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[Here comes the UK carbon tariff! What is the impact on Chinese textile enterprises?]
Release date:[2024/1/6] Is reading[72]次

Since the EU, the UK has also announced the implementation of "carbon tariffs"! On December 18, local time, the UK government officially announced that it will implement the UK Carbon Border Adjustment Mechanism (CBAM) from 2027. The product categories initially covered include aluminum, cement, ceramics, fertilizers, glass, hydrogen, and steel.

A list of specific products will also be covered under the initial product categories, as well as other design and delivery details, to be decided through a public consultation in 2024, according to the UK government statement.

Iron, steel, aluminium, ceramics and cement imported from overseas will face a carbon price comparable to goods produced in the UK reducing the risk of 'carbon leakage', avoiding emissions being diverted to other countries because of low or no carbon price by 2027, goods imported into the UK from countries with low or no carbon price will have to pay a tax, To ensure that products from overseas have a comparable carbon price to those produced in the UK.

Liu Peizhong, a researcher at the Research Institute of the Bank of China, analyzed that the overall impact of the UK's carbon tariffs on China's exports is controllable, but it is necessary to pay attention to the challenges to individual industries and carbon market rules. As of November 2023, China's exports to the United Kingdom accounted for 2.3% of China's total exports. Among them, electrical machinery and other equipment and nuclear reactors, boilers and other appliances are the main products exported by China to the UK, accounting for 21.6% and 13.5% of the total exports to the UK respectively. In contrast, the proportion of exports of steel (2.7%), aluminum (1%), ceramics (0.65%), glass (0.71%) and fertilizer (0.02%) covered by the CBAM mechanism in the UK is relatively small.

On April 25 of this year, the Council of the European Union voted to officially adopt the EU CBAM. The passage of the legislation means that exporters will have to start providing carbon emissions data to the EU from October 1.

Understanding the EU CBAM calculation method helps to understand the overall logic of "carbon tariffs". Based on the EU carbon price as the anchor, EU CBAM puts forward requirements on the carbon footprint, carbon value and even carbon border adjustment mechanism construction of exporting countries to the EU. Based on the carbon value of the EU itself, it deducts the carbon quota of the EU according to the actual carbon emissions of imported products, and then deducts the carbon emission obligations of the products paid by the exporting country, and determines the final carbon emission obligations that should be paid. Eu CBAM= Tax rate × carbon emission = (EU carbon price - exporting country carbon price) × (product carbon emission - EU free carbon quota).

In fact, the essence of international trade cooperation is mutual benefit and win-win results. We should respect the principles of market economy and international trade rules, and jointly create a good environment for economic and trade cooperation. Artificial restrictions or unilateral tariff wars will not win, and will only disrupt normal trade flows and the stability of the production and supply chain. At the same time, despite the unilateral color of the "carbon tariff" mechanism, it has forced China to speed up the attention to enterprise carbon management, product carbon footprint management, optimize supply chain management, and accelerate the application of energy saving and carbon reduction technology and project investment.

The formation of green trade barriers is accelerating

Following August 17, 2023, the European Union officially announced the Carbon Border Adjustment mechanism (CBAM) transition implementation rules, October 1 will be CBAM bill transition, 2026 officially began to collect, now, the British government also announced that from 2027 on carbon-intensive products to impose a new carbon import tax.

This suggests that developed countries will continue to adopt policies that exclude or restrict foreign products to protect their domestic industries, and countries that are less prepared will face market access barriers, which is a global ripple effect after the implementation of the EU carbon tariffs.

The formation of green trade barriers is accelerating, and the export trade business of Chinese enterprises is facing unprecedented challenges.

Whether it is the EU carbon tariff or the UK's upcoming import carbon pricing mechanism, Chinese export enterprises will face many requirements from trading customers in the future in terms of carbon reduction production and compliance data. If enterprises continue to use high-carbon production processes, this will greatly increase the production cost of enterprises to a certain extent, especially the carbon emission cost, and the market competitiveness of Chinese enterprises' products will also be greatly reduced.

For export enterprises, reducing the carbon cost of products and building corporate carbon management system is not a day's work. If enterprises do not implement carbon neutrality as soon as possible, the export cost of enterprises will increase sharply, and trade customers will turn to other suppliers that comply with the data requirements of carbon tariffs and lower carbon prices of products. In the long run, the global competition in the carbon price of products will become increasingly fierce.

At the same time, taking the EU carbon tariff as an example, if the export enterprise cannot meet the relevant information disclosure requirements, the product may also be "approved and levied" by the EU, resulting in unnecessary high costs for the enterprise.

Impact on the textile industry

It is worth noting that although the textile industry is not currently included in the carbon market, it does not mean that the textile industry does not need to reduce carbon emissions. In March 2022, the European Commission officially issued the EU Strategy for Sustainable and Circular Textiles (EU Strategy for Sustainable and Circular Textiles) and the Sustainable Product Eco-Design Regulation. It describes three key initiatives that the EU will take to promote the sustainable development of the textile industry: the introduction of mandatory ecodesign requirements, tackling microplastic pollution and the introduction and regulation of digital product labelling. The application requirements for bio-based materials, recycled materials in the value chain, digital product passports and mandatory extended producer responsibility schemes are also highlighted. These international policies, as the future trend of the textile industry, have brought new challenges to the export trade, and domestic textile enterprises need to consider the layout in advance.

Since the 1990s, with the deepening of the global understanding of sustainable development, the society has gradually increased the disclosure requirements of enterprises in CSR (corporate Social responsibility) and ESG (environmental, social and governance), and the indicators of energy consumption, waste management, pollution control and social management of enterprises have also become important factors for investors to consider. The database of international ESG rating agencies such as MSCI (Morgan Stanley Capital International Company) also covers the textile industry as an important field. The social responsibility system of textile production enterprises requires production enterprises to be responsible for the whole life cycle of their products, and this system urges production enterprises to consciously choose materials and formulate recycling work plans to avoid producers becoming "bystanders" in the cause of environmental protection. China has also launched the "textile and garment Corporate Social responsibility Management System" (CSC9000T), from the pollution, resources, climate change three aspects of the emphasis on the environmental responsibility of textile enterprises, pointing out that to minimize the negative impact of enterprises on the environment as the goal, require to reduce pollution, save resources, reduce greenhouse gas emissions, adapt to climate change, Ensure the sustainable development of enterprises and environmental ecology.

Under the general trend of sustainable development, international fashion brands have also made environmental commitments. In 2020, 32 well-known Fashion companies from around the world, including Chanel, Hermes, Giorgio Armani, Burberry and Nike, signed the Fashion Pact to jointly promote the sustainable development of the fashion and textile industry. The Convention covers three major themes: mitigating climate change trends, restoring species diversity, and protecting the oceans, and each party has committed to using 100% renewable energy in its daily operations by 2030. In addition, other international fashion brands have launched their own sustainable development plans, "green" has become the mainstream color of the fashion industry, in order to fully enhance the market competitiveness of products, China's fashion enterprises should also be in line with international standards, in the cause of environmental protection to reflect their own social responsibility.

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