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Designing Effective Carbon Border Adjustment with Minimal Information Requirements: Theory and Evidence

Author

Listed:
  • Alessia Camplomi
  • Harald Fadinger
  • Chiara Forlati
  • Sabine Stillger
  • Ulrich J. Wagner

Abstract

Carbon leakage undermines the effectiveness of unilateral carbon pricing. Taxes on import-embedded emissions, like the EU’s CBAM, prevent leakage but their product coverage is limited due to strong information asymmetries. We propose an alternative policy (LBAM) that sterilizes carbon leakage without requiring information on foreign carbon intensities. In a quantitative trade model, LBAM tariffs significantly improve over the EU’s CBAM in terms of global emissions and EU welfare. Importantly, LBAM avoids large welfare losses among EU trading partners that would result if CBAM were extended to all sectors. Combining LBAM tariffs with equivalent export subsidies reinforces these advantages.

Suggested Citation

  • Alessia Camplomi & Harald Fadinger & Chiara Forlati & Sabine Stillger & Ulrich J. Wagner, 2024. "Designing Effective Carbon Border Adjustment with Minimal Information Requirements: Theory and Evidence," CRC TR 224 Discussion Paper Series crctr224_2024_495v3, University of Bonn and University of Mannheim, Germany, revised Jul 2025.
    • Handle: RePEc:bon:boncrc:crctr224_2024_495v3
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp495
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F64 - International Economics - - Economic Impacts of Globalization - - - Environment
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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