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Modeling the Impact of Carbon Border Policies on Emissions, Global Value Chains, and Welfare

Author

Listed:
  • Joseph Francois

    (University of Bern)

  • Neil Foster-McGregor

    (Asian Development Bank)

Abstract

This paper employs a computational general equilibrium model to examine the potential impact of the European Union’s Carbon Border Adjustment Mechanism (CBAM). The paper considers the impact of extending CBAM to other economies, examining whether approaches that require increased coordination of carbon pricing over a greater number of jurisdictions can increase the impact of CBAM. Results suggest that while an expanded scheme of carbon prices and border carbon taxes can reduce emissions, underlying global economic growth trends are more than enough to quickly undo the highest emissions reductions modelled here. As such, sustained technical innovation and major changes in the underlying structure of energy systems will be required to meet Intergovernmental Panel on Climate Change (IPCC) targets. The results also reinforce another message of recent IPCC reports, namely that in some cases the potential impacts of mitigation actions through domestic and trade-related carbon taxes may fall disproportionately on poorer regions.

Suggested Citation

  • Joseph Francois & Neil Foster-McGregor, 2025. "Modeling the Impact of Carbon Border Policies on Emissions, Global Value Chains, and Welfare," ADB Economics Working Paper Series 792, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:021407
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    More about this item

    Keywords

    computable general equilibrium; carbon pricing; border carbon adjustments;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • 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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