Research on the Impact of the EU’s Carbon Border Adjustment Mechanism: Based on the GTAP Model

Abstract

There is now widespread agreement that the world community must actively combat climate change and advance green and low-carbon development. In order to deal with the issue of carbon leakage caused by the rising cost of industrial production as a result of policies to reduce greenhouse gas (GHG) emissions, the EU intends to implement the Carbon Border Adjustment Mechanism (CBAM) in its entirety starting in 2026, the pilot phase of which will begin in 2023. This shows the progressive emergence of a new international trade system driven by “climate change actions”, “carbon peaking”, and “carbon neutrality”, which will have a broad and far-reaching impact on China’s foreign trade industry. As more industries are being covered by the EU’s CBAM, it will exert a negative impact on the social welfare and export of China, the largest trading partner of the EU, even though the existing mechanism has only limited economic impact on China’s energy industry. This paper presents policy proposals to actively address the issues and effects of the EU’s “carbon tariff” by methodically analyzing the EU CBAM’s operation process and, via the development of models, determining the mechanism’s influence on social welfare, carbon emissions, and China’s exports.