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: countries bear the costs of carbon regulation, while benefits are shared globally. Carbon border adjustment mechanisms (CBAMs) aim to realign incentives by extending domestic carbon pricing to imports. Using plant-level data for aluminum and steel, which account for 11% of global CO2 emissions, we document that emissions intensity is income-neutral and uncorrelated with production costs. Carbon pricing introduces a new margin of green comparative advantage. With a quantitative trade model, we show that CBAMs can boost domestic competitiveness, reduce emissions leakage, and 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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