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EU carbon border tax: General equilibrium effects on income and emissions

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This paper employs a quantitative trade model to globally assess the implications of the EU carbon border adjustment mechanism (CBAM) on trade flows, welfare, real wages and CO2 emissions. We quantify the general equilibrium effects on EU members and non-members under various carbon tax prices, including a sector-level composition, and also compare the results to a scenario including export rebates. For the EU, we find an increase in the terms of trade and, consequently, small positive welfare effects, although there are tiny negative effects on real wages. Non-EU countries face a decline in the terms of trade and a small welfare loss as well as marginally declining real wages. Global CO2 emissions are marginally reduced, but they slightly increase in the EU due to specialisation effects.

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  • Javier Flórez Mendoza & Oliver Reiter & Robert Stehrer, 2024. "EU carbon border tax: General equilibrium effects on income and emissions," wiiw Working Papers 254, The Vienna Institute for International Economic Studies, wiiw.
    • Handle: RePEc:wii:wpaper:254
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    More about this item

    Keywords

    New quantitative trade model; carbon border adjustment mechanism (CBAM); trade policy welfare; CO2 emissions;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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