The impact of the EU's Carbon Border Adjustment Mechanism on the global iron and steel trade and emission reduction.

Abstract

The European Council completed the legislative procedure to establish the Carbon Border Adjustment Mechanism (CBAM) on April 25, 2023, which will be launched in 2027. The iron and steel sector is the main target of the forthcoming CBAM due to the industry's energy-intensive consumption with high carbon dioxide (CO2) emissions. However, minimal existing research has been conducted in this regard. This study employs GTAP-e 11.0 and TOPSIS models to estimate the effects of CBAM implementation on the major nations around the world from 2027 to 2030, examining countries' GDP, social welfare, iron and steel production, trade balance, and CO2 emissions to the global environment. This study concludes: (1) The GDP and social welfare of important iron and steel trade partners throughout the world will be significantly impacted by the application of CBAM. Most nations, including those in the EU, will experience negative GDP effects, with China undergoing the most pronounced social welfare declines followed by India. In contrast, the EU27 will benefit the most in terms of social welfare, followed by the US, Japan, and Russia. (2) Iron and steel production will decrease in all countries outside the EU, but it will have a positive impact on the trade balance of most countries. (3) The CO2 emissions of all countries except for the EU and Japan will decrease, with a positive impact on preventing carbon leakage in the international iron and steel trade. (4) Comprehensive analysis demonstrates that the EU will benefit the most, and China will suffer the most from CBAM application. Based on the above conclusions, this study proposes corresponding policy recommendations.