Evaluating current effects of upcoming EU Carbon Border Adjustment Mechanism: Evidence from China's futures market

Boqiang Lin () and Hengsong Zhao

Energy Policy, 2023, vol. 177, issue C

Abstract: The European Union Carbon Border Adjustment Mechanism (EU CBAM) has already generated concerns worldwide. In this study, we investigate the reactions of the energy-intensive industries to legislative announcement of the EU CBAM. We employ the event study method to empirically examine the existence of the green paradox based on the steel and aluminum data from China's futures market. The empirical results provide strong evidence of a significant decrease in returns for steel rebar and aluminum futures. However, there exists a stronger effect on aluminum futures than steel rebar due to the higher export intensity and carbon emission of aluminum products. Theoretically, the responses from energy-intensive industries appear to be driven by three potential channels (production, storage, and consumption), but our empirical results suggest that only producers respond to the EU CBAM event. Moreover, we also find that the CBAM event subsidized aluminum's carbon dioxide emissions by around 24 RMB per metric ton by quantifying the effect size of the event on the futures prices. We recommend that policymakers shorten the implementation lag of climate policies and limit the potential for new production capacity to be added.

Keywords: Carbon Border Adjustment Mechanism; Green paradox; Futures market; Carbon emissions (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:177:y:2023:i:c:s0301421523001581

DOI: 10.1016/j.enpol.2023.113573

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