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The Global Effects of Carbon Border Adjustment Mechanisms

Author

Listed:
  • Kimberly A. Clausing
  • Jonathan M. Colmer
  • Allan Hsiao
  • Catherine Wolfram

Abstract

We study carbon border adjustment mechanism (CBAM) policies, as currently being implemented by the EU and UK. Policy discussions have cited three motivations and one concern. CBAMs can improve domestic competitiveness in regulated markets, reduce emissions leakage to unregulated markets, and encourage other countries to tax carbon. But CBAMs may particularly disadvantage lower-income trading partners. We evaluate these forces with a quantitative equilibrium model and plant-level data on aluminum and steel production worldwide. Our data cover the most emissions-intensive and heavily traded sectors targeted in the first phase of EU and UK implementation. We find that CBAMs can effectively boost competitiveness, curb leakage, and encourage regulation, while also avoiding disproportionate impacts on lower-income countries.

Suggested Citation

  • Kimberly A. Clausing & Jonathan M. Colmer & Allan Hsiao & Catherine Wolfram, 2025. "The Global Effects of Carbon Border Adjustment Mechanisms," NBER Working Papers 33723, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33723
    Note: DEV EEE ITI
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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • 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
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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