A carbon border adjustment mechanism (hereinafter referred to as carbon tariff) will be implemented, and carbon tariffs will be fully levied from 2026. As a key export area of China's aluminum products, the EU's implementation of carbon tariffs will pose new challenges to China's participation in international competition. However, in the evolution of the world trade pattern, China's aluminum processing industry has been deeply integrated with the international market, and its role and status in the global aluminum industry chain and supply chain play a pivotal role. We oppose carbon tariffs to form new trade barriers, and we firmly believe that only open cooperation can achieve win-win and sharing, otherwise it will harm others.
1. China's exports of aluminum products to the EU
China's exports of aluminum products to the EU mainly show the following characteristics:
First, the export products are mainly aluminum materials and products. China almost does not export electrolytic aluminum to the EU, only a small amount of refined aluminum, high-purity aluminum and aluminum alloys, and all other products are aluminum materials and aluminum products. In 2021, 1,000 tons of refined aluminum and high-purity aluminum, 3,600 tons of aluminum alloys, 380,000 tons of aluminum products, and 560,000 tons of aluminum products will be exported.
Second, the EU is China's largest export market for aluminum products and products. In 2021, China will export a total of 940,000 tons of aluminum products and products to the EU, accounting for 11.3% of the total global exports of 8.29 million tons. Among them, aluminum exports to Europe accounted for 6.9%; exports of aluminum products accounted for 19.8%.
Third, the export of aluminum products to the EU maintained a rapid growth, and the export of aluminum products declined. Since the beginning of the new century, the average annual growth rate of China's exports of aluminum products to the EU has been 19.1%, and the growth rate in 2021 will be as high as 31.5%. Affected by the EU's trade friction cases with China's aluminum strips, foils, profiles, etc., the number of aluminum exports from China to the EU has been declining year by year since 2019. The declines in 2020 and 2021 are 21.7% and 17.6%, respectively.
2. About the scope of EU carbon tariff collection
Five categories of products, including aluminum, cement, steel, electricity and fertilizers, are planned to be included in the first taxable products of the EU carbon tariff. According to the current plan, aluminum products include unwrought aluminum and aluminum products, excluding aluminum products. In 2021, China will export a total of 382,000 tons of unwrought aluminum and aluminum products to the EU, involving an amount of US$1.53 billion. From the perspective of EU import sources, two types of products, aluminum profiles and aluminum rolled products, are imported the most from China, and have the highest weight, accounting for more than a quarter. In 2021, China will export 70,000 tons of aluminum profiles, 170,000 tons of aluminum sheets and strips, and 120,000 tons of aluminum foil to the EU.
There are still variables in the scope of the above-mentioned products. If the final taxation scope involves aluminum products or final consumer goods, the impact will be further expanded.
3. The impact and challenges of carbon tariffs on China's aluminum exports
According to the EU carbon tariff draft, we believe that in the long run, carbon tariffs and their spillover effects will bring pain to our foreign trade in aluminum products, and even affect the global trade pattern. However, in the short term, the impact on China's aluminum exports is relatively limited. Especially under the situation of the superposition of a series of events such as the new crown epidemic, the European energy crisis and the Russian-Ukrainian conflict, the European carbon price has fallen, and the EU carbon tariff process is expected to be delayed. . Preliminary judgment, the possible impact and challenges of carbon tariffs on China's aluminum exports are as follows:
One is to increase export costs and affect the competitive advantage of our aluminum products. According to the estimation that China will export 382,000 tons of unwrought aluminum and aluminum products to the EU in 2021, 0.7 tons of carbon dioxide emissions per ton of aluminum, and a carbon tax of $80 per ton of carbon dioxide, I will be levied a carbon tax of more than $20 million each year to the EU ( Free emission credits are not deducted). The annual carbon tax would exceed $300 million if estimated in terms of life-cycle carbon dioxide equivalents. The increased carbon tariffs will most likely be shared by Chinese exporting companies and European importing companies. In addition, our exporters need to cooperate with European importers to submit the carbon footprint report of aluminum products, and will also increase related expenses such as enterprise carbon emission management, data monitoring and regular accounting.
Second, based on the current status of energy resources in my country, in the short term, if there is no disruptive technology, there will be limited room for the reduction of carbon emission intensity in the whole life cycle of aluminum materials; in the long run, by adjusting the energy structure, the proportion of clean energy consumption will be greatly increased, and the Low-carbon transition, the impact of carbon tariffs on me is expected to gradually weaken.
Third, carbon emissions may become the main "trade weapon" for the world's major economies to deal with climate change. The United States and Europe are jointly promoting the establishment of a "carbon club" and attracting more countries such as the United Kingdom and Japan to join, and intend to set up market entry barriers for products that are "not low-carbon enough". The EU may also grant export tax rebates to exporters in the region. Compared with competitors with lower carbon emissions, the advantages of Chinese exporters are weakening.
First, carbon tariffs should be in line with WTO rules, and the formation of new trade barriers is strongly opposed. The intensification of global industrial competition and the superimposition of international political games have led to intensified trade protectionism in Europe and the United States and other countries, increased market access barriers, and strengthened geopolitical goals. The EU's brewing carbon tariff mechanism not only continues its trade defense policy, but also presents a new trend of setting up trade barriers in the name of "jointly addressing the challenge of climate change". We strongly oppose the introduction of carbon tariffs and other policies that violate WTO rules, and resolutely safeguard the liberalization and facilitation of international trade.
The second is to follow closely and make arrangements in advance. It is necessary to closely track the progress of the carbon tariff policy, fully grasp the provisions of the mechanism, be aware of it, and make arrangements in advance. On the one hand, it is necessary to actively promote clean energy consumption, technological transformation of energy conservation and emission reduction, and carbon tax cost accounting, conform to the general trend of global low-carbon development, and seek practical solutions for the sustainable development of the industry. On the other hand, if the carbon tariff becomes a trade protectionist measure in disguised form, the Chinese aluminum industry chain is bound to unite, jointly respond, and resolutely counteract.
The third is to make good use of the policy transition period to build domestic carbon market capacity. Carbon tariffs will be implemented from 2023; 2023 to 2025 is a transition period, only carbon emission declarations will be made, and no tax will be levied; carbon tariffs will be officially implemented in 2026. Before 2026, complete basic capacity building such as carbon accounting and carbon pricing. On the one hand, we will do a good job in aluminum carbon footprint reporting and carbon emission intensity assessment; carbon cost”, strive for corresponding carbon tariff deductions, and avoid double taxation of carbon emissions on European aluminum products.
Fourth, adjust the energy structure of electrolytic aluminum and increase the utilization ratio of recycled aluminum. Under the constraints of "green and low-carbon" mechanisms such as carbon tariffs and ASI certification, considering the carbon footprint of the whole life cycle, aluminum enterprises should "low-carbon" raw materials. Increase the utilization ratio of recycled aluminum. This needs to further promote the optimization of the energy structure of electrolytic aluminum and the integrated development of recycling, primary, and aluminum processing.
The fifth is to promote export diversification and stabilize the fundamentals of foreign trade. Enterprises should actively build a trade diversification development strategy. On the one hand, they should adhere to the diversified development of the market, face the world, continue to open up new international markets and new customers, and make up for the possible decline in exports to Europe; on the other hand, insist on extending products to deep processing to promote exports. The increase in the added value of products drives the transformation and upgrading of the industry.
Sixth, enhance core competitiveness and consolidate its important position in the global industrial chain. According to the experience of trade frictions, my country's leading aluminum processing enterprises can quickly adapt to the competitive situation. In the context of global green and low-carbon development, only by following the trend, continuously promoting energy conservation and carbon reduction, taking multiple measures to enhance brand positioning, increasing brand premium, and reducing dependence on cost and price as a means of competition, can we change from passive to active. Turn crisis into opportunity.