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<p>The European Union aims to reduce net greenhouse gas emissions by 55% of the 1990 levels by 2030. To reach this target, the EU is expanding the scope of its current Emissions Trading System. This is likely to increase carbon prices raising the risk of carbon leakage. To counter this risk the EU introduced the Carbon Border Adjustment Mechanism (CBAM) regulation, which is phased in starting October 2023, with full implementation planned by 2036. Against this backdrop, this paper seeks to conduct an ex-ante analysis of the likely impact of CBAM on South Asian countries exporting goods to the EU. Using the computable general equilibrium framework of GTAP and GTAP- E database the paper does simulations by calibrating various scenarios involving phases of CBAM implementation. The findings point out that the carbon tax is likely to displace the region’s exports to the EU. Export prices will fall but the decline in volume will dominate the adverse trade impact. Trade loses will be experienced by all countries. However, majority of the trade and welfare loss will be borne by India. As the CBAM reach deepens in its phased implementations beyond 2026, the trade loss of other countries of the region increases with welfare loss recorded. The analyses suggest that the impact of CBAM on trade patterns, competitiveness, and income distribution of the EU trading partners from South Asia is going to be substantial.</p>

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Impact of EU’s carbon border tax on South Asian trade partners

  • 期刊论文

  • 发表日期：

    2025年2月10日

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  • Chandrima Sikdar

摘要

The European Union aims to reduce net greenhouse gas emissions by 55% of the 1990 levels by 2030. To reach this target, the EU is expanding the scope of its current Emissions Trading System. This is likely to increase carbon prices raising the risk of carbon leakage. To counter this risk the EU introduced the Carbon Border Adjustment Mechanism (CBAM) regulation, which is phased in starting October 2023, with full implementation planned by 2036. Against this backdrop, this paper seeks to conduct an ex-ante analysis of the likely impact of CBAM on South Asian countries exporting goods to the EU. Using the computable general equilibrium framework of GTAP and GTAP- E database the paper does simulations by calibrating various scenarios involving phases of CBAM implementation. The findings point out that the carbon tax is likely to displace the region’s exports to the EU. Export prices will fall but the decline in volume will dominate the adverse trade impact. Trade loses will be experienced by all countries. However, majority of the trade and welfare loss will be borne by India. As the CBAM reach deepens in its phased implementations beyond 2026, the trade loss of other countries of the region increases with welfare loss recorded. The analyses suggest that the impact of CBAM on trade patterns, competitiveness, and income distribution of the EU trading partners from South Asia is going to be substantial.