A Study on the Economic Effects of EU’s CBAM on Korea

Abstract

Purpose - The Effect of EU foreign trade policy on global supply chains is growing. The EU’s Carbon Border Adjustment Mechanism (CBAM), which is deeply involved in international trade, is expected to directly or indirectly affect the global supply chain. Although the discussion of CBAM is spreading, it is difficult to find a study analyzing the negative effect of CBAM on the supply chain. Therefore, this study aims to analyze the effect of the introduction of the CBAM on Korean exports.
 Design/Methodology/Approach - For the analysis method, we use the GTAP model, which is a Computable General Equilibrium (CGE) model, and in particular, we use the GTAP-E model, a model specialized for environmental policies such as climate change. And for the database required for the CGE model, we use the GTAP-E database specialized for the GTAP-E model.
 Findings - As a result of the analysis, it was analyzed that Korea’s output and exports decreased. In particular, the decrease in output in the chemicals, metal, and machinery industries was the largest, and Korea’s exports to China decreased by up to 322.7 million dollars in the chemical industry. As a means to overcome the introduction of CBAM, we analyzed the effects of support for renewable energy, introduction of low-carbon technology, and tax benefits. As a result of the analysis, the effect of expanding renewable energy support was limited, while the effect of introducing low-carbon technology and tax benefits was analyzed to expand exports by up to 2.6% and 4.86%, respectively.
 Research Implications - From the analysis results of this study, it can be seen that the climate change response policies, which were introduced in a voluntary way by each country, spread in an involuntary way through the CBAM. Although there is a possibility that environmental measures may not conform to the WTO agreement, it is necessary for both the government and firms to actively participate in environmental issues as carbon-related measures are likely to be actively discussed in the international trade environment.