EU Moves to Extend Carbon Border Tax to Automobiles as Chinese Competition Intensifies

The European Union has escalated its trade measures against Chinese electric vehicles as the Carbon Border Adjustment Mechanism enters full implementation from January 1, 2026, with plans to expand coverage to automobiles and auto parts from 2028.

China's Ministry of Commerce responded this week to the EU's latest legislative proposals and implementation rules for the controversial policy, which aims to align the carbon cost of imported products with the bloc's internal pricing system. The mechanism requires importers to purchase certificates corresponding to embedded carbon emissions in covered products.

The most consequential development for the automotive sector is the EU's proposal to expand the carbon border tax from 2028 to include downstream products intensive in steel and aluminium use, specifically mechanical equipment, automobiles, and automotive parts. The expansion would extend requirements beyond primary materials to finished vehicles and components exported to the EU, significantly increasing compliance requirements for Chinese automakers.

Under the new rules, Chinese manufacturers will face demands for lifecycle carbon accounting, emissions data disclosure, and third-party verification. When companies cannot provide recognized emissions data, default carbon intensity values may be applied, potentially affecting cost structures for exporters targeting European markets.

The regulatory expansion comes as Chinese automakers continue their aggressive push into Europe despite existing tariffs of up to 35 percent on electric vehicles. Chinese vehicle sales into Europe nearly doubled between 2024 and 2025, with more than half a million Chinese models sold in the first nine months of the year. BYD reported year-on-year sales increases exceeding 225 percent.

Industry experts warn that Europe's automotive sector, which employs 13.2 million people directly, faces an existential challenge. Chinese manufacturers have rapidly surpassed European competitors on cost, scale, and increasingly on quality, with some models entering specific markets at prices as low as 10,290 euros.

The carbon border adjustment mechanism represents the EU's latest attempt to protect domestic manufacturers while maintaining climate commitments, though critics question whether regulatory measures alone can counter China's structural advantages in battery technology and manufacturing scale.