TY - JOUR
T1 - The European carbon border adjustment mechanism: a small step in the right direction
AU - Korpar, Niko
AU - Stöllinger, R.
AU - Larch, Mario
PY - 2022
Y1 - 2022
N2 - 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 (2017). 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.
AB - 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 (2017). 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.
UR - http://www.scopus.com/inward/record.url?scp=85144549354&partnerID=8YFLogxK
U2 - 10.1007/s10368-022-00550-9
DO - 10.1007/s10368-022-00550-9
M3 - Article
SN - 1612-4804
VL - 20
SP - 95
EP - 138
JO - International Economics and Economic Policy
JF - International Economics and Economic Policy
ER -