Financial Impacts of the Carbon Border Adjustment Mechanism on Selected Trade Partners: Cross-National and Cross-Sectoral Analysis

Emira Kozarevic, Mirnesa Barakovic Nurikic and Muhamed Ibric ()
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Emira Kozarevic: University of Tuzla, Faculty of Economics, Tuzla, Bosnia and Herzegovina
Mirnesa Barakovic Nurikic: University of Tuzla, Faculty of Economics, Tuzla, Bosnia and Herzegovina
Muhamed Ibric: University of Tuzla, Faculty of Economics, Tuzla, Bosnia and Herzegovina

Interdisciplinary Description of Complex Systems - scientific journal, 2024, vol. 22, issue 6, 684-700

Abstract: The Carbon Border Adjustment Mechanism (CBAM) is an import fee levied by a region, i.e., the European Union (EU), that taxes carbon on goods produced in countries that do not tax carbon. This EU climate neutrality support mechanism, which should be implemented by 2050, has caused some concerns. For example, it could reduce the export of the EU’s trading partners, especially those countries largely dependent on exporting energy-intensive goods and materials to the EU. Least developed countries, due to their high risk of vulnerability and high exposure, could face particularly pronounced adverse effects from the CBAM’s introduction. Therefore, this article aims to analyze how the introduction of the CBAM will affect the EU’s external trade partners, with particular attention to its potential consequences for selected economies. Most of the literature related to the introduction of the CBAM focuses on the consequences for EU countries. However, this mechanism, which aims to decrease CO2 emissions and encourage a low-carbon transition, could disproportionately affect some countries outside the EU. That is why the article uses data on the exposure of selected non-EU countries to the CBAM, utilizing data on the export of the CBAM-affected products to the EU and CO2 emission intensity. The analysis encompasses five regions and 59 countries, using data from the year 2019. The rationale for using 2019 data is to avoid the effects of global shocks in recent years, such as the coronavirus pandemic and Russia’s invasion of Ukraine. The analysis results reveal that the exposure of regions and countries varies based on the strength on their trade relations with the EU, leading to different trade impacts from the CBAM. The lowest exposure is observed in the regions of the Americas and Australia. This article provides valuable insights to policymakers and entrepreneurs in navigating the challenges and opportunities arising from the interlinkage of environmental policies and global trade dynamism. It can help facilitate decision-making related to participation in foreign trade involving products with a higher carbon emissions.

Keywords: CBAM; financial impacts; relative CBAM exposure index; trade relations (search for similar items in EconPapers)
JEL-codes: F18 F38 H23 Q56 Q58 (search for similar items in EconPapers)
Date: 2024
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