US and EU trade barriers not only hurt China, they also derail climate action

Europe’s carbon border tax is shifting the burden to poorer nations while the West’s redrawing of supply chains is preventing China from cheaply and efficiently supplying the global green transition

Zhou Xiaoming

Published: 5:30am, 19 Dec 2023

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As the world tackles climate change with a heightened sense of urgency and renewed determination following the Cop28 United Nations climate conference in Dubai, it is critically important for nations to guard against restrictive trade measures.

Seemingly unrelated and thus often treated as a separate issue, trade restrictions can significantly affect global climate goals and threaten to derail the transition to a greener economy.

An example of this is the European Union’s carbon border tax, which came under heavy fire at Cop28 from developing countries. Intended to protect the European domestic industry, the measure requires that the difference between the carbon price of the product in the EU and that in the country it is being imported from has to be paid.

Viewed as discriminatory by BASIC, a grouping that includes Brazil, South Africa, India and China, the EU’s border tax will work to deter carbon-intensive imports, such as aluminium and steel.

BASIC sees the tax, and rightly so, as opposed to the Paris Agreement’s principle of “common but differentiated responsibilities and respective capabilities”. This provides that while all countries are responsible for addressing global environmental destruction, the developed countries cumulatively responsible for the bulk of emissions are duty-bound to do more.

But the EU’s carbon border tax, in essence, demands that developing countries cut their emissions to the bloc’s level to avoid being punished. It ignores the wide differences between Europe’s economic development and that of developing nations, and their contributions to, and abilities to address, climate change.

Rather than creating a level playing field, as the EU claims, its tax is akin to pitting a heavyweight boxer against a featherweight. Unsurprisingly, the move is increasingly viewed in the developing world as the EU’s failure to face its historical responsibility and an attempt to shift the burden of cleaning up after itself to poor countries, calling into question Europe’s climate change pledges.

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The EU’s tax is undermining trust and creating a rift with the Global South when global cooperation is most needed. It could ignite a tariff war and divert attention and energy away from urgently needed emission cuts.

The EU’s cleantech trade battle with China also casts doubt on its decarbonisation goals. The bloc has opened an anti-subsidy investigation into Chinese electric vehicle imports, and is reportedly contemplating a similar probe into the Chinese wind energy sector – even though European manufacturers account for 85 per cent of bloc’s market.

EU trade commissioner Valdis Dombrovskis has called China’s overcapacity in renewable energy products “a cause for concern”.

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What is China doing about climate change?

Yet China’s development of renewable industries is a boon for climate action, especially in view of Cop28’s goal of tripling renewable energy capacity globally by 2030.

China has not only embarked on its green energy transition but also contributed in no small measure to the EU’s decarbonisation. Take solar power for example. The expansion of China’s silicon production in recent years has led its price to drop by as much as 80 per cent from last year’s peak, making wafers and other solar components much cheaper.

This in turn makes solar-based electricity more economical to produce than coal-fired power. With new capacity this year set to double last year’s, China’s carbon emissions are likely to peak well ahead of its 2030 target.

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In the EU, thanks to cheaper photovoltaic components from China, solar power is fast becoming the cheapest form of electricity to generate. Consequently, at least 40GW of solar capacity is expected to be installed in the EU this year. Many are asking: could the EU achieve its climate goals without China?

Meanwhile, the US Inflation Reduction Act, which excludes Chinese companies from the subsidies, could slow the US’ transition away from petrol.

More detrimental to global decarbonising goals are Washington and Brussels’ efforts to reshape global supply chains in renewable industries and electric vehicles to exclude China.

China dominates the cobalt, rare earth and graphite industries, and processes more than half of these materials, all crucial inputs for renewable energy and electric cars. China is also a major producer of electric vehicles and their batteries.

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US President Biden talks potential minerals partnership with Indonesian counterpart Widodo

To transition away from fossil fuels and reach net zero emissions globally by 2050, it makes sense for China to play an increased role in supplying the needed green energy products, from electric vehicles to solar and wind energy.

It would take years, if ever, for the United States and EU to build their own supply chains, during which time they have no way to make up for lost supply from China. It is highly likely that the ability of the US and EU to deliver their climate objectives would be severely impaired.

Moreover, the reworking of supply chains is almost certain to create supply uncertainty and disruptions globally, and increase the competition for resources. Attempting to shut out China’s renewable industries imperils climate action globally.

Critical minerals are the new front line of US-China rivalry

Despite the serious consequences however, Washington and Brussels are determined to reshape supply chains. They see it as a way to contain the rise of China, which they view as a strategic adversary. This geopolitisation of supply chains will complicate and hamper global cooperation on climate action.

It is unfortunate that global climate goals are being sacrificed on the altar of narrow self-interest. Given the spirit of Cop28, and for the sake of the home on Earth we share, isn’t it time that Washington and Brussels abandoned their restrictive trade practices?

Zhou Xiaoming is a senior fellow at the Centre for China and Globalisation in Beijing and a former deputy representative of China’s Permanent Mission to the United Nations Office in Geneva