Different routes to decarbonisation: EU carbon pricing versus China’s green tech

In the run up to the United Nations COP30 climate summit, starting on 10 November in Brazil, the spotlight has fallen on the European Union and China, now the de-facto stewards of global climate diplomacy following the United States’s retreat under President Donald Trump. At an EU-China summit in Beijing in July, the two parties promised to “drive a global just transition”, and to promote success in Brazil. Once the rhetoric is peeled away, however, a paradox emerges.The EU’s and China’s decarbonisation strategies are very different. Europe has a high carbon price at about €78 per tonne, while China’s approach to the green transition puts supply first, emphasising production of green tech rather than emissions reduction. Chinese green tech helps reduce the costs of renewable energy and electric vehicles, but China has not reduced the use of coal for its industrial base.The EU’s emissions trading system (ETS) levies a carbon price that is ten times China’s €7/tonne. By making pollution costly, the ETS should tame fossil-fuel demand since companies and households should react to higher carbon prices. While effective, European competitiveness is impacted negatively insofar as other parts of the world do not price carbon, or only levy a very low price with limited coverage, as is the case in China, by far Europe’s largest industrial competitor. However, by internalising the true price of emissions, the EU signals to the world that climate action demands sacrifice. This may promote genuine systemic change but it is hard to make it work if others don’t follow, and the three largest emitters globally – China, the US and India – are not.Contrast this with China’s green industrial surge. Beijing’s playbook is to flood the world with ever-cheaper renewables, leveraging economies of scale, relentless research and development expenditure and massive financial support. In 2023, China installed more solar capacity than the rest of the planet combined, but it also exported two-thirds of the panels it produced, while others remained unsold in factories, pointing to overcapacity. And yet, that huge capacity has its positive side: a huge supply of renewables at very low prices globally, which supports the energy transition elsewhere, from India to Africa.China’s double motivation – decarbonising while boosting exports – may look selfish but is effective in terms of supporting global decarbonisation. China’s emphasis on production prowess may also be increasingly accompanied by measures to curb demand for fossil fuels, as Europe has done. China’s ETS, launched in 2021 and covering power generation only, expanded in 2024 to cover steel, aluminium and cement, potentially laying the groundwork for a higher carbon price along with wider coverage. For now, though, China’s carbon price is too low to reduce fossil-fuel demand.Why has China been so slow with demand measures? The answer probably lies in its fear of losing competitiveness in the industrial sector. China burns half the world’s coal, mostly in its industrial sector. In the same vein, China has opted out of the Global Methane Pledge, while hard decarbonisation in steel, cement and chemicals is being phased in. The aim is to safeguard competitiveness amid export-driven growth, harnessing green tech for revenue and dominance.This isn’t to downplay China’s contribution. Its innovation and manufacturing muscle have revolutionised renewables, reducing costs and thus benefitting everyone from rooftop installers in Europe to off-grid villages in Kenya. True leadership, though, demands balance: confronting demand-side reforms that are likely to be painful. Europe’s ETS does that, pricing carbon realistically to curb consumption. China’s supply-side momentum, while export-savvy, could amplify impact by being paired with bolder domestic pricing and industrial regulation.Ahead of COP30, EU-China talks must address these issues. Pragmatic wins could include improving the shared taxonomies for green finance, carbon accounting exchanges and circular economy pilots for batteries. Europe should double down on its decarbonisation strategy. China, meanwhile, could accelerate expansion of its ETS, while pursuing grid integration and coal phase-outs.