Global emissions and international trade: Quantifying the impact of carbon border adjustments

Kenneth Bicol Dy and Han Yang

Energy Economics, 2025, vol. 145, issue C

Abstract: We extend the quantitative trade model of Caliendo and Parro (2015) by incorporating endogenous carbon emissions and carbon pricing. Our novel approach uses per-dollar carbon intensity to translate actual carbon prices per tonne into an ad valorem tariff rate for analysis, avoiding the common practice of estimating implicit carbon prices in most quantitative trade models. By using the hat-algebra approach, the model can perform counterfactuals without needing trade cost structures, productivity, and per unit emission intensities. We evaluate the EU Carbon Border Adjustment Mechanism (CBAM) and its economic and environmental impacts. The simulation shows that the EU CBAM reduces global emissions and production in non-EU countries, and boosts EU production and competitiveness, resulting in a 0.38% reduction in global emissions at a real income loss of 0.01%.

Keywords: Carbon border adjustment mechanism; Carbon tax; Carbon tariff; Quantitative trade model (search for similar items in EconPapers)
JEL-codes: F13 F18 F64 Q56 Q58 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:145:y:2025:i:c:s0140988325001975

DOI: 10.1016/j.eneco.2025.108373

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