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The Global Effects of Carbon Border Adjustment Mechanisms

Author

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  • Clausing, Kimberly
  • Colmer, Jonathan
  • Hsiao, Allan
  • Wolfram, Catherine

Abstract

Climate change poses a collective action problem: individual countries bear the costs of carbon regulation, while the benefits are shared globally. Carbon border adjustment mechanisms (CBAMs), which are currently being implemented by the EU and UK, aim to realign incentives by improving domestic competitiveness, reducing emissions leakage, and encouraging other countries to tax carbon. However, policy discussions also note that CBAMs could unfairly disadvantage lower-income trading partners. We evaluate these issues with a quantitative trade model and plant-level data for two key industries – steel and aluminum – which are the focus of early CBAM implementation. Together, they account for 14% of global emissions. We show that CBAMs can facilitate collective climate action, while largely avoiding disproportion- ate burdens on lower-income countries.

Suggested Citation

  • Clausing, Kimberly & Colmer, Jonathan & Hsiao, Allan & Wolfram, Catherine, 2025. "The Global Effects of Carbon Border Adjustment Mechanisms," CEPR Discussion Papers 20277, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20277
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