Macroeconomic Exposure to the EU’s Carbon Border Adjustment Mechanism: The Case of the Middle East and Central Asia

Mariz Abdou, Hasan Dudu, Kerstin Gerling and Dalia Kadissi

No 2025/182, IMF Working Papers from International Monetary Fund

Abstract: Taking the European Union’s Carbon Border Adjustment Mechanism (CBAM) as given, our paper evaluates the impact of this terms-of-trade shock on the Middle East and Central Asia (ME&CA). Using a novel methodology and fresh data applied to the latest CBAM legislation, we both quantify and decompose the financial burden countries face as their exports to the EU become subject to a greenhouse gas-based fee starting in January 2026. Our analysis reveals that while the average effects of CBAM in ME&CA are modest, the region will shoulder one of the highest burdens worldwide, totaling US$1.7 billion annually (equivalent to 0.03 percent of GDP and a 14 percent surcharge on CBAM exports to the EU). The Middle East, North Africa, Afghanistan, and Pakistan (MENAP) subregion will bear a greater share of this burden than the Caucasus and Central Asia (CCA) due to stronger trade ties with the EU and higher emission intensity. Substantial country- and sector-level differences in CBAM exposure emphasize the need for tailored policy responses to mitigate the broader macroeconomic effects.

Keywords: Carbon Border Adjustment Measures; Carbon Leakage; Trade Policy; Middle East; Central Asia and Caucasus (search for similar items in EconPapers)
Pages: 40
Date: 2025-09-12
New Economics Papers: this item is included in nep-ara, nep-cis and nep-eur
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