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Impacts of the CBAM on EU trade partners: consequences for developing countries
Abstract
This article analyses the impact of the introduction of the Carbon Border Adjustment Mechanism (CBAM) on European Union (EU) trade partners, focusing especially on its potential socio-economic and external consequences for developing and emerging economies (EMDEs). It uses trade data and Multi-Regional Input-Output (MRIO) matrices to investigate the geographically and sectorally uneven distribution of CBAM’s potential impacts. The introduction of the CBAM by the EU is still under discussion. This mechanism, which seeks to reduce the incentives for firms to outsource their carbon emissions and promote a more generalised low-carbon transition, might disproportionally expose some non-EU economies. In absolute terms, Russia, China, Turkey, and Ukraine are the main EU trade partners in CBAM products, and hence the most exposed countries in external and socio-economic dimensions. In relative terms, the degree of exposure of economies that export CBAM products to Europe varies substantially, with many developing economies having more than 2% of their exports and 1% of their production impacted by this measure. East European economies, mainly in the Balkans, as well as Mozambique, Zimbabwe, and Cameroon in Africa, are the most exposed as far as the external dimension is concerned. In socio-economic terms, we can also include Morocco and Tajikistan to the group of most exposed economies. In the end, promoting the substitution of highly polluting technologies with green technologies seems notably easier in Europe than in EMDEs. Many jobs, tax revenues, and export revenues will be lost if the CBAM is implemented without taking into account the specificities of the EU’s trading partners. We discuss options to mitigate adverse consequences on EMDEs.
Key policy insights
• The CBAM is a logical complementary policy to the EU-ETS, which aims to avoid EU industries outsourcing their production to countries that do not adopt similar levels of carbon pricing.
• Although most macroeconomic models generally assume that all countries have a relatively high capacity to migrate from one industry to another, evidence shows otherwise. Previous results analysing the impacts of the CBAM might hence have underestimated the consequences for developing and emerging economies.
• Accounting for rigidities in the production structure, we show that the CBAM may have a regressive impact, therefore requiring careful attention to its institutional design, especially if the objective is to reinforce global climate ambitions in line with the EU’s own decarbonisation strategy.
• Promoting the substitution of highly polluting technologies with green technologies seems notably easier in Europe than in EMDEs. Many jobs, tax revenues, and export revenues will be lost if the CBAM is implemented without taking into account the specificities of the EU’s trading partners.
• One possible way to minimise its side effects is to exempt the so-called least developed countries from the CBAM. Rather than an exemption, these countries could also receive targeted support from the EU to reduce their dependence on highly emitting industries, via transfer of technologies, climate subsidies, or concessional lending.
• The adoption of CBAM-like measures in other developed economies, such as Japan and North America, as well as in wealthier developing countries with the capacity to decarbonise their industries, such as China, would exacerbate the fragilities of emerging and developing economies unless counter-measures are taken.
... In order not to disadvantage producers exposed to carbon leakage, carbon-intensive industries receive some free allocation [23,24]. 11 However, Magacho et al. [25] suggested a potential side effect of the CBAM: the loss of competitiveness of EU products in foreign markets, due to the impact of the CBAM on imported production inputs. As the authors suggest, "[t]he CBAM […] might increase or decrease EU competitiveness, impacting positively or negatively output […]" [25, p. 5]. 12 It is important to underline that, while several calculating methods are accepted for reporting embedded emissions during the current transitional period, beginning in 2025, only the EU method will be accepted [27]. ...
... Countries whose products are more likely to be subject to the CBAM may opt to switch to other markets and establish trade relations with different commercial partners, or adapt their industries to comply with European standards, in order to avoid any negative effects of the CBAM. 24 Aside from the implications for trade flows, 25 the implementation of the CBAM and the subsequent increase in production, export and administrative costs 26 are likely to affect labor markets in third countries, resulting in overall welfare loss [12]. The remainder of this section will address third countries' options for mitigating these effects. ...
... For this reason, as stated in Regulation (EU) 2023/956, article 9.2, the authorized CBAM declarant needs to keep evidence of the actual payment of a carbon price in the third country [30, p. 3]. 25 For example, the rise in export prices of these goods, which would likely negatively impact the volume of exports to the EU. Moreover, as suggested by Lanzavecchia [40], the CBAM has sometimes been regarded as an "arbitrary or unjustifiable discrimination or a disguised restriction on international trade. ...
The European Union Carbon Border Adjustment Mechanism (EU CBAM), currently in its transitional phase, represents a novel approach by the EU to address the threats of carbon leakage and environmental dumping, while promoting greener production systems and decarbonizing industrial sites. The CBAM also enables the EU to protect the international competitiveness of its domestic products through the application of an additional “fair price” to goods exported from third countries, when it cannot be demonstrated that an appropriate carbon price has been paid in the country of origin. Despite these benefits, scholars have raised concerns about the potential negative effects of this measure on the competitiveness of producers located in the Global South. The EU has already expressed its support for developing countries. However, in the absence of a timely and well-defined EU strategy for assistance, various frameworks have been proposed for the provision of aid. The most widely discussed of these proposals include the exemption of LDCs and developing countries from the CBAM and the distribution of CBAM revenues to third countries, to facilitate their green transition processes. Striking a balance between environmental and economic needs will be crucial for ensuring the success of this tool and an agreed upon pathway to a just transition.
... Buissing (2022) analyses the challenges of applying CBAM to air-service trade outside the E.U., including political sensitivity and legal concerns. Magacho, Espagne, and Godin (2023) study the socioeconomic impact of CBAM adoption by the E.U. on its trading partners, focusing on job losses, tax revenues, and export earnings. Pirlot (2022) argues that CBAM can reduce climate change and benefit trade, climate leadership, and public finance, detailing how the current E.U. design does not promote fair competition and climate mitigation in line with the Paris Agreement. ...
... This article takes stock of the different interests at stake and analyses CBAM in the context of different legal regimes. Magacho et al. (2023) analyse the impact of adopting the CBAM on the E.U.'s trading partners, focusing in particular on its potential socio-economic consequences. The analysis draws attention to potential social repercussions of introducing this mechanism, particularly the loss of jobs, tax revenue, and export earnings. ...
... The degree of exposure of economies that export CBAM products to the E.U. varies considerably, with many developing markets having more than 2% of their exports and 1% of their production affected by this measure. Economies such as Mozambique, Zimbabwe, Cameroon, Morocco and Tajikistan are the most exposed in terms of external trade (Magacho et al., 2023). It is essential to understand how CBAM works, as it must apply to products imported into the customs territory of the E.U. from third territories. ...
This article aims to analyse the conformity of the European Union‘s Carbon Border Adjustment Mechanism (CBAM), considering tax principles as an environmental and fiscal policy instrument and its role in promoting a healthy environment and global decarbonisation.
Literature highlights reasons for the CBAM‘s relevance, promoting carbon leakage risk reduction and encouraging less advanced countries to lower emissions through carbon diplomacy. This mechanism is expected to significantly impact the EU‘s partner economies, particularly developing ones reliant on exports. Thus, the paper’s goal is to advance academic research and understand its role in achieving environmental neutrality.
The study applies the legal research method to tax principles, and Regulation (EU) No 2023/956 was examined for this purpose.
The results show that CBAM is presented as an instrument that promotes tax neutrality, being in line with tax principles. Furthermore, CBAM promotes legal certainty, allowing companies to make investment decisions on decarbonising industrial processes in the long term. In addition, this mechanism is a step towards guaranteeing the promotion of a healthy environment, a right recognised by the United Nations.
This study highlights the importance of CBAM as an environmental policy instrument and a fiscal mechanism that promotes fiscal justice and environmental sustainability.
... By making emission-intensive exports to the EU more expensive, the CBAM has the potential to drive industrial decarbonisation and climate policies in third countries (Jakob, 2023;Szulecki et al., 2022) -which has been regarded as one of its implicit objectives (Pirlot, 2022). However, this could also affect trade in CBAM-covered goods, potentially presenting substantial economic and political challenges for the EU's trading partners (Eicke et al., 2021;Magacho et al., 2023). Accordingly, the CBAM has stirred up a vibrant international debate about the adequacy and legitimacy of unilateral climate policies, despite being in an early implementation phase with a transitional reporting-only period until 2026 (Jakob, 2023;Pauw et al., 2022). ...
... Dominioni & Esty, 2023;Espa et al., 2022), its potential socio-economic impacts on EU trade partners (e.g. Beaufils et al., 2023;Eicke et al., 2021;Magacho et al., 2023), and its wider political implications (e.g. Jakob, 2023;Shum, 2023). ...
... This promotes the decarbonisation of CBAM sectors outside the EU by making emission-intensive exports to the EU more expensive and less competitive (Meadows et al., 2024). However, this can also have significant negative economic consequences for some EU trade partners, especially those with a carbon-intensive economy, a high economic relevance of EU exports, or a high share of exports subject to the EU CBAM (see Beaufils et al., 2023;Eicke et al., 2021;Magacho et al., 2023;UNCTAD, 2021;World Bank, 2023). Accordingly, it is likely (and can already be observed) that the CBAM will trigger political responses among impacted countries to avoid the CBAM or to mitigate its domestic impact. ...
With the adoption of a Carbon Border Adjustment Mechanism (CBAM) the European Union (EU) is extending its carbon price to certain imported goods to advance the decarbonisation of European energy-intensive industries while preventing carbon leakage. The CBAM carries the potential to drive climate policy efforts in non-EU countries but also poses significant economic and political challenges to the EU’s trade partners. Accordingly, the CBAM has stirred up a vibrant international debate about the adequacy and legitimacy of unilateral climate policies. This article systematically analyses political responses to the EU CBAM to assess if and how it is driving climate policies internationally. To that end, it empirically maps political responses to the EU CBAM (covering opposition, cooperation and policy adoption) of 32 countries from 2019 to 2024 distinguishing across three perspectives on CBAM’s significant others. The article finds that the CBAM has triggered a wide range of political reactions across all countries analysed, highlighting its political relevance. Responses thereby seem to have shifted from opposition towards cooperation and policy adoption from 2021 onwards. Furthermore, the CBAM seems to have driven the development of climate policies in several countries, suggesting that unilateral climate policies can work as a climate policy driver internationally. The article advances the academic literature on unilateral climate measures as well as the literature on the EU’s regulatory power.
... Some of these studies (e.g. Eicke et al., 2021;UNCTAD, 2021;Perdana & Vielle, 2022;Xiaobei et al., 2022;Zhong & Pei, 2022;Gu et al., 2023;Lin & Zhao, 2023;Magacho et al., 2024) predict that CBAM would shift the economic burden of emissions reduction from EU to its developing country trading partners; worsen inequality; and further erode the capacity of some low-income countries to decarbonize their economies. 8 Generally, countries that have a significant presence in the EITE exports and have also got high export exposure to EU are likely to be most severely impacted by CBAM (Lin & Zhao, 2023). ...
... 8 Generally, countries that have a significant presence in the EITE exports and have also got high export exposure to EU are likely to be most severely impacted by CBAM (Lin & Zhao, 2023). Depending on the variation in patterns of exposure and vulnerability, countries that are likely to be severely impacted include BASIC countries (i.e., Brazil, South Africa, India and China) (Gu et al., 2023); non-EU Eastern European countries like Russia (Zhong & Pei, 2022), Ukraine, Turkey; African countries such as, Morocco, Mozambique, Zimbabwe and Cameroon (Eicke et al., 2021;Magacho et al., 2024); and some other developing countries (Perdana & Vielle, 2022). It is projected that the burden of CBAM implementation would be unevenly distributed across regions, with emerging economies of China, Russia and India bearing the most (Zong and Pei, 2022). ...
... Their diverse backgrounds notwithstanding, most of the respondents argued that CBAM, by design, went against the principles of equity and CBDR-RC. The CBDR-RC principle emphasises the need to account for the historical contribution to climate change by developing countries, as well as their varied levels of economic development and capabilities to undertake climate action (Magacho et al., 2024). CBAM has been criticized for its adverse impact on countries that do not have in place adequate capacity to adopt lowcarbon technologies (Magacho et al., 2024). ...
The European Union (EU)’s carbon border adjustment mechanism (CBAM), the maiden border carbon adjustment (BCA) on cross-border trade, has entered into force in October, 2023. While CBAM is aimed at preventing the risk of carbon leakage, another objective is enhancing the decarbonization in the covered hard-to-abate sectors and concomitant greenhouse gas emissions reduction in the EU’s trade partners. In this article, we examine how far CBAM could be effective in achieving the latter objective, by considering the iron and steel sector in India as a case in point. Our hypothesis is that CBAM will induce the “Brussels Effect” on steel decarbonization in India. The Brussels Effect refers to the EU’s power to transmit its own regulation beyond its border ‘unilaterally’, through an interplay between EU regulations and the market forces’ ability to externalize those regulations in different markets. We test this hypothesis by applying a qualitative research methodology that combines secondary data gathered from multiple streams of literature with primary data collected through focused group discussion and key-informant-interviews involving 41 stakeholders of diverse categories representing steel companies, industry associations, government, academia, civil society, and inter-governmental-organizations conducted between July 2023 and October 2024. Our findings indicate that the Brussels Effect on steel decarbonization in India may be valid for the big steel producers, but only partially. However, the effect may not work for the small and medium enterprises in India. Thus, the impact of CBAM on the Indian steel industry would likely be uneven and inequitable, with the larger players adapting faster and relatively more easily compared to smaller players, whose challenges may exacerbate if they are exposed to CBAM. We propose a set of design recommendations for BCAs that the EU and other prospective BCA-imposing countries could consider better balancing the ambition of enhanced decarbonization with equity in their trading partners from the Global South.
... The main cause of the concern in developing countries is a lack of the ability to modify their socioeconomic structures and industrial systems to adapt to proposed policies (Magacho et al. 2024). Because it is anticipated that the unit price of goods included in CBAM will increase once importers from EU begin to pay levies on imports according to the carbon emissions of the goods they import. ...
... Since CBAM is a new subject and its impact on exporting countries has not yet been fully estimated, studies in this area are quite limited. While some studies in this field examine the macroeconomic consequences of CBAM on the exporting country (Voituriez and Wang 2011;Perdana and Vielle 2022;Sudakov 2023;Dobranschi et al. 2024;Magacho et al. 2024) many examine the measures that firms operating in the EU should take in order not to lose their competitive advantage (Bao et al. 2013;Lee 2022;. examined the steel industry, which is crucial to China's exports to the EU, and came to the conclusion that CBAM would cause China's steel exporters to lose 58% of their export profits and 32% of their export volume at the country level. ...
... Lastly, the potential negative effects of CBAM additional to exports have also been the subject of studies. The macroeconomic variables (labor market and tax revenues) of the EU's trade partners may be adversely impacted by CBAM, according to Magacho et al. (2024). ...
Import demand elasticity (IDE) is a critical metric often employed to guide government decisions regarding tariffs and non-tariff barriers, ensuring that foreign trade remains uninterrupted while optimizing tax revenues. This study, however, leverages IDE to assess the impact of the carbon border adjustment mechanism (CBAM) on Türkiye’s decarbonization process. Specifically, the research analyzed the total export quantities and unit prices of four product groups—cement, fertilizers, and inorganic chemicals, steel and iron, and aluminum—exported from Türkiye to the European Union-27 countries under the CBAM framework between 2002 and 2021. Using CCE and AMG methodologies, IDE parameters were estimated, followed by calculations of unit price increases and potential export losses across three distinct scenarios. The findings indicate IDE values of 1.95 for cement, 1.20 for fertilizers and inorganic chemicals, 1.85 for steel and iron, and 1.47 for aluminum. These high elasticity values suggest that Türkiye may face substantial export losses for these products. Later we calculated unit price increase and potential export loss according to three different scenarios. Across all three potential scenarios, while Türkiye’s iron and steel exports to the EU-27 face a great risk of declining by approximately 25%, the aluminum sector was found to be the least affected across all three scenarios. Consequently, it is imperative for Türkiye to expedite its decarbonization efforts to safeguard its export market share within the EU.
... Although excluding least-developed countries might be possible under WTO's Enabling Clause (Cosbey et al., 2019), doing so could still give rise to challenges under GATT's Article I because this Clause only allows discrimination to aid development (Cosbey et al., 2019) and because this design option could increase trade barriers in other countries (Mehling et al., 2019). Furthermore, a more effective alternative might be using revenues to finance technology transfer, climate subsidies or concessional lending (Magacho et al., 2024). Besides, restricting the coverage to countries where most carbon leakage occurs is complicated by the need to estimate this contribution, especially when foreign countries also implement climate policies (Kortum & Weisbach, 2017). ...
... Note, however, that the former design option could reduce the Ag-CBAM's effectiveness depending on the severity of transshipping risk (Cosbey et al., 2019) and the contribution of less-developed countries to carbon leakage (Cosbey et al., 2019;McLure, 2014;Mehling et al., 2019;EFGD). Furthermore, an Ag-CBAM application in economies significantly distant from the benchmark, while still fostering technological advancement, could become a burden for these countries (Magacho et al., 2024). ...
... The Ag-CBAM could also increase abatement incentives, e.g. by allowing producers prove their actual emissions (Cosbey et al., 2019;EFGD), and the development of low carbon technologies. However, by ignoring trade part-ners´ innovative capabilities, the Ag-CBAM could fall short in attaining the later objective, whose effectiveness depends on complementary policies (Magacho et al., 2024;Perdana & Vielle, 2022). Note also that, while the reference Ag-CBAM could encourage international cooperation by limiting the product coverage and allowing agents to prove their actual emissions (Mehling et al., 2019;Monjon & Quirion, 2010;Pirlot, 2022), it is also possible that it generates the opposite effect by, e.g. ...
Carbon leakage can undermine the effectiveness of domestic climate policies and, if perceived as a significant risk, could even prevent their implementation. This concern also extends to the agricultural sector, where existing studies indicate a high potential carbon leakage risk. Like in other sectors, governments could use a carbon border adjustment mechanism (CBAM) to reduce this risk. In theory, a CBAM could offer an efficient solution to avoid competitiveness losses by domestic producers and thus reduce carbon leakage. However, the feasibility of implementing such a mechanism remains an open question. Although the literature suggests many CBAM design options, we are unaware of CBAM design proposals for agriculture. To fill this literature gap, this article uses a mixed methods approach to outline the characteristics of an agricultural CBAM (Ag-CBAM) and develop a design that could enhance its administrative, technical, and legal feasibility. We recommend that an Ag-CBAM should only cover carbon pricing policies, acknowledge foreign mitigation efforts, and use carbon price and emission intensity benchmarks. Additionally, we propose that it should cover only imports of products causing the majority of carbon leakage and be limited to emissions along certain life-cycle stages where emissions originate along the food supply chain, and specific greenhouse gases. Finally, our article discusses the potential performance of this CBAM under further criteria, including its effectiveness in reducing carbon leakage, equity, and consistency with the Paris Agreement.
Key policy insights
- The characteristics of the agricultural sector make the design of an Ag-CBAM far from trivial.
- Designing an Ag-CBAM requires extensive country-specific information to choose among many possible regulatory options.
- Although countries can improve the feasibility of implementing an Ag-CBAM through finding an suitable design, such an Ag-CBAM could lose its effectiveness in reducing carbon leakage and have further unexpected effects.
- An Ag-CBAM seems an attractive policy in countries where: carbon pricing policies in agriculture lead to a significant substitution of domestic by foreign products; few imports cause most carbon leakage; most emissions embodied in these imports do not originate in less-developed countries; and uncovered GHG emissions and benchmarks do not substantially reduce its effectiveness in reducing carbon leakage.
... However, these policies primarily provide incentives and compensation within the context of existing pollution costs, offering only limited encouragement for businesses to reduce emissions (H. L. Liu et al. 2015;Magacho et al. 2024;Sato 2021). In contrast, green credit policy incentivises green transformation by differentiating loan interest rates or credit thresholds and influencing financing costs and availability. ...
... Some studies suggest that the CBAM policy has a considerable negative effect on the exports of trading partners, particularly developing countries outside Europe (H. L. Magacho et al. 2024). This finding reflects the divergent trade philosophies of China and the EU: China advocates for trade globalisation, whereas the EU, under the trend of deglobalisation, implements policies that reflect protectionist tendencies. ...
Motivated by global environmental challenges, China introduced a green credit policy to achieve carbon peaking and carbon neutrality goals. This study examines the regional effects of the green credit policy using a difference‐in‐differences model. The results reveal significant local and regional carbon emissions reduction effects, along with negative outcomes for exports. The mediating analysis reveals that green credit policy drives regional decarbonisation by fostering green innovation. The internal firm characteristics (geographic location and ownership) and the external environment (financial technology development and government service capability) significantly moderate the policy’s impact. Additionally, the green credit policy has local and regional employment reduction effects. Green innovations mediate the reduction in employment, whereas a shift in labour from SOEs to low‐pollution nonSOEs occurs.
... A prevalent critique of CBAM is its ostensibly disproportionate impact on emerging economies, which are heavily reliant on carbonintensive industries (Magacho, Espagne, & Godin, 2024). Such nations argue that CBAM functions more as a trade barrier than as a bona fide environmental safeguard (Sarangi, 2023). ...
... Creating a Transition Support Fund for Developing Economies: Jointly establish a Green Transition Fund to assist emerging economies in decarbonizing without incurring severe economic losses (Magacho et al., 2024;WTO, 2023). ...
This study examines the impact of the European Union’s Carbon Border Adjustment Mechanism (CBAM) on trade flows and emissions in the steel sector, focusing on China’s response strategies. Using a Computable General Equilibrium (CGE) model implemented in GAMS, we simulate five policy scenarios: baseline (no CBAM), full CBAM compliance, trade diversification, EU-China Emissions Trading System (ETS) alignment, and CBAM with subsidies. Results indicate that CBAM reduces China’s steel exports to the EU by 32% under full compliance but leads to carbon leakage if trade shifts to regions with weaker regulations. ETS alignment minimizes trade disruptions while achieving the most significant emissions reductions. Findings suggest that EU-China cooperation in carbon pricing mechanisms could optimize both economic and environmental outcomes.
... Li et al. (2023) proposed a "five-dimensional" analytical framework to systematically identify risks correlated with China's low-carbon energy transformation from an energy security perspective [22]. Magacho et al. (2024) discovered that the impacts of carbon border regulation mechanisms differ significantly among countries, with developing countries facing higher border risks, as indicated by input-output analysis [23]. ...
... Li et al. (2023) proposed a "five-dimensional" analytical framework to systematically identify risks correlated with China's low-carbon energy transformation from an energy security perspective [22]. Magacho et al. (2024) discovered that the impacts of carbon border regulation mechanisms differ significantly among countries, with developing countries facing higher border risks, as indicated by input-output analysis [23]. ...
The airline industry is currently navigating a pivotal period characterized by rapid development and increasing global pressure to reduce carbon emissions. Airlines, as the first to be significantly impacted, must actively manage their carbon footprints, adopt carbon abatement technologies, and address the inherent risks in this transformation. This paper examines the risk factors correlated with the technology transformation of carbon abatement and proposes effective abatement strategies. Using panel data of China Southern Airlines from 2009 to 2023 and applying the Logarithmic Mean Divisia Index (LMDI) method based on the Kaya identity, we analyze the differential impacts of various factors on unit carbon emissions. Multiple scenarios, derived from the influences of these factors, are constructed, and the Monte Carlo algorithm is employed to simulate the impact and volatility of correlated risks in the technology transformation for the abatement of carbon emissions. The findings are as follows: on the one hand, carbon emissions are strongly driven by energy consumption (0.99), flight volume (0.941), flight hours (0.931), transportation turnover (0.923), and take-off frequency (0.833). On the other hand, technology (56%) and scale (54.74%) significantly reduce unit carbon emissions, while take-off frequency negatively impacts emissions (−35.19%). Technology-related risks are controllable and relatively stable, whereas scale-related risks are highly uncertain. Additionally, operation-related risks can be partially hedged to ensure a certain level of risk controllability.
... Introduction of the EU CBAM has given rise to considerable interest among researchers across the world who have engaged in debate and discussions related to the possible implications of this regulation on the EU trade partners. Some of the important work in this direction are those by Chepeliev (2021); Perdena and Viella (2022); Beufils et al. (2023); Magacho et al. (2023); Park et al. (2023); Siy et al. (2023);Sudakov (2023); Majumder et al. (2024) and Zhu et al. (2024). One of the earliest studies on CBAM impact assessment is that by Chepeliev (2021). ...
... The study suggests that implementing the EU CBAM with revenue redistribution targeted at promoting clean and efficient energy use in LDCs would enhance the welfare of recipient countries, significantly reduce carbon leakage, and be cost-effective for the EU. Magacho et al. (2023) study the CBAM impact on emerging market and developing economies (EMDEs). The findings, based on trade data and Multi-Regional Input-Output (MRIO) matrices, highlight that Russia, China, Turkey, and Ukraine are the most vulnerable in both external and socio-economic aspects. ...
The European Union aims to reduce net greenhouse gas emissions by 55% of the 1990 levels by 2030. To reach this target, the EU is expanding the scope of its current Emissions Trading System. This is likely to increase carbon prices raising the risk of carbon leakage. To counter this risk the EU introduced the Carbon Border Adjustment Mechanism (CBAM) regulation, which is phased in starting October 2023, with full implementation planned by 2036. Against this backdrop, this paper seeks to conduct an ex-ante analysis of the likely impact of CBAM on South Asian countries exporting goods to the EU. Using the computable general equilibrium framework of GTAP and GTAP- E database the paper does simulations by calibrating various scenarios involving phases of CBAM implementation. The findings point out that the carbon tax is likely to displace the region’s exports to the EU. Export prices will fall but the decline in volume will dominate the adverse trade impact. Trade loses will be experienced by all countries. However, majority of the trade and welfare loss will be borne by India. As the CBAM reach deepens in its phased implementations beyond 2026, the trade loss of other countries of the region increases with welfare loss recorded. The analyses suggest that the impact of CBAM on trade patterns, competitiveness, and income distribution of the EU trading partners from South Asia is going to be substantial.
... Esse mecanismo introduz uma dimensão adicional ao comércio de energia, pois visa taxar as emissões de carbono de produtos importados, potencialmente criando barreiras comerciais para produtos de países que não seguem as metas de redução de emissões da União Europeia. Essa iniciativa destaca a necessidade de uma abordagem global e coordenada para a certificação de fontes renováveis, considerando não apenas aspectos técnicos, mas também as implicações econômicas e políticas da transição energética (Magacho et al., 2022). ...
... Dado que a maioria de suas exportações são destinada à UE e apresentam pouca diversificação, esses países encontrariam dificuldades em mitigar os impactos econômicos decorrentes da regulamentação do CBAM. Os Bálcãs, na Europa, são outro exemplo de região que pode ser impactada negativamente caso não acelere a transição para uma matriz elétrica mais renovável, tornando suas exportações menos vantajosas no mercado (Magacho et al., 2022). ...
... Free allocations 3 under the EU ETS have, to date, been the mechanisms used to address carbon leakage. With the introduction of the CBAM, free allocations will gradually be phased out in sectors covered by the EU ETS (Magacho et al., 2022). ...
... The global economy needs to prepare for the disruptions in trade flows which may arise from CBAM spillovers. Other markets, such as Canada, United Kingdom and Japan, as well as the United States are planning to implement their own border carbon taxes (Magacho et al., 2022). ///This will make trade increasingly difficult for South Africa if it does not decarbonise its energy and carbon-intensive industries. ...
As of 16 May 2023, the European Union (EU) Carbon Border Adjustment Mechanism (CBAM) was fully legislated and is set to enter into force in October 2023. Between October 2023 and end of 2025, a transitional period will unfold. During this initial period, the burden will be administrative rather than financial, as importers will only report direct greenhouse gas GHG emissions embedded in their imports. From 2026, the carbon pricing associated with CBAM will be gradually ramped up, reaching full force in 2034.1 Importers will have to declare each year the quantity of imports to the EU in the preceding year and their embedded GHG emissions. They will then have to purchase digital CBAM certificates, at a price to be calculated based on the weekly average auction price of the EU Emission Trading System (ETS) allowance expressed in €/tonne of CO2 emitted (European Commission, 2022).
... BCAs are tariffs on imported goods based on their embedded carbon emissions, designed to level the playing field for countries with varying climate regulations. BCAs could however disproportionately harm developing economies reliant on carbon-intensive exports (Magacho et al., 2024;OECD, 2020). These countries may lack resources for rapid decarbonization, leading to potential economic setbacks and jeopardizing development goals. ...
... The literature in this emerging area indicates that developing countries may experience disproportionate negative impacts from BCAs/CBAM, leading to limited support for these policies (Gu et al., 2023;LSE, 2023;Magacho et al., 2024;Sabyrbekov & Overland, 2024;Smith et al., 2024). Moreover, stakeholder perspectives on BCA design vary significantly (Buylova et al., 2022;Kuehner et al., 2022). ...
Introduction This policy analysis paper explores stakeholder perspectives on the potential impact of Border Carbon Adjustments (BCAs) as an external climate policy instrument on Trinidad and Tobago. The research is based on data collected through a questionnaire and two workshops.Discussion The study finds that while the majority of stakeholders are aware of BCAs and generally support their implementation for environmental reasons, there are concerns about their impact on the competitiveness of the country's exports and the social consequences. Stakeholders expressed concerns about potential job losses, increased costs for consumers, and reduced competitiveness of local industries.Conclusion The research recommends the participation of Trinidad and Tobago in international discussions on BCA design to advocate for phased exemptions as the country decarbonizes and to influence key BCA design features such as geographic coverage, product coverage, emissions scope, fees and application of the fees and crediting for foreign policy. The country should also develop robust Measurement, Reporting, and Verification (MRV) systems to measure and verify domestic carbon emissions accurately. Additionally, the country should introduce policies like a carbon tax to potentially reduce emissions and the amount of taxes paid.
... Kína -sok más országgal (többek között Indiával, Indonéziával, Thaifölddel) egyetemben -a CBAM-re úgy tekint, mint az Európai Unió protekcionista és diszkriminatív politikai intézkedésére. 38 Az EU természetesen más véleményen van: "Ez nem protekcionista. Egyszerűen csak az ambiciózus kibocsátáscsökkentési intézkedéseink szükséges velejárója annak garantálása érdekében, hogy azok ténylegesen a bolygó javát szolgálják." ...
A tanulmány az Európai Unió és Kína klímapolitikáját, klímacéljait és a köztük lévő kapcsolatot kívánja bemutatni, kiemelt figyelmet szentelve az EU 2050-es klímacéljainak a Kínához leginkább kapcsolódó pontjaira. A klímapolitika nem választható el a geopolitikai gondolkodástól és a gazdasági versenyképességtől sem a tervezés, sem a végrehajtás szakaszában. Egy olyan politikai-gazdasági egység esetében, mint amilyen az Európai Unió, fontos, hogy aktív szerepet vállaljon az éghajlatváltozás elleni törekvésekkel kapcsolatos nemzetközi tárgyalások során, miközben a saját érdekeit is képviselnie kell. Az uniós klímapolitikát és a kapcsolódó geopolitikai kérdéseket nemcsak a külső nagyhatalmi versengések befolyásolják, hanem a belső tagállami viszályok és eltérő nézőpontok is folyamatosan alakítják. A klímacélok megvalósítása során elkerülhetetlen a Kínával mint technológiai nagyhatalommal való szoros együttműködés, ami azonban nemcsak óriási lehetőségeket, de számos dilemmát is hordoz magában. A tanulmányunkban a téma elméleti bemutatását követően az EU és Kína kapcsolatának egy fontos területét, az uniós járműipart elemezzük részletesen. Az iparág jelenlegi helyzetének a felvázolása után kitekintünk a jövőbeli lehetőségekre és dilemmákra, kiemelten Magyarországnak mint a kínai járműipari beruházások egyik fő célpontjának a helyzetére és jövőbeli terveire.
... This article analyses pathways for re-engineering metallurgical production in Ukraine to transition towards "green" steel and ensure the industry's sustainable development. This will be achieved through the implementation of innovative technologies, such as Midrex and electric arc furnaces (EAFs), to reduce CO 2 emissions and comply with CBAM requirements [7][8][9]. ...
Дослідження присвячено актуальній проблемі екологічної відповідальності металургійної промисловості. Традиційні методи виробництва сталі супроводжуються значними викидами парникових газів і негативно впливають на навколишнє середовище. З огляду на посилення екологічних норм та зростання суспільного інтересу до сталого розвитку, пошук нових, більш екологічно безпечних рішень стає дедалі актуальнішим. Інновації в металургії – це не просто тренд, а необхідність для виживання галузі в довгостроковій перспективі. Запропонований комплексний підхід до модернізації металургійного виробництва допоможе «Запоріжсталі» залишатися великим гравцем на ринку металургії. Державна підтримка та інвестиції в розвиток «зелених» технологій є ключовими для успішної трансформації галузі. У статті проаналізовано можливості використання інноваційних технологій, як-от пряме відновлення заліза (DRI) та електродугові печі (ЕДП), для значного скорочення викидів вуглекислого газу та підвищення енергоефективності. Також розглядається роль технологій уловлювання, використання та зберігання вуглецю в мінімізації негативного впливу на клімат. Результати дослідження демонструють, що впровадження «зелених» технологій не тільки сприяє зменшенню екологічного навантаження, а й створює нові можливості для експорту української сталі на європейські ринки, де дедалі більшу роль відіграють екологічні стандарти, а також допомогає швидкій інтеграції до Євросоюзу та закріпленню як стійкого гравця на ринку металургії. Крім того, перехід на «зелену» металургію сприятиме підвищенню енергетичної безпеки України завдяки зменшенню залежності від імпорту енергоносіїв. Упровадження інноваційних рішень сприяє підвищенню конкурентоспроможності металургійних підприємств на світовому ринку та забезпеченню довгострокової стійкості галузі.
... In addition to the potential protective effect of a CBAM for the EU industry, however, research has also examined the impact of the introduction of the EU CBAM on its trading partners. For example, Magacho et al. [12] examined the adverse socio-economic and foreign trade consequences for developing countries and emerging economies. In addition to numerous other studies, Böhringer et al. [13] also showed that carbon border taxation tends to shift part of the burden associated with European emissions pricing to less developed countries. ...
The implementation of the ambitious European Green Deal package and the intensified pursuit of sustainability goals are accompanied by many challenges, particularly for energy-intensive industrial sectors in Germany and the EU. In addition to the rising cost of CO2 certificates as a burden for companies, the transformation of local production requires enormous investments in CO2 emission reduction technologies. In order to accelerate the EU’s transition within the EU-ETS to climate neutrality while maintaining the competitiveness of European companies and avoiding the risk of large parts of the industry migrating to less ambitious regions, the European Commission has decided to replace the current system of free allocation with a Carbon Border Adjustment Mechanism (CBAM). This mechanism is intended to ensure that local companies are not disadvantaged by the CO2 emission costs they have to pay compared to imports from countries with lower CO2 prices (exports are not included in the protective effect of this instrument). This study compares the effects of various protection instruments in terms of macroeconomic indicators and CO2 emissions. In addition to the comparison between CBAM and free allocation, the possibility of establishing a climate club in different design variants to expand the protection of the public climate good and avoid carbon leakage is also analyzed.
... The current scope of CBAM includes phosphate rock and mixed fertilisers, and would tax the carbon content of otherwise freely imported primary fertilisers. Among the most affected by this action would be Russia, which is also the biggest exporter of phosphates into the EU [43,161]. Currently, CBAM revenues go into the EU's Innovation Fund, but could be used both to reinvest in recovery infrastructure and the carbon accounting of output products coming from it to justify further investments. ...
Phosphorus’ availability and pricing is critical for the entire food system. Transformative phosphorus governance is required to reduce the European Union’s fertiliser vulnerability. At the same time, the EU’s governance approach is constrained by multiple problem definitions and missing salient framings that could make phosphorus recovery a priority of the EU’s decision-making agenda. The article addresses this policy gap by gathering and discussing different institutional and stakeholder framings that could inform a transition to a transformed phosphorus governance. We combine triangulated methods (framing as an analytical heuristic, semi-structured expert interviews, document analysis, and conference observations) with Kingdon’s three streams of agenda-setting as a conceptual framework to identify alternative intersectoral framings of phosphorus sustainability. Our findings suggest that the window of opportunity filled by the EU’s Fertiliser Affordability Communication supports a decarbonisation pathway that fails to emphasise the potential of emergent framings supporting phosphorus recovery. We analyse these framings and suggest that a new window of opportunity for their elevation on the EU’s decision-making agenda is opening with the inauguration of a new European Commission. We propose five alternatives that apply powerful spillover framings to implement phosphorus governance that is synchronous with the commission’s sectoral priorities. We believe that an extension of the EU’s current environmental policy along these pathways can potentially contribute to phosphorus sustainability.
... Джерело: складено автором на основі [1][2][3][4][5] Наслідки СВАМ неможливо повністю передбачити, оскільки цей інструмент запроваджено вперше. Позитивний ефект може бути досягнутий у випадку комплексного використання СВАМ разом з вуглецевим оподаткуванням/системою торгівлі парниковими викидами та фінансовими заходами, які б підтримували реалізацію проектів декарбонізації. ...
... The CBAM is likely to have detrimental economic impacts on lower-income EU trade partners, predominantly in the Global South(Magacho et al., 2023) if not accompanied by redistribution of CBAM revenues(Perdana and Vielle, 2022). In addition, we believe ESG-driven investments may help mitigate the potential negative impacts of CBAM, and we support further research on the ESG-CBAM relationship.https://doi.org/10.1017/S1355770X24000366 ...
The EU's non-financial reporting (NFR) regulations have significant impacts on Global South stakeholders, firms that must report, actors lower in the value chain, and organisations seeking investment from NFR-compliant firms or institutions. This paper sets forth six proposals to improve the global equity and sustainability implications of the EU's NFR from a Global South perspective. The proposals involve (1) developing regulation cooperatively with the Global South; (2) streamlining reporting to enable the regulations to have real effects and limit incorrect accounting; (3) digitalising reporting through accessible technologies for greater accountability and lower administrative burdens; (4) mandating scope 3 emissions accounting and incentivising related investment; (5) anchoring financial institutions' role in ethical investment and bridging Northern and Southern actors; and (6) strengthening citizen data and sustainability literacy to close the circle of incentives, implementation, and impact.
... Notwithstanding this, the EU had already declared its intention to impose a carbon price on imported products. The CBAM was designed as a preventive approach against carbon leakage and conveyed to the world [18]. The enactment of the CBAM would substantially increase the export expenses of China's high-emission industries, including steel, cement, aluminum, and chemicals [19]. ...
The European Union’s Carbon Border Adjustment Mechanism (CBAM) has not only accelerated the development of China’s energy policy, but it has also posed new obstacles. This paper aims to explore the influence of CBAM at various phases of its evolution on policy formulation for China’s six main high-emission industries. The policy analysis indicates that the Chinese government, in response to the demands of CBAM, has expanded its emission reduction programs. These now include sustainable energy endeavors, like hydrogen, alongside traditional high-emission industries. Moreover, the Chinese government has implemented 39 initiatives for energy conservation and emission reduction. These initiatives seek to restructure industrial frameworks via legislative modifications, enhance manufacturing methodologies, and establish stringent emission regulations. Nonetheless, there is insufficient adherence to policy implementation in China’s high-emission industries, failing to provide substantial reductions in emissions. In light of the demands from the CBAM carbon taxes and its own emission reduction objectives, the Chinese government has prioritized enhancing enforcement in the six main sectors.
... The steady upward trend in the carbon intensity of electricity generation in the Philippines will thus have a strong impact on the CFP of products manufactured in the country. As carbon-based trade restrictions like the European Union's Carbon Border Adjustment Mechanism (CBAM) proliferate, there will be increasing pressure on firms to dramatically reduce their CFPs to maintain access to lucrative export markets (Magacho et al., 2024). The Philippines cannot isolate itself from this global bandwagon. ...
The Philippines remains in the minority of countries in the world that have yet to make a net zero emissions pledge. This policy gap leaves the country without a proper roadmap to keep pace with the global energy transition that will take place in the coming decades. In this perspective paper, we discuss the adverse implications of the failure to come to terms with deep decarbonization.
... The hybrid attention mechanism usually combines spatial attention and channel attention, integrating the advantages of both to improve the ability to extract features from fetal heart rate monitoring images [21]. The spatial attention mechanism identifies important areas by analyzing the spatial position of the feature map, while the channel attention mechanism highlights meaningful features by weighting different channels of the feature map. ...
Fetal heart rate (FHR) monitoring, a non-invasive method using cardiotocography (CTG), reflects fetal condition in real-time to identify abnormalities and reduce intrauterine hypoxia risk. Hypoxia, a common prenatal issue linked to restricted fetal growth, neurological disorders, and perinatal mortality, alters fetal heart rate patterns such as baseline variability and accelerations. Intelligent CTG classification using FHR signals is challenging but aids in decision-making. Traditional machine learning requires cumbersome feature extraction, hindering real-time classification. This study proposes a method using hybrid attention and ResNet50 for computer vision image classification, assisting doctors and enabling preliminary patient judgments. Utilizing a real hospital dataset, this approach achieved 87% accuracy in experiments. Its advantage lies in directly processing fetal heart monitoring images, bypassing complex feature extraction, and leveraging deep learning for accurate classification, providing a more reliable fetal health monitoring method.
... However, the direct cost that they impose on the EU's trading partners may discourage the latter from exporting to the EU, which, in turn, plays against the EU's efforts to diversify its sources of imports (Guinea et al., 2023). Some of the proposed initiatives (like the CBAM; EU, 2023d) are often perceived as a distortion to international trade or as unequal since they mostly impact the least developed countries that are especially vulnerable to climate change (Guinea et al., 2023;Magacho et al., 2022). The new requirements could lead to undesirable countermeasures and directly affect the EU's openness to trade and investment (Molthof et al., 2022). ...
The EGD pathways for a sustainability transition in Europe is facing a crossroads. The report addresses the barriers still affecting the EGD implementation, the issues emerging in financing the investment needs for the transition, and the new macro policy framework that can hinder or favour a ‘new’ EGD pathways in the next few years. The report presents a systematic overview of estimated investment needs to achieve the major EU climate, energy and environmental targets, and the corresponding gaps with respect to the present investment trends. The industrial and manufacturing capacities of the EU to pursue the development of domestic value chains in Net Zero industries and clean tech are examined using original datasets. The report also explores the macro policy space for transition investments, and suggests the opportunity to rethink investment strategies, by both the public sector and the private sector, as a new EU industrial policy in the perspective of the Clean Industrial Deal announced by the European Commission.
... After obtaining the outputs of the 5 branches, each branch vertically concatenates its output and produces Y as the final result. The algorithm incorporates an additional CBAM attention mechanism [19] to compensate for the decrease in algorithm accuracy following feature map fusion. This mechanism evaluates the significance of each channel and enables the pyramid pooling module to dynamically select the most relevant feature channels for the current task, as depicted in Eq. (6). ...
Due to its rapid projection and capture of fringe patterns, coded structured light measurement technology is widely utilised for acquiring three-dimensional information in welding areas. To achieve real-time segmentation of the welding area for T-joint butt welding workpieces with various noise interference, this paper has developed a lightweight dual-resolution semantic segmentation network (LDRNet). This paper designed a lightweight feature extraction module that provides efficient feature representations for the network using fewer parameters and computational costs. To enhance the network’s robustness to complex environmental noise, this paper introduced a multi-scale adaptive feature extraction module that can capture information at different scales of the environment. To further improve segmentation accuracy, this paper reconstructed the traditional pyramid pooling module and combined it with the CBAM attention mechanism to enhance the focus on important features. This paper proposes a local feature constraint method to improve the phase matching accuracy. Experimental results show that this paper algorithm significantly reduces Params and FLOPs by 62.02% and 65.78%, respectively, compared to the original network DDRNet-23-Slim. Moreover, it leads to an improvement in the IOU of the welding area from 74.55% to 77.43%. Additionally, this paper’s proposed algorithm effectively reduces the generation of noise points through phase matching by approximately 93.88%. Consequently, this algorithm satisfactorily meets the requirements of practical production processes.
... The countries of the European Union (EU) have gone much further in the evolution of the environment-focussed tax regulation, extending its effect to producers from other countries (European Commission, 2024). The proposed approach involves levying a tax on goods imported into EU countries depending on the amount of CO 2 emitted during their production (Zhong and Pei, 2022;Magacho et al., 2024;Zhou and Liu, 2024). For this reason, manufacturers of products with a high carbon footprint, including steel, aluminum, mineral fertilisers, cement, electricity, and a number of others, will be forced to pay the tax, while increasing their costs, and reducing competitiveness. ...
Decarbonisation is seen as a critical factor of environmental protection policies. They include various forms of carbon emission control, carbon pricing, and the use of environmental, social, and governmental (ESG) standards and metrics. Although the urgent need for it was recognised by business communities, decarbonisation process is rather slow because of some contradiction between the interests of the company’s internal and external stakeholders. To solve this problem and achieve corporate strategic goals, we proposed a methodology based on the decoupling effect and green resource orchestration theory. In the paper, we explained the logic of aligning decarbonisation goals with company strategic objectives; described requirements and conditions for that; and confirmed that this approach can be used by companies worldwide.
... Studies using computable general equilibrium (CGE) models have found that CBAM could lead to a reduction in exports from countries with less stringent environmental regulations, while potentially incentivizing these countries to adopt greener technologies [30]. Countries such as Russia, China, Turkey, and Ukraine are key trade partners for the EU concerning CBAM products, making them particularly vulnerable in both external and socio-economic contexts [31]. Region-specific analyses suggest that CBAM triggers a waterbed effect on the emissions of countries within the EU and has a limited effect on reducing the leakage rate across member states [32]. ...
Associated with more ambitious targets for reducing emissions, the European Union (EU) plans to implement the Carbon Border Adjustment Mechanism (CBAM) fully in 2026, aiming to reduce carbon leakage and competitiveness concerns by imposing tariffs on carbon-intensive imports, which is expected to significantly impact its trade partners. Existing research has focused on CBAM’s impact on macroeconomic indicators but has insufficiently addressed its effects on global and regional carbon leakage, especially in non-EU countries like China. This research offers a detailed analysis of industry-specific leakage rates and integrates both global and regional impacts by employing the dynamic recursive GTAP-E general equilibrium model to numerically simulate CBAM’s inhibitory effect on carbon leakage under different carbon tariff scenarios, while also exploring the synergistic effects of anti-leakage policies in non-EU countries. Our simulations indicate the following: (1) CBAM effectively inhibits carbon leakage, with greater inhibition observed at higher tax rates and with the expansion of covered industries. (2) Establishing China’s domestic carbon market pricing can further reduce regional carbon leakage rates. Implementing global export carbon tax policies will significantly diminish the risk of global carbon leakage. (3) The implementation of CBAM is projected to reduce China’s total exports to the EU, though this loss will be partly offset by trade diversion effects. Carbon-intensive industries are more adversely affected in the short term, while all industries except fossil fuels face inevitable long-term negative impacts.
... This could particularly affect countries heavily reliant on exporting energy-intensive products, diminishing their competitiveness in European export markets. Moreover, some EU companies may contemplate relocating their production to the EU to avoid CBAM taxes, leading to the outsourcing of manufacturing activities and posing a challenge for developing countries [8]. CBAM's implementation may influence carbon tax policies in developing countries and inspire various coping strategies. ...
The Carbon Border Adjustment Mechanism (CBAM), proposed by the European Union to combat carbon leakage, presents a complex landscape of opportunities and challenges in the realm of global climate governance. This paper explores the problems and controversies surrounding CBAM, including potential WTO incompatibility, violations of UNFCCC principles, and complexities in carbon accounting. It also examines the potential impact of CBAM on developing countries and offers a range of suggested solutions. These solutions encompass designing domestic carbon markets in alignment with the European model, implementing policy and regulatory reforms, fostering China-European bilateral relations, and emphasizing international cooperation and adherence to established legal frameworks. Additionally, at the enterprise level, strategies to invest in green technologies, establish comprehensive carbon accounting systems, and adapt to the evolving low-carbon economy are proposed. By addressing these challenges and embracing these strategies, nations and businesses can contribute to a more sustainable and equitable global climate governance framework.
... Resnet allows for deeper and more robust model training, thus augmenting the effectiveness of training [24][25][26][27]. Furthermore, the CBAM attention mechanism enables targeted analysis of pivotal components within the graph structure [28][29][30][31]. ...
：Short-term rainfall prediction is a crucial and practical research area, with the accuracy of rainfall prediction, particularly for heavy rainfall, significantly impacting people's lives, property, and even their safety. Existing models, such as ConvLSTM, TrajGRU, and PredRNN, exhibit limitations in capturing fine-grained appearances due to insufficient memory units or addressing positional misalignment issues, thereby compromising the accuracy of model predictions. In this study, we propose trajPredRNN+, an innovative approach that integrates the trajectory segmentation model and the PredRNN deep learning model to address both limitations in nowcasting precipitation using weather radar echo images. By incorporating attention mechanisms, the model demonstrates an enhanced focus on short-term and imminent heavy rainfall events. To ensure improved stability during training, a residual network is introduced. Lastly, a more rational and effective training loss function is proposed, encompassing weight mechanism, SSIM index, and GAN loss. To validate the proposed model, we conducted a comparative experiment and an ablation experiment using the radar echo map dataset obtained from the Shenzhen Meteorological Bureau. The results of these experiments demonstrate that our model has achieved significant improvements across multiple key performance indicators.
More than 90% of all low-carbon technology trade is between high-income countries and China
This study examines the impact of foreign direct investment on firm-level energy efficiency in CEFTA 2006 economies. Using firm-level data from 2,241 firms across seven CEFTA 2006 economies for the period 2017-2018, we employ propensity score matching to estimate the effect of foreign direct investment on energy intensity. Our findings indicate that foreign direct investment reduces firm-level energy intensity by between 1.67 and 1.89 percent points, representing approximately half of the mean energy intensity value for the entire sample. This suggests that foreign ownership and investment contribute to energy efficiency improvements, potentially through technology and knowledge transfers, which improves productivity. However, the magnitude and the statistical significance of the effect varies across countries, with stronger improvements observed in the firms operating in economies with higher energy self-sufficiency and lower reliance on fossil fuels, highlighting the role of broader energy market structures and environmental and energy policies in mediating the effects of foreign direct investment. We further explore the role of other internationalization factors, finding no significant impact of exporting and reliance on foreign-produced inputs on energy efficiency.
The European Union's Carbon Border Adjustment Mechanism (CBAM) represents a groundbreaking policy to address global climate change by mitigating carbon leakage and aligning international trade with environmental objectives. As the first initiative of its kind, CBAM imposes carbon pricing on imported goods, encouraging non‐EU producers to meet stringent environmental standards. This mechanism not only supports the EU's ambitious Green Deal targets but also drives innovation, fostering a global transition to low‐carbon technologies. This paper offers an analysis of CBAM's design, phased implementation, and possible impacts. While CBAM drives technological advancements and strengthens climate governance, it also poses challenges, including compliance burdens for developing nations and potential geopolitical tensions. CBAM also promotes sustainable economic transformation by encouraging exporters in carbon‐intensive sectors to adopt green technologies, enhancing competitiveness and resilience. However, without financial and technical assistance, compliance costs risk deepening global inequalities. This study underscores CBAM's dual role as an environmental policy and a catalyst for equitable sustainability, linking economic, environmental, and technological dimensions. The findings highlight how trade policies can address global challenges, drive innovation, and reshape international climate governance, offering insights for policymakers navigating the complexities of sustainable development.
This study explores the carbon reduction and carbon leakage effect and their heterogeneity in different China’s carbon trading pilots. Multi-regional input–output method, and double and triple difference methods are used for calculating carbon transfer and empirical analysis of carbon leakage. The research results suggest unilateral environmental regulations can lead to positive carbon leakage to nonpilot areas through industrial transfer channels, which is evident in various accounting ranges of carbon transfer. The contribution of different pilot provinces and cities to carbon reduction and carbon leakage is heterogeneous. The above research provides reference and inspiration for China to further improve the construction of the national carbon market.
The implementation of the EU’s Carbon Border Adjustment Mechanism (CBAM) expands the concept of competitiveness of products in cross-country trade by adding a carbon footprint metric. An assessment of the carbon intensity of products, to which the CBAM will act (hereinafter CBAM products), is possible on the basis of IEA data and national inventories of anthropogenic emissions. The analysis shows that most Russian goods are characterized by a carbon footprint that is not higher than the weighted average level on the market. The only exceptions are building materials: cement, lime, glass. However, Russia’s export of these products to the EU is negligible. Thus, Russia has a worthy position in foreign markets, and the use of only CBAM does not affect the economic attractiveness of Russian goods in the EU.
Kazakhstan has pledged to transition to a low-carbon economy by implementing national policies and strategies that promote clean energy innovation. However, Kazakhstan is still falling short of its expected targets for energy transition, and there is a lack of knowledge regarding the country’s challenges and opportunities for clean energy development. Towards this end, the current study identifies and assesses the enablers and barriers related to clean energy innovation in Kazakhstan. Using the combination of SWOT analysis, survey data from 41 experts and the DEMATEL decision support tool, we evaluated the key factors affecting Kazakhstan’s clean energy innovation and their implications for energy transition. Assessment results show that the immature business environment, underpinned by technological, institutional, and socioeconomic factors, is perceived as a high-impact constraint for clean energy innovation and green finance deployment in Kazakhstan. Skilled labour shortages, high reliance on hydrocarbons and low retail energy prices are significant challenges to Kazakhstan’s clean energy innovation. The low-profit margin and high investment risk in clean energy projects are identified as transition barriers in the power and energy-intensive industries. In contrast, Kazakhstan’s endowments of resources critical for developing clean energy technologies (rare earth metals, uranium, gas) and the potential of low-carbon investments (e.g. carbon storage) are perceived as prominent enablers of clean energy innovation. Results are consistent across expert subgroups (academia, industry, NGOs, etc). Findings call for policy support to modern and attractive business environments, capacity, and human capital development. The findings can provide helpful insights for countries in Central Asia and beyond with similar socioeconomic structures that aim for a timely energy transition.
Theo Cơ chế điều chỉnh biên giới carbon được Liên minh Châu Âu ban hành vào 10/5/2023, từ năm 2026, thuế carbon dựa trên lượng khí phát thải sẽ áp dụng cho các sản phẩm xuất khẩu, đặc biệt gây áp lực cho các doanh nghiệp cần xanh hóa sản phẩm. Ngành thép, với sản lượng xuất khẩu sang Liên Minh đạt 1,5 triệu tấn trong Quý 1 năm 2024, dự báo sẽ chịu ảnh hưởng lớn. Nghiên cứu sử dụng chủ yếu phương pháp phân tích định tính để đánh giá thực trạng và tiềm năng xuất khẩu thép Việt Nam vào Liên minh Châu Âu, đồng thời dự báo các thách thức từ Cơ chế điều chỉnh biên giới carbon, đặc biệt là yêu cầu giảm phát thải để tránh rào cản thương mại. Từ đó, bài báo đề xuất giải pháp tăng cường năng lực chính sách và đẩy nhanh quá trình xanh hóa ngành thép Việt Nam nhằm thích ứng với quy định mới của Liên minh Châu Âu.
The European Union (EU), which has led international discussions on global warming, officially announced its plan for the Carbon Border Adjustment Mechanism (CBAM) in July 2021. Many existing studies have indicated the CBAM will curtail greenhouse gases, and will subsequently be positive in terms of reducing global warming. However, serious legal issues and trade disputes are expected in terms of the compatibility of the CBAM with the trade rules of the General Agreement on Tariffs and Trade (GATT). Contrary to the EU’s explanation, the international community has a strong view of CBAM as a new trade barrier under the guise of preventing global warming. Above all, this is because it is an arbitrary measure by the EU and not the one that has been internationally agreed upon. Therefore, this paper tries to identify the pitfalls and estimate the global cost of CBAM, arguing that the mechanism is not in line with international trade rules, and that many countries will not sit back and suffer from it. The world economy will inevitably face a vicious cycle of trade retaliation. The CBAM will drive up trade costs and cause another trade distortion. While the goal of preventing climate change is good, the CBAM scheme is too costly for the world economy.
A timely low-carbon transition will require a significant decline in fossil fuel production and consumption. This in turn exposes the rest of economic sectors to the risk of reduced usability of physical capital stocks via international production network linkages. We propose and apply a simple measure to assess the extent to which fossil shocks might trigger underutilisation of capital stocks across countries and productive sectors (‘stranding multipliers’). Our results highlight the relevance of supply-side transition risks. First, among all productive activities, the global fossil sector exhibits the highest stranding multiplier on the rest of the economic system. Second, some of the most exposed sectors are downstream activities, mainly affected by second-round effects. Third, we rank countries according to their external stranding potential, finding France, Australia and Slovakia at the top, and the USA, Italy and China at its bottom. Finally, we rank countries according to their exposure to stranding risk and analyse more in depth the origins and transmission channels of the stranding links affecting some of the most exposed countries (USA, China and Germany).
Since the EU Commission announced the introduction of a carbon border adjustment mechanism (CBAM) within the European Green Deal, debates intensified on its effectiveness for climate action, adhering to WTO regulations , and potential trade wars with China and the US. We argue that the implications of the EU CBAM for affected countries, especially in the Global South, have been underrepresented so far. We assess countries' relative risk levels in two scenarios: i) CBAM addressing only emissions-intensive sectors and ii) CBAM targeting the whole economy. The paper maps relative risks in these two scenarios using a risk index encompassing the export structure of countries, their emissions intensity, emissions reduction targets, and institutional capacities to monitor and report product-based emissions. The quantitative analysis reveals that the impacts of CBAM are distributed unevenly across the globe. The spectrum of impacted nations varies between the two analysed scenarios , but in both cases most countries at relatively high risk are located in Africa. Three qualitative case studies covering Mozambique, Bosnia and Herzegovina, and Morocco evaluate the countries' trade relations, their carbon intensity, energy and climate policies, and institutional capacities, with a special focus on monitoring, reporting and verification (MRV) of carbon emissions. The analysis sheds light on different patterns of vulnerability and policy options to increase resilience.
Finance is vital for the green energy transition, but access to low cost finance is uneven as the cost of capital differs substantially between regions. This study shows how modelled decarbonisation pathways for developing economies are disproportionately impacted by different weighted average cost of capital (WACC) assumptions. For example, representing regionally-specific WACC values indicates 35% lower green electricity production in Africa for a cost-optimal 2°C pathway than when regional considerations are ignored. Moreover, policy interventions lowering WACC values for low-carbon and high-carbon technologies by 2050 would allow Africa to reach net-zero emissions approximately 10 years earlier than when the cost of capital reduction is not considered. A climate investment trap arises for developing economies when climate-related investments remain chronically insufficient. Current finance frameworks present barriers to these finance flows and radical changes are needed so that capital is more equitably distributed.
Moving towards a greener economy requires detailed information on the environmental impacts of global value chains. Environmentally-extended multi-regional input-output (MRIO) analysis plays a key role in providing this information, but current databases are limited in their spatial (e.g. EXIOBASE3) or sectoral resolution (e.g. Eora26 and GTAP) as well as their indicator coverage. Here, we present an automated, transparent, and comparably time-efficient approach to improve the resolution, quality, and indicator coverage of an existing MRIO database. Applied on EXIOBASE3, we disaggregate and improve the limited spatial resolution by weighting each element with country and sector specific shares derived from Eora26, FAOSTAT, and previous studies. The resolved database covers 189 countries, 163 sectors, and a cutting-edge set of environmental and socio-economic indicators from the years 1995 to 2015. The importance of our improvements is highlighted by the EU-27 results, which reveal a significant increase in the EU's water stress and biodiversity loss footprint as a result of the spatial disaggregation and regionalized assessment. In 2015, a third of the EU's water stress and half of its biodiversity loss footprint was caused in the countries aggregated as rest of the world in EXIOBASE3. This was mainly attributed to the EU's food imports, which induce comparably high water stress and biodiversity loss in Egypt and Madagascar, respectively. In a second example, we use our database to add carbon, water stress and biodiversity loss footprints to the Green Economy Progress (GEP) Measurement Framework. Most countries have not achieved their environmental target and many countries, facing strong future population growth, show increasing footprints. Our results demonstrate that far more action is needed to move towards a greener economy globally, especially through supply chain management. The attached database provides detailed information on the environmental impacts of global value chains to plan efficient strategies for a greener economy.
As nations struggle to restart their economy after COVID-19 lockdowns, calls to include green investments in a pandemic-related stimulus are growing. Yet little research provides evidence of the effectiveness of a green stimulus. We begin by summarizing recent research on the effectiveness of the green portion of the 2009 American Recovery and Reinvestment Act on employment growth. Green investments are most effective in communities whose workers have the appropriate “green” skills. We then provide new evidence on the skills requirements of both green and brown occupations, as well as from occupations at risk of job losses due to COVID-19, to illustrate which workers are most likely to benefit from a pandemic-related green stimulus. We find similarities between some energy sector workers and green jobs, but a poor match between green jobs and occupations at risk due to COVID-19. Finally, we provide suggestive evidence on the potential for job training programs to help ease the transition to a green economy.
Which countries are likely to have the productive capabilities to thrive in the green economy? How might countries reorient their existing industrial structures to be more competitive in an environmentally friendly world? To investigate these questions, this paper develops a novel methodology for measuring productive capabilities to the green economy. By constructing a new comprehensive dataset of traded green products and drawing on economic complexity methods, we rank countries in terms of their ability to export complex green products competitively. We show that higher ranked countries are more likely to have higher environmental patenting rates, lower CO2 emissions, and more stringent environmental policies even after controlling for per capita GDP. We then examine countries' potential to transition into green products in the future and find strong path dependence in the accumulation of green capabilities. Our results shed new light on green industrialisation and have a number of implications for green industrial policy.
https://www.dnb.nl/en/binaries/WEB_117769_OS_Transitie_ENG_tcm47-379780.pdf
In the summer of 2018, the House of Representatives of the Netherlands supported the legislative proposal for a Climate Act. The Climate Act
stipulates that in 2050, greenhouse gas emissions must have been reduced by 95% relative to their 1990 level. To achieve this objective, the government
is aiming to reduce emissions by 49% in 2030. This requires ambitious climate policies, which also include the option of introducing a direct tax
on carbon emissions. An efficient way of reducing harmful emissions is to assign a price to the external effects of emissions. Data evidences that
compared with other countries, Dutch enterprises emit large quantities of greenhouse gases and are paying relatively little for these emissions.
The most straightforward approach would be to introduce a European carbon tax, after the example of the European Emissions Trading System
(ETS). The option of introducing a national policy, with the Netherlands leading the field in terms of imposing a direct carbon tax on corporations,
requires more insight into its impact on production costs, international price competitiveness and sales. This study addresses this, distinguishing between
the various industry sectors within the Dutch economy.
The threat of climate change requires redirecting investment towards low-carbon sectors, and this shift generates heated debates about its impact on employment. Many studies exist, most of which use CGE or Input-Output (IO) models. However, the economic mechanisms at play remain unclear. This paper disentangles the channels of job creation and studies to what extent the results of simpler IO models diverge from CGE results. Using stylized models, we show that a shift in investment creates jobs in IO if it promotes sectors with a higher share of labour in value added, lower wages or a lower import rate. In CGE, the first two channels also yield job creation, but there is no positive impact of targeting low-imports sectors - unless these do not export. Then we undertake a numerical analysis of two policies: the installation of solar panels and weatherization in France. Both policies have a positive effect on employment, in both models, due to the high share of labour and low wages in these sectors. IO results provide a good approximation of CGE results for solar (−14% to +34%) and are slightly higher for weatherization (+22% to +87%). Our findings challenge the idea that renewables boost employment by reducing imports, but they also suggest that a double dividend can be achieved by encouraging low-carbon labour-intensive sectors.
During the last decades, input-output (I/O) economic models have assumed a prominent role in disaster impact analysis and resilience assessment. Rooted in general equilibrium theory and economic production theory, they catalyse attention on the distinction between direct economic losses and ripple effects that may be generated inside a multi-industry system as a consequence of perturbations. Empowering the I/O analysis framework and overcoming some of its inherent limitations is crucial in order to successfully approach emerging disaster assessment challenges, such as multi-regional loss quantification and the investigation of shock responses in global supply chains. In this paper, we review and discuss how different disaster modeling aspects have been incorporated in recent contributions exploiting I/O techniques, taking into account both demand- and supply-sided perturbation triggers, static and dynamic representations, as well as the assessment of economic resilience.
This paper simulates the effect of a carbon tariff on China’s trade of industrial products and emission reduction through the GTAP 8.0 model, when the European Union, the United States, and Japan impose a carbon tariff simultaneously or respectively. The conclusions indicate: (1) a carbon tariff will cause a decrease in exports for high-carbon industries and generate an increase in exports for low-carbon industries; (2) a carbon tariff will cause a greater reduction on imports for low-carbon industries than that for high-carbon industries; (3) a carbon tariff will also generate a noticeable increase in output for light industry and a decrease in output for heavy industry; and (4) a carbon tariff has an obviously positive effect on emission reduction for China’s industrial sector, which bears the most responsibility of emission reduction. Based on these conclusions, this paper puts forward some corresponding policy suggestions.
If we are to limit global warming to 2 °C, all sectors in all countries must reduce their emissions of GHGs to zero not later than 2060–2080. Zero-emission options have been less explored and are less developed in the energy-intensive basic materials industries than in other sectors. Current climate policies have not yet motivated major efforts to decarbonize this sector, and it has been largely protected from climate policy due to the perceived risks of carbon leakage and a focus on short-term reduction targets to 2020. We argue that the future global climate policy regime must develop along three interlinked and strategic lines to facilitate a deep decarbonization of energy-intensive industries. First, the principle of common but differentiated responsibility must be reinterpreted to allow for a dialogue on fairness and the right to development in relation to industry. Second, a greater focus on the development, deployment and transfer of technology in this sector is called for. Third, the potential conflicts between current free trade regimes and motivated industrial policies for deep decarbonization must be resolved. One way forward is to revisit the idea of sectoral approaches with a broader scope, including not only emission reductions, but recognizing the full complexity of low-carbon transitions in energy-intensive industries. A new approach could engage industrial stakeholders, support technology research, development and demonstration and facilitate deployment through reducing the risk for investors. The Paris Agreement allows the idea of sectoral approaches to be revisited in the interests of reaching our common climate goals.Policy relevanceDeep decarbonization of energy-intensive industries will be necessary to meet the 2 °C target. This requires major innovation efforts over a long period. Energy-intensive industries face unique challenges from both innovation and technical perspectives due to the large scale of facilities, the character of their global markets and the potentially high mitigation costs. This article addresses these challenges and discusses ways in which the global climate policy framework should be developed after the Paris Agreement to better support transformative change in the energy-intensive industries.
There are a number of initiatives aimed at compiling large-scale global multi-region input–output (MRIO) tables complemented with non-monetary information such as on resource flows and environmental burdens. Depending on purpose or application, MRIO construction and usage has been hampered by a lack of geographical and sectoral detail; at the time of writing, the most advanced initiatives opt for a breakdown into at most 129 regions and 120 sectors. Not all existing global MRIO frameworks feature continuous time series, margins and tax sheets, and information on reliability and uncertainty. Despite these potential limitations, constructing a large MRIO requires significant manual labour and many years of time. This paper describes the results from a project aimed at creating an MRIO account that represents all countries at a detailed sectoral level, allows continuous updating, provides information on data reliability, contains table sheets expressed in basic prices as well as all margins and taxes, and contains a historical time series. We achieve these goals through a high level of procedural standardisation, automation, and data organisation.
Using a multi-region, multi-sector computable general equilibrium (CGE) model, this paper compares the efficiency, distributional and emission leakage effects of border tax adjustments (BTAs) as part of unilateral climate policies that are based on carbon dioxide (CO2)-only versus those based on all greenhouse gases (GHGs). Simulation results suggest that the broad-based GHG policies in general have lower efficiency costs and result in less re-distributive effects. BTAs bring modest efficiency gains with adverse distributional consequences. The distributional impacts are smaller under broad-based GHG policies compared to that based on CO2 only. However, these are due to a wider variety of abatement options under multi-gas policies rather than the BTAs per se. The main difference between the two policies is distributional effects. First, CO2-only based policies have worse impacts on fossil fuel exporters such as Russia and relatively better outcomes for oil importers such as India and China, compared to that of multi-gas policies particularly when it involves large global emission reduction. Second, sectoral coverage under BTAs also influences the differential outcomes. For example, Brazil is worse impacted under GHG-based policies if agriculture is brought under BTAs as two-third of its emissions are non-CO2 based and agriculture is the primary source of these emissions.
This article compares several configurations of a border adjustment (BA) to the EU Emissions Trading Scheme (EU ETS) that are designed to maximize their World Trade Organisation (WTO) compatibility, either with the GATT general regime or with Article XX (its environmental exception rule). The different BAs are assessed quantitatively using the partial equilibrium model CASE II, which represents four sectors included in the EU ETS (cement, aluminium, steel and electricity). The main findings indicate that the inclusion of imports and exports would reduce world emissions more than the inclusion of imports alone,that an obligation to buy EU allowances is more compatible with WTO rules than one based on a tax, and would be better at reducing world emissions. Moreover, if the BA is based on best available technologies, more precisely on the recently defined EU product-specific benchmarks, then the adjustment would only be partial and carbon leakage would nevertheless be significantly reduced. The popular view that a BA contributes to both carbon leakage limitation and to domestic production preservation is discussed, and it is argued on the contrary that although a BA would efficiently limit leakage, a decrease in European production of GHG-intensive products is to be expected. Industries that consume cement, aluminium and steel would pay more for these goods with a BA. Consequently, the price signal should be preserved and diffused in downstream sectors, an expected key result of climate policy. On the contrary, free allocation efficiently preserves domestic production, but does not preserve and diffuse the price signal and is less efficient in limiting leakage.
The supply‐driven input‐output model is, in all its aspects, the complete reverse of the traditional, demand‐driven input‐output model. Several authors have used it to indicate the strength of the industrial forward linkages in the economy at hand. Others have used it to indicate the impact of specific supply shortages on output levels. Finally, it has been used as a general description and projection vehicle for entire economies that are thought of as being supply‐constrained, such as centrally planned economies.
This paper critically reviews this literature and concludes that most of these applications suffer from more or less severe theoretical flaws. It is argued that using the supply‐driven model as a descriptive device to indicate the strength of forward linkages is justified. In the case of impact studies, straightforward use of the model is criticized and a more careful estimation procedure is suggested. For the purpose of a general description of a supply‐driven economy, a dynamic optimization model is proposed to replace the theoretically implausible, supply‐driven input‐output model.
We propose two distinct approaches to the measurement of industry upstreamness (or average distance from final use) and show that they yield an equivalent measure. Furthermore, we provide two additional interpretations of this measure, one of them related to the concept of forward linkages in Input-Output analysis. On the empirical side, we construct this measure for 426 industries using the 2002 US Input-Output Tables. We also verify the stability of upstreamness across countries in the OECD STAN database, albeit with a more aggregated industry classification. Finally, we present an application that explores the determinants of the average upstreamness of exports at the country level using trade flows for 2002.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
Carbon leakage occurs in any carbon pricing regime that is not global, which means all of them so far. That is inherently unfair to sectors that are subject to a carbon price but compete with those that are not. The European Green Deal aims to rectify the problem in the EU Emissions Trading System (ETS) by moving beyond the current second (or third) best option, which allocates emissions quotas for free for industrial sectors, and by putting a price on carbon at the EU border for selected but not yet named sectors. Our recent model-based analysis compares the impact of a future border carbon adjustment (BCA) mechanism for the power sector with the option of extending the EU ETS to countries exporting power to the EU. We demonstrate how differences in the two policy tools translate into markedly different impacts. We conclude that expanding the geographical scope of the EU ETS is a more effective climate policy tool than a BCA. First, it would reduce emissions, while a BCA would not. Second, emission trading brings real competition: Regions neighbouring the EU will be better integrated into the EU single market with a level playing field and lower greenhouse gas emissions. On the other hand, the BCA would fence off the EU power sector and increase greenhouse gas emissions. Third, compared to a border carbon tax, expanding the ETS also yields more revenue to exporting neighbouring countries facing higher-than-average challenges to change their fossil-heavy power systems.
Key policy insights
• The introduction of a new policy tool, the border carbon adjustment mechanism, which aims to create fair competition and trigger more ambitious climate policy action in trading partners, is a legitimate action of the European Union.
• However, the extension of EU ETS is a more effective climate policy tool than a border carbon adjustment mechanism as the latter increases overall emissions.
• The border carbon adjustment mechanism is rather a competition policy tool that provides a level playing field for electricity producers inside and outside the EU.
• The price impact of the policy tool choice merits attention: the extension of the EU ETS drives up prices in neighbouring countries (except the West Balkan region), but the additional quota revenues can be used to alleviate the burden on vulnerable social groups.
Curbing climate change is gaining increasing consensus globally. While many countries seek to set carbon prices, significant price dispersion and policy stringency continue to raise concerns about competitiveness. To address this issue, the EU has proposed a carbon border adjustment mechanism (CBAM), which aims to level the playing field by levying a carbon price on EU imports. In this paper, we estimate the competitiveness and welfare impacts of the EU CBAM, based on a refined multi-regional IO approach. We quantify changes in the value of exports to the EU market upon CBAM implementation for both EU members and non-EU economies. It is found that the EU CBAM will lead to a redistribution of competitiveness among countries and regions. Specifically, it is estimated that EU output would increase by 0.38 per cent while output in rest of the world decreases by 0.1 per cent in the short run, when CBAM is set at $US100/tCO2e. The burden is unevenly distributed among regions, with China, Russia and India bearing the most. Moreover, a deeper sub-national-level analysis on China shows that, given its pervasive domestic production network, income losses in landlocked provinces exceed their export losses, contrasting with the pattern for trade-exposed provinces.
Harmonized carbon pricing across borders is hard to achieve in the real world as carbon leakage can reduce the cost-effectiveness of unilateral approaches to reduce global emissions. To address this problem, border carbon adjustments (BCAs) would apply the domestic carbon price to emissions embodied in traded goods, which levels the playing field for emissions-intensive and trade-exposed industries. Here, we review the potential environmental and economic impact of border carbon adjustments on leakage reduction, competitiveness restoration, cost-effectiveness, equity and cooperation enhancement. We find that the viability of border carbon adjustment schemes can be substantially reduced with the current legal and practical implementation constraints.
As part of its ambitious European Green Deal package, which aims to accelerate the EU's transition to climate neutrality, the European Commission has proposed a “carbon border adjustment mechanism” to address the risk of carbon leakage. In order to evaluate the effectiveness of the measure, this study models and compares three versions of a carbon border adjustment in a Computable General Equilibrium framework. The analysis shows that the Commission's proposal, which does not cover indirect emissions and is limited to imports, would reduce carbon leakage to a similar extent (by around one third) as the current free allocation system, which it would replace. However, it would generate substantial revenues (of up to 32 bn USD annually) that could be used to support low-carbon innovation and international climate finance. The analysis also shows that alternative versions of the carbon border adjustment, which would cover indirect emissions and grant export rebates on carbon costs, would further increase the measure's effectiveness; but that these gains should be weighed against the legal and political risks incurred.
As part of the European Green Deal, the EU is considering the introduction of a Border Carbon Adjustment (BCA) on imports as an alternative to free allocation of emission allowances to reduce the risk of carbon leakage under the EU’s Emissions Trading System (EU ETS). While a BCA for exports is not categorically excluded, it is less likely to be consistent with World Trade Organisation rules and therefore less likely to be proposed than an import-only BCA. In this paper, we show that replacing free allocation by an import-only BCA would weaken the competitiveness of EU producers in foreign markets. Free allocation also helps support the cost competitiveness of domestic products that are exported to non-EU markets. Therefore, a move to import-only BCAs does not necessarily make redundant the continued use of free allocation to help safeguard overall industrial competitiveness. While combining an import BCA with free allocation for exports can increase the risk of legal challenges, such risks may be reduced with an appropriate design. More broadly, policymakers need to navigate a complex trade-off between competitiveness support, a stronger carbon price signal, and extra fiscal revenue.
Key policy insights
• A BCA on imports levels the playing field in domestic EU markets but does not provide competitiveness support to exports
• Therefore, a move to an import-only BCAs does not obviate the need for free allocation to safeguard overall industrial competitiveness
• While combining an import-only BCA with free allocation for exports increases the risk of legal challenges, such risks may be reduced with an appropriate design
Because free-riding behavior is an inherent characteristic of climate change, how to protect the economic benefits of the emission reduction regions and prompt the noncooperative region to join the emission reduction coalition is particularly important. In this study, we use a global multi-region multi-sector CGE model to compare the impacts of border carbon adjustment (BCA) and two unified tariff mechanisms based on different implementation principles on USA. The results show that the BCA is more effective in reducing carbon leakage in USA than the uniform tariff mechanisms. However, for GDP and welfare losses, the scenario Tariff-carbon-reduction results in greater GDP and welfare losses in USA, which is more conducive to prompting USA to implement carbon reduction policies than the BCA measures. Finally, the sensitivity analysis of carbon price levels and key substitution elasticity further confirmed the results.
Brazil has achieved significant advances in climate mitigation by reducing its greenhouse gas (GHG) emissions in the last decade. Additionally, Brazil commits to furthering its actions through the Nationally Determined Contributions (NDC), issued during the Paris Agreement. The country also anticipates a significant increase in GDP in the years to come. Chen et al. (2012)'s main conclusion was that if deforestation were to be greatly reduced, the burden of cutting CO2 emissions from energy use and industrial processes would be minimal. However, recent data on land-use emissions show that additional efforts might also be required in the energy sector. Using Brazil's industrial structure, we evaluate the minimal changes needed in domestic final demand to meet both the NDC target and the forecasted economic growth. Our results show that it may be possible to meet both objectives with policies that incentivize a service-oriented economy while lowering investments in the manufactuing and extracting sectors. Furthermore, this strategy could be net job-creating, would rely on fewer imported products, and would generate tax revenue. However, wages could decrease.
A new approach to allocate environmental responsibility, the ‘value added-based responsibility’ allocation, is presented in this article. This metric allocates total environmental pressures occurring along an international supply chain to the participating sectors and countries according to the share of value added they generate within that specific supply chain. We show that – due to their position in global value chains – certain sectors (e.g. services) and countries (e.g. Germany) receive significantly greater responsibility compared to other allocation approaches. This adds a new perspective to the discussions concerning a fair distribution of mitigation costs among nations, companies and consumers.
This paper presents an empirical exercise with the aim of addressing the following research questions: (a) how vulnerable is India’s trade to any future border carbon adjustments in the European Union (EU); and (b) which sectors/items are most likely to be affected? The exercise is based on the EU List released in December 2009 in which the bloc has identified 164 (sub)sectors as deemed to be exposed to a significant risk of carbon leakage. In light of the finding that the HS 6‐digit items corresponding to the (full) EU List comprise the lion’s share of India’s exports to the EU, it is argued in this paper that there is a very high probability of any such border measure having a considerable impact on India’s exports to the bloc. The study further reveals that even if the EU decides to leave the 117 highly trade-intensive but low carbon‐intensive sectors (included in the EU List) outside the ambit of any future border carbon adjustments, the overall vulnerability of India could still be quite high. Among the four BASIC countries (namely, Brazil, China, India and South Africa), India appears to be the second‐most vulnerable, after South Africa.
Climate policy under partial global compliance raises concerns regarding carbon leakage. While border carbon adjustment (BCA) measures are a potential remedy, they have also been criticised on various grounds. This paper therefore investigates whether a policy fostering the switch to carbon-free technologies can substitute for BCAs. A reason for the effectiveness of a targeted technology policy is that major leakage prone sectors (such as iron and steel), have two main sources of carbon emissions, combustion of fossil fuels and industrial processes. While combustion emissions can be reduced relatively easy by increasing energy efficiency, reducing process emissions requires a switch to low-carbon production processes, e.g. in steel production by deploying electrolysis based on large-scale solar electricity. We show by means of a multi-regional computable general equilibrium analysis that such a switch in steel production technology can eliminate a significant fraction of carbon leakage and also increase sectoral output and welfare. Since the necessary technologies are not available at large scale yet (however, are likely to be by 2020), a transitional BCA scheme may be a crucial supportive instrument to foster such technology switches. Yet, in the long run BCA should be phased out to preserve the incentive for carbon-free innovation.
The analyses of intersectoral linkages of Leontief [The Structure of the American Economy: 1919–1929, 1941] and Hirschman [The Strategy of Economic Development, 1958] provide a natural way to study the transmission of risk among interconnected banks and to measure their systemic importance. In this paper, we show how elements from classic input–output analysis can be applied to banking and how to derive six indicators that capture different aspects of systemic importance, using a simple numerical example for illustration. We also discuss the relationship with other approaches, most notably network centrality measures, both formally and by means of a simulated network.
The efficiency of unilateral climate policies may be hampered by carbon leakage and competitiveness losses. A widely discussed policy option to reduce leakage and protect competitiveness of heavy industries is to impose border carbon adjustments (BCAs). The estimation of carbon leakage as well as the assessment of different policy options led to a substantial body of literature in energy-economic modeling. In order to give a quantitative overview on the most recent research of the topic, we conduct a meta-analysis on 25 studies, altogether providing 310 estimates of carbon leakage ratio according to different assumptions and models. The typical range of carbon leakage estimates are from 5% to 25% (mean 14%) without policy and from -5% to 15% (mean 6%) with BCAs. A meta-regression analysis is performed to further investigate the impact of different assumptions on the leakage estimates. The decrease of the leakage ratio with the size of the coalition is confirmed and quantified. Among the BCA options, the extension of BCAs to all sectors and the inclusion of export rebates are the most efficient features in the meta-regression model to reduce the leakage ratio. All other parameters being constant, BCAs reduce leakage ratio by 6 percentage points.
In a world with uneven climate policies, the carbon price differentials across regions could shift the production of energy‐intensive goods from carbon‐constrained countries to ‘carbon havens’, or countries with laxer climate policy. This would reduce the environmental benefits of the policy (carbon leakage) while potentially damaging the economy (competitiveness concerns). A review on these questions is provided in this article. First we discuss the main terms involved, such as carbon leakage, competitiveness, sectors at risk, or climate spillovers. Then we analyze the studies evaluating the carbon leakage risk. Most ex ante modeling studies conclude to leakage rates in the range of 5–20% (if no option to mitigate leakage is implemented), whereas ex post econometric studies have not revealed statistically significant evidence of leakage. Different policy options to face these issues are then examined with an emphasis on Border Carbon Adjustments ( BCA ). BCA consist in reducing the carbon price differentials of the goods traded between countries. Properly implemented, they can reduce leakage (by around 10 percentage points in ex ante modeling studies) in a cost‐effective way but are controversial because they shift a part of the abatement costs from abating countries to nonabating countries. Their impact on international negotiations is unclear: they could encourage third countries to join the abating coalition or trigger a trade war. Besides, their consistency with World Trade Organization ( WTO ) rules is contentious among legal experts. WIREs Clim Change 2014, 5:53–71. doi: 10.1002/wcc.245
This article is categorized under: Climate Economics > Economics of Mitigation
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Climate policy arrangements of partial regional coverage, as they seem to emerge from the UNFCCC process, might lead to carbon leakage and hence a broad literature has developed to quantify leakage. Most of these analyses, however, are confined to consider emissions from fuel combustion only. Yet, some of the most relevant simultaneously energy intensive and internationally trade exposed sectors are also subject to substantial emissions from industrial processes. Carbon dioxide emissions can be released in industrial processes which physically or chemically transform materials. In the steel and cement sectors, for example, these process emissions amount to about half of sector carbon dioxide emissions in many countries. We incorporate industrial process emissions based on UNFCCC data into a multi-sectoral multi-regional computable general equilibrium model and analyze the implications of a unilateral EU 20% carbon dioxide emission reduction policy on leakage and the effectiveness of border carbon adjustment in reducing leakage. By comparing the results to a model without process emissions, we find that leakage of climate policy so far has been underestimated. Leakage turns out to be higher when process emissions are correctly accounted for (38% instead of 29% for combustion emissions only). Conversely, border carbon adjustment measures are found to be roughly twice as effective to reduce leakage rates, when process emissions are correctly accounted for — as carbon adjustment rates are more directly targeted to the relevant sectors. Yet, border carbon adjustment measures should not be seen as a panacea as they might impede necessary technological carbon-free innovation, unless they are phased out over time.
In the absence of effective world-wide cooperation to curb global warming, import tariffs on embodied carbon have been proposed as a potential supplement to unilateral emissions pricing. We consider alternative designs for such tariffs, and analyze their effects on global welfare within a multi-region, multi-sector computable general equilibrium (CGE) model of global trade and energy. Our analysis suggests that the most cost-efficient policy could be region-specific tariffs on all products, based on direct plus electricity emissions. In the end, however, the potential cost savings through carbon tariffs must be weighed against the administrative costs as well as legal issues and political considerations.
Border carbon adjustment (BCA) has had a high profile in climate and trade talks, due to differences between the EU and China. Much of the debate has revolved around the possibility of EU taxation on Chinese exported products in order to both avoid carbon leakage and support the EU's unilateral efforts to curb CO2 emissions. This article examines the motives behind the rejection of BCA by Chinese officials. In addition to the conventional argument that BCA is inefficient and unfair, new explanations are provided for China's stance. First, China claims that its exports of energy-intensive products are already taxed, with the CO2e price for Chinese export taxation averaging European Union Emissions Trading Scheme CO2 price levels. Second, the EU trade dispute concerning Chinese export restrictions – occurring just a few years after disputes concerning the subsidization of similar products – provides evidence that the EU's stance on trade issues is incoherent, casting doubt on its willingness to genuinely get the carbon price right for products entering its market. Finally, BCA options contemplated by Annex I countries unilaterally convey the signal that China is perpetually falling short of international standards and of sharply increasing responsibilities.
The development of climate policies has gained pace over the past two decades, and their scope and complexity have increased. It is therefore essential to better understand their key features in order to draw a clearer picture of their overall effect and potential impact on trade. WTO rules and case law that relate generally to environmental issues as well as other key disciplines are relevant to the examination of climate border measures: several core principles of the GATT, including the disciplines on tariffs, the general non-discrimination principle, and the general exceptions, as well as WTO disciplines on subsidies. WTO rules are explored for their relevance to climate-related border measures. For a possible justification of a trade restrictive measure, such as a border carbon adjustment, certain criteria need to be fulfilled with a view to avoiding an undue situation of green protectionism. Le développement des politiques climatiques s'est accéléré au cours des deux dernières décennies, et leur ampleur et complexité ont augmenté. Il est de ce fait fondamental de mieux comprendre leurs caractéristiques principales de manière à avoir une meilleure représentation de leur effet d'ensemble et de leur impact potentiel sur le commerce. Les règles de l'OMC et la jurisprudence se rapportant généralement aux questions environnementales ainsi qu'à d'autres domaines clés sont pertinentes à l'analyse des mesures douanières sur le carbone: plusieurs principes clés du GATT, y compris le domaine des tarifs, le principe général de non-discrimination, et les exceptions générales, ainsi que les domaines de l'OMC liés aux subventions. Les règles de l'OMC sont analysées pour leur pertinence aux mesures douanières sur le carbone. En vue de défendre une mesure de restriction commerciale, telle qu'un ajustement douanier sur le carbone, certains critères doivent être satisfaits pour éviter une situation indue de « protectionnisme vert ».
The carbon leakage debates and the role of trade measures to address undesired effects from unilateral carbon pricing have significant policy implications. The basic principles found in both the climate and trade regimes that promote differentiation of national efforts on the one hand, and non-discrimination of trade partners on the other hand, create a systematic conflict of using trade measures for promoting climate policy. Moreover, the way in which national emissions are accounted has implications for the use and usefulness of trade measures. The UN inventory system relates to the point of production, not consumption, following the 'polluter pays' principle. The question of whether this limits the scope for using border adjustments is examined. In combination with insights from partial equilibrium models, it is attractive for policy makers to focus their efforts on a few carbon-intensive industries. However, policy makers not only need to decide about the environmental integrity, the administration and the political credibility of border measures, but also consider that any such measure, even if it aims at supporting global emission reductions, could disrupt the international climate negotiations processes.
We have developed a new series of environmentally extended multi-region input-output (MRIO) tables with applications in carbon, water, and ecological footprinting, and Life-Cycle Assessment, as well as trend and key driver analyses. Such applications have recently been at the forefront of global policy debates, such as about assigning responsibility for emissions embodied in internationally traded products. The new time series was constructed using advanced parallelized supercomputing resources, and significantly advances the previous state of art because of four innovations. First, it is available as a continuous 20-year time series of MRIO tables. Second, it distinguishes 187 individual countries comprising more than 15,000 industry sectors, and hence offers unsurpassed detail. Third, it provides information just 1-3 years delayed therefore significantly improving timeliness. Fourth, it presents MRIO elements with accompanying standard deviations in order to allow users to understand the reliability of data. These advances will lead to material improvements in the capability of applications that rely on input-output tables. The timeliness of information means that analyses are more relevant to current policy questions. The continuity of the time series enables the robust identification of key trends and drivers of global environmental change. The high country and sector detail drastically improves the resolution of Life-Cycle Assessments. Finally, the availability of information on uncertainty allows policy-makers to quantitatively judge the level of confidence that can be placed in the results of analyses.
Ghosh's ‘supply-driven’ input-output model is a well-known alternative for Leontief's traditional ‘demand-driven’ input-output model. The Ghosh model calculates changes in gross sectoral outputs for exogenously specified changes in the sectoral inputs of primary factors. Typically, the model is interpreted so as to describe physical output changes as caused by changes in the physical inputs of primary factors. It has been convincingly argued, however, that this interpretation in terms of quantities is implausible. In the present paper it is shown that the supply-driven input-output model becomes plausible, once it is interpreted as a price model. That is, sectoral output values change due to price changes, which are caused by price changes for the primary inputs. Therefore the term Ghosh price model is adopted for the supply-driven model, whereas the demand-driven model is referred to as the Leontief quantity model. Dual to this Leontief quantity model is the standard Leontief price model. It is shown that the results obtained by the two price models are equivalent. Interpreting the supply-driven input-output model as a price model also allows for a meaningful interpretation of the inverse matrix in terms of multipliers. As the dual to the supply-driven (or Ghosh price) model the Ghosh quantity model is derived, which is equivalent to the demand-driven (or Leontief quantity) model.
The EU ETS has been criticised for threatening the competitiveness of European industry and generating carbon leakage, i.e. increasing foreign greenhouse gas emissions. Two main options have been put forward to tackle these concerns: border adjustments and output-based allocation, i.e. allocation of free allowances in proportion to current production. We compare various configurations of these two options, as well as a scenario with full auctioning and no border adjustment. Against this background, we develop a model of the main sectors covered by the EU ETS: electricity, steel, cement and aluminium. We conclude that the most efficient way to tackle leakage is auctioning with border adjustment, which generally induces a negative leakage (a spillover). This holds even if the border adjustment does not include indirect emissions, if it is based on EU (rather than foreign) specific emissions, or (for some values of the parameters) if it covers only imports. Another relatively efficient policy is to combine auctioning in the electricity sector and output-based allocation in exposed industries, especially if free allowances are given both for direct and indirect emissions, i.e. those generated by the generation of the electricity consumed. Although output-based allocation is generally less effective than border adjustment to tackle leakage, it is more effective to mitigate production losses in the sectors affected by the ETS, which may ease climate policy adoption.
Unilateral or sub-global policies to combat climate change are potentially sensitive to free-riding and carbon leakage. One way of dealing with carbon leakage and competitiveness is the imposition of border adjustment measures for competing imports, for example in the form of the obligation to importers of goods to purchase and surrender emissions allowances to the authorities when importing. In this paper, we explore some implications of border adjustment measures in the EU ETS, for sectors that might be subject to carbon leakage. We examine the implications of two variants of these measures on the competitiveness of these sectors and on the global environment with the help of a multi-sector, multi-region computable general equilibrium (CGE) model of the global economy. Our calculations suggest that border adjustment might reduce the sectoral rate of leakage of the iron and steel industry rather forcefully, but that the reduction would be less for the mineral products sector, including cement. The reduction of the overall or macro rate of leakage would be modest. So, from an environmental point of view border tax adjustments would not be a very effective policy measure, but might mainly be justified by considerations of sectoral competitiveness.
This paper carries out a structural decomposition analysis (SDA) of production-related carbon emissions in China from 1992 to 2005 by adopting the Ghosh input-output model. It finds that the supply-side structure, measured by sectoral shares in value added, increased production-related carbon emissions in 1992-2002, mainly due to the rapid growth of manufacturing sectors, but reduced them in 2002-2005 thanks to the decreased shares of carbon-intensive sectors. Whatever the supply-side structure, forward carbon multipliers of each sector or changes in supply-side sectoral shares and related emissions effects calculated by adopting the Ghosh input-output model were different from their demand-side counterparts estimated by adopting the Leontief input-output model. The results suggest optimizing the supply-side structure and lowering the forward carbon multipliers to control carbon emissions in the future.
Priorities for a development-friendly eu carbon border adjustment (CBAM)
- C Brandi
Carbon Border Adjustment Mechanisms and Their Economic Impact on Finland and the EU
- T Kuusi
- M Björklund
- V Kaitila
- K Kokko
- M Lehmus
- M Mechling
- T Oikarinen
- J Pohjola
- S Soimakallio
- M Wang
Impacts of border carbon adjustments on China’s sectoral emissions: Simulations with a dynamic computable general equilibrium model
- Q Bao
- L Tang
- Z Zhang
- S Wang
A European Union Carbon Border Adjustment Mechanism: implications for developing countries
- Unctad