How will CBAM affect the decarbonisation of steel industry in China? A system dynamics approach

EU's Carbon Border Adjustment Mechanism (CBAM) has been promulgated. The steel industry is included in CBAM, which will undoubtedly affect the export trade of China's steel manufacturers to the EU. It is necessary to analyse the impact of CBAM on China’s steel industry quantitatively. By establishing a system dynamics model that can simulate the operation mechanism of the steel supply chain in China, we have clarified the impacts of CBAM on the China's steel export and carbon reduction. Moreover, we have reasonably set up scenarios that represent the possible decarbonisation paths of China's steel industry and evaluated the implementation effect of each policy in these scenarios. The analysis shows that CBAM will lead to a decrease of 32% in export volume and a loss of 58% in export profits for China's steel exporters. The environmental benefits of CBAM are limited. Due to the low trade exposure, CBAM is unable to promote a large-scale carbon reduction in the China’s steel industry. Although CBAM will bring great pressure to steel exporters, a comprehensive policy of adopting more emission reduction measures can greatly improve the carbon reduction efficiency, effectively reduce the negative impact of CBAM, and maintain the stability of steel exports.