Extending the Carbon Border Adjustment Mechanism to Indirect Emissions: Implications for Finland

Maria Wang and Tero Kuusi

No 178, ETLA Reports from The Research Institute of the Finnish Economy

Abstract: Abstract This report examines the planned extension of the EU Carbon Border Adjustment Mechanism (CBAM) to indirect emissions and its coordination with the existing indirect cost compensation under the EU Emissions Trading System. The study provides an overview of Finland’s CBAM sectors, estimates tariff elasticities using a gravity model for the years 2010–2023, and simulates three scenarios in which the inclusion of indirect emissions in the CBAM extension is combined with different changes to indirect cost compensation. The results indicate that import responses to the CBAM extension are most pronounced in the aluminium sector, while the effects on iron and steel are more moderate. The scenario analysis suggests that extending CBAM to indirect emissions would reduce imports by a few percentage points, whereas the simultaneous phase-out of indirect cost compensation would have only a limited additional impact. Consequently, the extension would help reduce the risk of carbon leakage, although it would also increase the cost of imports in Finland.

Keywords: Carbon leakage; Carbon border adjustment mechanism; Gravity model; Tariff elasticity (search for similar items in EconPapers)
JEL-codes: C23 F18 Q56 Q58 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2026-06-10
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.etla.fi/wp-content/uploads/ETLA-Raportit-Reports-178.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rif:report:178

Ordering information: This working paper can be ordered from
https://www.etla.fi/ ... aikutukset-suomelle/

Access Statistics for this paper

More papers in ETLA Reports from The Research Institute of the Finnish Economy Contact information at EDIRC.
Bibliographic data for series maintained by Kaija Hyvönen-Rajecki ().