All Things Policy Emission Trading Systems and the Pursuit of Green Competitiveness
Sep 19, 2025
Bhumika Sevkani, a Research Analyst at the Takshashila Institution with a focus on emissions trading systems, joins to delve into China's ambitious carbon emissions caps. The discussion spans the intricacies of China's Emissions Trading System and its implications for global markets. They explore the European Union's Carbon Border Adjustment Mechanism and its potential impact on India's steel and aluminium exports. Is China's approach a robust climate strategy or merely a trade tactic? Tune in to find out!
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How The EU's CBAM Works
- The EU's CBAM charges importers a fee equal to the domestic ETS carbon price for covered goods to prevent carbon leakage.
- It initially targets iron, steel, cement, fertilizers, aluminum, electricity and hydrogen to level the playing field.
Cap-and-Trade Basics
- An emissions trading system sets a sectoral cap and issues tradable permits, creating a carbon price incentive to cut emissions.
- Firms that emit less sell permits, while heavy emitters must buy extra permits, aligning economic incentives with emissions reduction.
Domestic ETS Offsets CBAM Partially
- If an exporting country has its own ETS, exporters can deduct carbon costs already paid at home when facing CBAM charges.
- But exporters still may pay the price difference if domestic carbon prices are lower than the EU's, raising export costs.