Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/305438 
Year of Publication: 
2022
Citation: 
[Journal:] International Economics and Economic Policy [ISSN:] 1612-4812 [Volume:] 20 [Issue:] 1 [Publisher:] Springer [Place:] Berlin, Heidelberg [Year:] 2022 [Pages:] 95-138
Publisher: 
Springer, Berlin, Heidelberg
Abstract: 
We estimate the effects of a European Carbon Border Adjustment (CBA) mechanism on exports, real GDP, welfare and emissions using the multi-region, multi-sector structural gravity model of Larch and Wanner (55). Incorporating the main industries covered in the proposal of the European Commission from mid-2021, as well as its other design features, and assuming prevailing CO2 prices, we find only small effects of the European CBA mechanism. EU exports are estimated to decline by 0.04%, while CO2 emissions in EU countries increase by 0.24%. These negligible results mask larger adjustments at the sectoral level. The structural changes will shift the EU economy towards more emission-intensive industries, which will make achieving its climate goals harder. On the positive side, the European CBA mechanism will reduce global emissions by 0.08%. Given the minute economic costs in terms of GDP and welfare losses, the CBA mechanism seems an appropriate policy tool, though its proposed design will not be able to make a significant contribution to mitigating global climate change.
Subjects: 
Carbon border taxes
Carbon tariffs
Carbon leakage
Climate change
JEL: 
F13
F14
F17
F18
Q56
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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