China Dialogue has reported that although China is the EU’s largest trading partner, CBAM in its current form will have limited impacts on the country’s exports to the EU but it may to act as an external incentive for China’s national ETS to grow so as to offset some long-term impacts. The mechanism may motivate Chinese policymakers to improve the national carbon-accounting system, start obliging certain companies to pay for their emissions and speed up the expansion of the national carbon market Launched in July 2021, China’s national ETS currently covers the power sector only. While the scheme has largely reached its initial goals of setting up a trading system and raising basic awareness of emissions trading, it faces various challenges, such as underwhelming trading volumes and a low carbon pricing point. There is a consensus among experts that CBAM might encourage the market to grow. An analysis published in China Dialogue in 2021 had found that the mechanism would only affect cement, aluminium, fertilizers and iron and steel, which together represented less than 2% of China’s exports into the EU in 2019. European Union have negotiators agreed in December to charge a carbon border tax on certain imports into the bloc, beginning in 2026.The Carbon Border Adjustment Mechanism will require non-EU companies to pay a levy on some emissions intensive products to make up the difference between the carbon price in their origin countries and that of the EU emissions trading system, the bloc’s key climate policy tool. During a transition period from October 2023 to December 2025, non-EU manufacturers will only be required to report their emissions. After that, a levy will be brought in gradually from 2026 to 2034, meaning EU importers will have to purchase certificates equivalent to the weekly EU carbon price. The mechanism will initially cover six categories of products: iron and steel, cement, aluminium, fertilizers, electricity and hydrogen.