GTAP Resources: Resource Display
| GTAP Resource #7566 |
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"Carbon Border Adjustment Mechanism (CBAM) Explorer" by Chepeliev, Maksym, Erwin Corong, Maryla Maliszewska and Maria Filipa Seara Pereira Abstract In December 2022, the European Union (EU) reached a provisional agreement on the Carbon Border Adjustment Mechanism (CBAM), targeting direct emissions from iron and steel, aluminum, cement, fertilizers, and electricity. The CBAM aims to mitigate carbon leakage by requiring EU importers to purchase carbon certificates equivalent to the carbon price that would have been paid if the goods were produced domestically. The introduction of a unilateral high carbon price of approximately $100 per ton of CO2 in the EU (under the removal of free allocations) has been shown to slightly reduce global welfare, with the most significant losses occurring within the EU due to higher production costs and reduced competitiveness. The global GDP decrease is modest at around 0.17%, while the EU experiences a GDP decline of less than 1%. The EU faces a welfare loss of $122 billion, while the rest of the world sees a loss of $17 billion. Fossil-fuel-dependent regions like Russia, Saudi Arabia, and parts of Western Asia are most adversely affected due to reduced fossil fuel exports to the EU. Conversely, high-income regions in Asia and major economies such as China, India, and the USA benefit from the policy. The carbon price effectively reduces EU emissions by around 27%, but global emissions decrease by only about 1%, with the rest of the world seeing a 0.9% increase due to carbon leakage. The CBAM aims to address carbon leakage by ensuring imports face similar carbon costs as domestic production, thus protecting EU industries and maintaining environmental integrity. Under the CBAM, exports of carbon-intensive goods to the EU decline, while imports of clean energy surge. The expanded CBAM scenario, covering both Scope 1 and Scope 2 emissions, further reduces carbon leakage and global emissions. The study highlights the substantial domestic costs of unilateral carbon pricing and the effectiveness of CBAM in mitigating carbon leakage and aligning trade dynamics with climate goals. |
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- Climate change policy - Trade and the environment - Economic development - Economic growth - Global |
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Public Access  Paper (414.3 KB) Replicated: 0 time(s)Restricted Access No documents have been attached. Special Instructions No instructions have been specified. |
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Last Modified: 9/15/2023 2:05:45 PM
