Carbon border adjustment mechanism: an exploratory analysis of its effects on the Eu imports and respective emissions

Abstract

This paper explores the effect that the EU Carbon Border Adjustment Mechanism will have on EU imports of carbon-intensive products, as well as on the CO2emissions embodied in them. A structural gravity model was built and estimated with PPML, from which resulted statistically significant tariff elasticities for almost all the considered sectors. These elasticities were then used to simulate how EU imports and respective emissions will change under several CBAM scenarios. This methodology was also applied for Portuguese imports. Overall, EU imports decline more than 50%, while emissions drop by more than 60%. Portuguese imports decline less severely.