The Global Effects of Carbon Border Adjustment Mechanisms

Kimberly Clausing, Jonathan Colmer (), Allan Hsiao and Catherine Wolfram

No 33723, NBER Working Papers from National Bureau of Economic Research, Inc

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 disproportionate burdens on lower-income countries.

JEL-codes: F13 H23 O19 Q56 Q58 (search for similar items in EconPapers)
Date: 2025-04
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