Following the EU’s decision to extend the remit of its Carbon Border Adjustment Mechanism (CBAM) to cover imports of carbon-intensive goods including steel, aluminium, cement, fertilisers, electricity and hydrogen, major trading partners may consider introducing similar carbon pricing schemes, researchers at the Potsdam Institute for Climate Impact Research (PIK) have said.
The EU extended the CBAM, which requires exporters selling carbon-intensive items into the bloc to pay a carbon price, unless their country of origin already operates a comparable carbon pricing system, in early 2026.
According to PIK‘s study, which is set to be published in he Journal of the Association of Environmental and Resource Economists (JAERE) later this year, the mechanism could encourage countries such as Canada, Japan, South Korea and Taiwan to adopt their own carbon pricing regimes.
This ‘policy diffusion’ effect could lead to a 73% reduction in global emissions reductions, compared to a scenario where only the EU applies carbon pricing.
‘Remaining competitive’
“The Carbon Border Adjustment Mechanism is intended to enable the EU industry to decarbonise while remaining competitive – but what happens outside of the EU is not less significant,” commented PIK researcher Timothé Beaufils, the study’s lead author.
“We already observe other countries like Brazil or Turkey responding to the CBAM with their own carbon price. We developed a novel framework to estimate this policy diffusion effect. It provides a strong indication that the EU Green Deal has indeed the potential to trigger the reinforcement of climate policies in other countries.”
About the research
In undertaking their study, the researchers analysed trade flows across 56 economic sectors and 43 countries using a hypothetical EU carbon price of $100 per tonne.
As they found, without the border adjustment in place, the European carbon price would result in a reduction in domestic European emissions of 505 million tonnes of CO₂ per year, however this would lead to increased emissions abroad as production shifts to regions with weaker climate rules – a 40% offset of Europe’s emissions reductions.
With CBAM in place, carbon leakage falls sharply, reducing the offset effect to 15% and increasing global emissions reductions to 399 million tonnes annually.
If a policy response from global trading partners is in place, meanwhile, the global reduction in emissions would be 691 million tonnes, a further 73% over and above the impact of the EU climate policy alone.
“Our findings support and quantify the hypothesis that the EU CBAM can trigger a so-called Brussels effect,” added Leonie Wenz, PIK researcher and a co-author of the study. “What this means is that, due to the EU’s central position in international supply chains, policies adopted in Brussels spill over to outside the EU. Greater climate action leads to even greater climate action. This can play an important role in climate mitigation, especially if international negotiations on climate mitigation stall.” Read more here.
