Measuring EU CBAM Incidence at the Product Level: A Multi-country Partial Equilibrium Analysis

Lawrence Edwards (), Nicola Wills () and Brett Cohen ()
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Nicola Wills: University of Cape Town
Authors registered in the RePEc Author Service: Lumengo Bonga-Bonga

No 372, ERSA Working Paper Series from Economic Research Southern Africa

Abstract: The European Union's Carbon Border Adjustment Mechanism (EU CBAM) applies a carbon price to imports based on embedded greenhouse gas (GHG) emissions. Existing empirical analyses typically evaluate the EU CBAM using aggregated sector-level data and emissions intensities expressed relative to trade values, despite the policy calculating liabilities at the product level. This paper applies a multi-country, product-level partial equilibrium model aligned with the EU CBAM institutional design to analyse its impact on EU imports of iron & steel and aluminium products. The analysis combines country-product emission factors with Combined Nomenclature (CN) 8-digit trade data to simulate direct demand and trade diversion effects arising from EU CBAM-induced import price increases. Three findings emerge. First, EU CBAM incidence varies across countries and products, highlighting the limitations of aggregate analyses. Second, incidence depends not only on embedded emissions but also on product prices. Exporters supplying lower-priced products face larger ad valorem equivalent price increases for the same emissions intensity, creating an important distributional dimension overlooked in the existing literature. Third, direct demand effects dominate trade responses in most product markets, although trade diversion becomes more important in concentrated product markets and when indirect emissions are included. Overall, the findings suggest that the EU CBAM should be understood not only as a climate policy but also as an industrial policy signal. National policies that support technological upgrading, stronger measurement, reporting and verification (MRV) systems, domestic carbon pricing and cleaner electricity systems can reduce future EU CBAM liabilities while improving long-term competitiveness in EU markets.

Keywords: European Union Carbon Border Adjustment Mechanism (EU CBAM); Partial Equilibrium Modelling; Industrial Policy; Climate Policy; International Trade (search for similar items in EconPapers)
JEL-codes: F13 F17 F18 L61 Q56 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2026-09
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Published in ERSA Working Paper Series, September 2026, pages 40

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