Competitiveness and carbon leakage – CBAM

The purpose of the CBAM Impact on Ukraine assessment (CBAM-UA) is to estimate the potential economic and trade impacts of the European Union’s Carbon Border Adjustment Mechanism (CBAM) on Ukraine, with a focus on the iron and steel sector as the country’s most exposed CBAM-covered export category.

As the EU moves forward with trade-related climate instruments to reduce greenhouse gas (GHG) leakage and support decarbonisation objectives, CBAM is expected to create a new cost component for exporters of covered goods into the European market. For Ukraine—whose export profile to the EU includes key CBAM sectors such as iron and steel, aluminium, electricity, cement, and fertilizers—understanding the magnitude, timing, and distribution of these impacts is critical for informing policy responses and industrial transition strategies.

This assessment aims to provide a best-effort quantification of CBAM-related export exposure and tariff-equivalent effects under the phase-in period, while acknowledging the uncertainty inherent in benchmark assumptions, emissions intensity estimates, and forward-looking price projections.

Ukraine’s exposure to CBAM is significant, with CBAM-covered exports to the EU averaging approximately €3.5 billion annually over recent years. Within this portfolio, iron and steel exports represent by far the largest share—approximately six times the value of all other CBAM-covered export categories combined—making the sector central to any forward-looking evaluation of CBAM’s economic consequences.

This assessment examines how CBAM levies, when interpreted as an “effective tariff” on Ukrainian exports, may affect export competitiveness and macroeconomic performance. Using current best-available assumptions for CBAM benchmarks, Ukraine-specific default emissions intensities, and forecasted EU allowance prices, the analysis converts expected CBAM charges into an ad valorem equivalent over the phase-in period. It then uses a trade simulation approach to estimate the resulting reductions in export volumes and their corresponding economic relevance, expressed as a share of GDP.

By translating the mechanics of CBAM into concrete trade and macroeconomic implications, CBAM-UA supports decision-makers in Ukraine and international stakeholders in assessing transition risks, identifying areas for targeted support and capacity building, and designing pathways to sustain low-carbon competitiveness in EU-bound trade flows.

The project conducts an exposure and impact analysis centred on Ukraine’s CBAM-covered exports to the EU, with a specific analytical emphasis on iron and steel. Export data is gathered using EU trade statistics aligned with product categories that match the scope of the CBAM regulation. Goods with low materiality in trade flows are filtered out using an operational threshold, allowing the analysis to focus on product categories with meaningful export relevance.

The assessment estimates CBAM levy levels over time by applying Ukraine-relevant emissions intensity defaults and provisional benchmark values, translating these outcomes into trade-weighted tariff-equivalent rates during the CBAM phase-in period. Forward-looking assumptions are applied for key parameters such as baseline export values and EUA price trajectories, ensuring that results reflect plausible market expectations while remaining transparent regarding methodological constraints.

To estimate trade effects, the analysis uses a partial equilibrium model to simulate how these tariff-equivalent levies could translate into reductions in export volumes and economic output. Results are presented for milestone years through 2030, reflecting the period over which benchmark and default inputs can be reasonably approximated, and noting the likely escalation of impacts as the free allocation adjustment continues to decline beyond 2030.

The purpose of The impacts and incentives inherent in destination-based carbon pricing – India case study (DBCP) is to assess the economic impacts and incentive effects that destination-based carbon pricing measures may generate for a large developing economy exporter such as India, particularly when imposed by key high-income importing markets.

While the impacts of climate-related response measures have been widely studied, this project responds to a persistent analytical gap: understanding how affected developing economies may dynamically adapt to such measures, and how policy incentives may shift as destination-based carbon pricing becomes increasingly prevalent in global trade.

Using a computable general equilibrium (CGE) modelling framework, the analysis explores how border-based climate pricing policies could shape India’s production structure, trade competitiveness, and household welfare—while testing the hypothesis that, despite negative impacts, these measures may also strengthen incentives for decarbonisation in exporting countries.

Governments in developed economies are increasingly considering trade-related climate measures that apply carbon costs at the border in order to protect domestic industry, reduce emissions leakage, and encourage stronger climate action among trading partners. For export-oriented developing economies like India—particularly those with emissions-intensive industrial production—such mechanisms can act as significant trade barriers with material implications for national production and welfare.

This study assesses the impact of a hypothetical destination-based border carbon adjustment (BCA) implemented in a group of major high-income markets—including the US, EU, UK, Canada, Australia/Oceania, and Japan—targeting emissions-intensive and trade-exposed (EITE) sectors. The analysis explicitly incorporates the role of embedded carbon in traded goods, the recognition of carbon prices already paid in exporting countries, and the differentiated outcomes depending on whether India and other emerging/developing countries take timely domestic decarbonisation actions.

By simulating a range of reference scenarios—varying the timing and ambition of climate mitigation efforts—the project provides evidence not only on expected trade and production losses, but also on the conditions under which early decarbonisation can reduce exposure and create strategic “first mover” advantages. In doing so, the study supports policymakers and stakeholders in evaluating both transition risks and policy options as border carbon pricing becomes a structural feature of international trade.

The project applies a global, recursive dynamic CGE model (GLOBE) calibrated using the GTAP-CE v11 database (2017 base year), aggregated across 24 regions and 43 sectors, including detailed representations of power generation and steel production. Emissions data are derived from GTAP satellite accounts, while base-year and projected carbon price pathways are informed by World Bank carbon pricing data and EU allowance price forecasts (with convergence assumptions extending beyond 2030).

The assessment constructs four reference scenarios grounded in the Shared Socioeconomic Pathways (SSPs), capturing different combinations of mitigation timing in India and other emerging/developing regions. A single policy scenario then introduces a destination-based carbon pricing measure (BCA) in key high-income economies, implemented as an import tax based on embedded emissions (including scope 1 and scope 2), with crediting for carbon prices already paid in exporting regions.

The project focuses on sectoral impacts across a defined set of BCA-covered industries—particularly iron and steel (primary, secondary, and casting)—as India’s high emissions intensity and export relevance create heightened vulnerability. Impacts are assessed across trade flows, domestic production, GDP outcomes, and household welfare, with results reported over a multi-year horizon through 2035. The findings are synthesized to highlight both the projected costs of border carbon pricing for India and the extent to which proactive domestic mitigation policies can reduce negative impacts over time and strengthen competitiveness in a decarbonising global economy.