Abstract
The legislative process for the European Union (EU)'s carbon border adjustment mechanism (CBAM) has been completed, and it officially became EU law in May 2023. The EU's CBAM imposes charges on imported products from selected industries based on their carbon emissions and the prevailing carbon prices in the EU emissions trading system through the issuance of "CBAM certificates." Considering the intensified global competition in low-carbon development and the profound changes in the geopolitical energy landscape, the implementation of the EU's CBAM as a unilateral trade measure will have an impact on the global economy, trade, and industry, making it a focal point in the competition among major powers in the long run. Existing studies focus more on the impact of the EU's CBAM on exports and pay less attention to the changes in the international industrial landscape caused by the industrial output changes due to the implementation of the EU's CBAM. Furthermore, most existing studies primarily performed static analysis for the benchmark year and failed to capture the impact of cumulative changes over time and the evolution of CBAM rules on the future economy, trade, and industry. Limited analysis exists on the dynamic effects of the EU's CBAM. In addition, most studies exogenously assume carbon prices, unable to simulate the endogenous trends of carbon prices and their impacts within major economies under the latest low-carbon transition policies.
This research employs the China-in-global energy model (C-GEM) developed by Tsinghua University to simulate and analyze the impact of the EU's CBAM. C-GEM is a computable general equilibrium model that effectively represents the interlinkages and interactions between different sectors of the economy and the energy system, allowing the assessment of the economic impact of climate policies on major economies. C-GEM is a global multiregional model that can evaluate the effects of the EU's CBAM on the EU and other economies while analyzing the changes in the global industrial landscape from a global perspective. Furthermore, C-GEM is a recursive dynamic model that can simulate the medium- and long-term emissions reduction targets of various economies and analyze the future implications of the EU's CBAM. The EU's CBAM is depicted in the model as follows: First, the CBAM tax rates are calculated based on value-at-the-border, using the value-based carbon intensity, trade values, and endogenous carbon prices from the C-GEM. Second, these tax rates are applied to the EU's import sectors in the model. Finally, the EU's CBAM is made dynamic, and assumptions are made regarding the covered sectors, sectoral coverage ratios, emission types, and other factors at different time points.
The simulated results from the C-GEM revealed the following: (1) Due to the substantial exports of steel and other products to the EU, Russia was heavily affected, with projected GDP changes of -0.12% and -0.32% in 2025 and 2030, respectively, while the EU increased its GDP by producing substitute domestic products. (2) Russia experienced the largest decline in total exports, with projected changes of -0.86% and -2.48% in 2025 and 2030, respectively, while the EU considerably benefited from the exports of specific industries related to the CBAM. (3) The output of industries such as steel, nonmetallic minerals, nonferrous metals, and chemicals in economies such as Russia, Turkey, and China experienced varying degrees of decline, with the chemical and steel industries being more affected than others. (4) The international market shares of key industries in developing economies like Russia and China mostly declined, replaced by increased market share for related industries in developed economies such as the EU. The percentage increase in the EU's market share considerably exceeded the percentage decrease in other economies. However, China's nonferrous metals industry exhibited a trend of further increasing its international market share, reflecting its competitive advantage.
Implementing the EU's CBAM showed heterogeneous impacts on various economies at different times and reshaped the existing international industrial landscape. There is a trend of global key industry output shifting from developing economies with a high dependence on carbon-intensive product exports to developed or more competitive developing economies. To respond to the EU's CBAM, China needs to strengthen multilateral cooperation and proactively address the unilateral trade measures taken by EU and the United States, optimize industrial and trade structures and promote green and low-carbon development, accelerate the development of the national carbon market and improve domestic carbon pricing mechanisms, and actively participate in the formulation of international standards and rules in the areas of climate change and trade.
