What Do European CBAMs Leave Unpriced? Value-Chain Coverage Gaps in Global and Chinese Imports

Hanzhe Xing and Michael G. Pollitt

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: European carbon border adjustment mechanisms (CBAMs) leave most of the quantified emissions embodied in imports outside their present boundaries. Applying EU and UK statutory schedules to fixed 2025 trade, we estimate coverage of 31.0% and 26.9% of the respective Global product accounts, with still lower shares for imports from China. Adding electricity within goods already listed closes only a minority of the gap. The larger additions come from wider product coverage. In an illustrative passenger car, cove red materials and production electricity account for 49.8% of quantified production emissions, although the finished vehicle falls outside the current schedules. Across trade, vehicles, machinery and photovoltaic products are major downstream carriers, while chemicals, petroleum products and textiles dominate the residual. These findings identify two distinct policy tasks. Effective origin carbon prices can pass through domestic materials and electricity into downstream exports, creating a basis for selective climate-club recognition. Residual industries outside carbon pricing require broader emissions trading system coverage. We suggest that EU and UK authorities should signal a longer-term direction for possible CBAM expansion across products and sectors, alongside principles for recognizing carbon costs paid in origin countries. This would not commit either authority to immediate expansion. But it could encourage stronger and broader carbon pricing in origin countries while the technical requirements for any future expansion are still being developed.

Keywords: Carbon Border Adjustment Mechanism; EU ETS; CN ETS; UK ETS (search for similar items in EconPapers)
JEL-codes: Q51 (search for similar items in EconPapers)
Date: 2026-10-01
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