's carbon tariffs, such as steel and aluminum.In 2023, China's steel exports to the EU accounted for more than 20% of the EU's total imports. According to analysis, the comprehensive implementation of CBAM will impact China's exports in multiple ways, mainly in terms of rising costs, declining competitiveness, and pressure on industrial transformation. Taking the steel industry as an example, Baosteel's annual carbon tariff expenditure is estimated to reach 40-80 million euros. The competitiveness of high-carbon products will weaken, and steel exports to the EU are expected to decrease by 10-30%. After 2026, CBAM may include organic chemicals and polymers, which are key products in China's exports to the EU, accounting for 5-7% of total exports, further affecting the petrochemical industry. Products covered by the EU carbon tariffs hold an important position in China's exports.

In terms of export varieties, plastic products such as PET, PVC, and PP are important categories for China's exports to the European Union. In the first three quarters, PET export volume reached 4.8092 million tons, accounting for 35.52% of the total exports. After the implementation of the carbon tariff, these products will face dual pressures of increased costs and market access barriers. For plastic product export enterprises, the carbon tariff will inevitably increase production costs and weaken product competitiveness. Some high-pollution, high-energy-consuming enterprises will also be eliminated, thereby affecting the entire industry chain's ecology.

05 Future Trend: Forcing the Global Industrial Chain to Transition to Low Carbon

The EU's carbon tariff policy is quietly reshaping the global industrial chain landscape. In the long term, carbon tariffs may lead to a loss of market share to low-carbon production countries. This shift is based not only on traditional cost factors but also on the low-carbon production capacity of each country. Since Brussels announced the introduction of a carbon border tax in 2021, China, India, and Brazil, although critical of the policy, have all begun to establish or expand their own carbon pricing systems. This chain reaction indicates that the EU's carbon tariffs are already promoting the coordination of global climate policies.

The implementation of the EU carbon tariff will accelerate the global industry's transition to low-carbon processes. Companies face two choices: either invest in low-carbon technologies to meet EU standards or abandon the EU market. This market mechanism forces companies to internalize environmental costs, promoting a green transformation of the entire industry chain.

For high-end manufacturing industries such as the automotive sector, carbon tariffs may become a catalyst for technological upgrades. Companies need to reassess product design, procurement strategies, and capital investment plans, incorporating carbon costs into their long-term strategic considerations.

As more consumer-oriented products are affected by border carbon emission charges, consumer purchasing decisions may also change, further driving the market towards low-carbon products and forming a positive cycle on both the supply and demand sides.

Edited by: Lily

Sources: Green Carbon Harmony, Sina Finance, Special Plastics Vision, Trade Night Sailing, China Green Finance Research Institute, ESGNEWS, etc.