Which sectors should be covered by the EU Carbon Border Adjustment Mechanism?

Abstract

The European Union (EU) is developing the Carbon Border Adjustment Mechanism (CBAM) to address carbon leakage in international trade. However, the EU has paid inadequate attention to input‒output linkages, specifically those in the steel, aluminum, and fertiliser industries. This study aims to identify priority sectors eligible for initial regulation within the emissions-intensive trade-exposed (EITE) industries based on input–output linkages and compare its impacts with the current CBAM sector coverage. This study constructs a Global Production Network (GPN) and Carbon Flow Network (CFN) to present the input trade and embodied carbon flows for the EITE industries. This study highlights the role of the EITE industries as influential nodes in the production network and how the EITE industries in the EU contribute to carbon emissions. To improve the economy and political acceptability, CABM should cover four priority sectors with low economic impacts but a crucial role in reducing emissions, such as plastics, phosphorus fertiliser, aluminum, and copper industry.