Impact of the EU carbon border adjustment mechanism on economic growth and resources supply in the BASIC countries

Abstract

Global climate changes draw a consensus to accelerate the energy transition and reduce CO2 emissions. To cope with this, we need to tackle, among others, three challenges: how will the EU's Carbon Border Adjustment Mechanism (CBAM) affect other countries' economies and product supply? Does it pose a geopolitical risk to carbon-dependent emerging economies? Can China design and implement a carbon tariff? However, few systematic quantitative studies have been conducted to answer the above two questions. This paper employs the Global Trade Analysis Project (GTAP) and designs policy scenarios according to the target and the sectors covered by the tariff, to explore the economic effects of the EU's carbon tariff policy on China, India, Brazil and South Africa (hereinafter referred to as the “BASIC countries”), and the feasibility of the BASIC countries to adopt active emission reduction strategies under the differentiated carbon tax policy to cope with the threat of EU carbon tariffs. Besides, this paper also examines the possibility of China to impose a carbon tariff so as to reduce CO2 emissions. The research results show that: carbon tariffs have a negative impact on the economic development, residents' welfare, trade level and output of energy-intensive industries of the expropriated country; active emission reduction is more conducive to stimulating a green transformation of domestic industries than a passive carbon tariff; especially, as a largest developing country, when China takes active emission reductions and imposes carbon tariffs, its impact on the loss of world social welfare is small and world GDP growth occurs. This paper has enriched the relevant literature on carbon tax policy research, and the empirical results can provide references for countries around the world to carry out carbon reduction and formulate carbon tax policies.