Non-compliant measurement leads to significant misestimation in national carbon tariff: Methodology and a retrospective case study of China

Abstract

The EU's Carbon Border Adjustment Mechanism (CBAM) is the first global carbon tariff policy to be implemented. Current impact assessments of CBAM face non-compliance issues, namely, carbon tariff measurements do not strictly follow CBAM regulations, which may shake the foundation for credible impact assessment. However, the effects of non-compliant measurements on national carbon tariff estimates remain unquantified. In line with CBAM's provisions, we identify four key carbon tariff determinants: commodity scope, embedded emission scope, greenhouse gas (GHG) portfolio, and the EU's carbon price. We also review prevalent non-compliant measurement practices in the existing literature. By constructing 144 scenarios that combine the commonly employed settings for these four factors, we conducted a retrospective case analysis of China—one of the EU's pivotal trading partners—both at the sectoral and overall level. The compliant calculations reveal a carbon tariff of 614.4 million euros levied on China's exports to the EU in 2022, accounting for 3.5 % of the corresponding trade volume. Scenario analysis reveals that non-compliant measurements could misestimate China's overall carbon tariff costs and ad valorem carbon tariff rates, with deviations ranging from a 74.4 % underestimation to a 382.7 % overestimation, and from a 63.5 % underestimation to a 392.2 % overestimation, respectively. These variations highlight the potential future impact after policy alterations. While sectoral variations do exist, we find that the most significant contributors to misestimations are commodity scope, emission scope, and carbon price, with the GHG portfolio having a relatively minor effect. This research underscores the necessity of compliant carbon tariff methodology and outlines prioritization for enhanced measurement precision and implications for evidence-based policy design.