Making the EU Carbon Border Adjustment Mechanism Acceptable and Climate Friendly for Least Developed Countries

Sigit Perdana and Marc Vielle

No 333458, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: Implementation of CBAM to support EU climate neutrality by 2050 has raised several concerns. As the mechanism aims to minimise leakage through equal fairness in global mitigation, imposing carbon tariffs on the EU's imports of energy- intensive goods could curtail the export of EU trading partners. This might be detrimental, especially to the LDCs, due to their high exposures and vulnerability risks. This paper assesses and quantifies the implication of EU-CBAM and analyses eight complementary measures to mitigate the impacts on LDCs. Scenario developments are constructed by projecting the EU's new climate targets relative to the reference scenario of the EU's current policies. A more stringent climate target results in carbon leakage, and implementing CBAM will reduce the rate by one-third by 2040. The analysis also confirms significant welfare loss for LDCs through declining exports. Exempting LDCs from EU CBAM is less justifiable, as this measure results in greater leakage than other options. A further assessment confirms that policy recommendation for CBAM complementary measures should focus on the climate transformation pathway for LDCs. EU CBAM implementation with revenue-redistribution targeted to promote clean and efficient use of energy in LDCs has improved the welfare of recipient countries, substantially reduced leakage, and proven cost-efficient for the EU.

Keywords: Environmental Economics and Policy; International Relations/Trade (search for similar items in EconPapers)
Pages: 31
Date: 2022
New Economics Papers: this item is included in nep-ene, nep-env and nep-int
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Citations: View citations in EconPapers (10)

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Journal Article: Making the EU Carbon Border Adjustment Mechanism acceptable and climate friendly for least developed countries (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:333458

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