Carbon Border Adjustment Mechanisms and Their Economic Impact on Finland and the EU

Tero Kuusi, Martin Björklund, Ville Kaitila, Kai Kokko, Markku Lehmus, Michael A Mehling, Tuuli Sofia Oikarinen, Johanna Pohjola, Sampo Soimakallio, Maria Wang

Research output: Book/ReportCommissioned report

Abstract

In this report, we address an EU carbon border adjustment mechanism (CBAM) and its economic implications. While a CBAM is proposed as a solution to the EU’s carbon leakage problem, we acknowledge that there are several ways to implement CBAMs, with varying combinations of technical difficulties, administrative burden, legal risks, and risks of political backlash. We construct scenarios in which the CBAM is designed based on feasibility considerations and compare them with broader, but also more complex, alternatives.

Based on our analysis, the CBAM may face major implementation hurdles in its deployment going forward. Thus, the likeliest approach would be to test its use with a narrow set of imported products that are emission intensive which would limit administrative challenges. After considering a feasible alternative, we find that the economic and environmental impact of such a narrow tariff would most likely be small, and such a CBAM would serve more as a signal of the EU’s determination to resolve the carbon leakage problem rather than as a true solution to it.

More ambitious CBAMs will inevitably face difficulties in terms of data collection and administration. Moreover, China in particular will be strongly affected by such CBAMs. Countermeasures could nullify the economic benefits of CBAMs. To avoid the countermeasures, the EU should focus on designing the CBAM in a manner that aims at strengthening multilateral cooperation on climate change.
Original languageEnglish
Place of PublicationHelsinki
PublisherValtioneuvoston kanslia
Number of pages152
ISBN (Electronic)978-952-287-922-6
Publication statusPublished - 29 Oct 2020
MoE publication typeD4 Published development or research report or study

Publication series

NamePublications of the Government ́s analysis, assessment and research activities
PublisherPrime Minister’s Office
No.48
Volume2020
ISSN (Electronic)2342-6799

Fields of Science

  • 513 Law
  • carbon leakage
  • carbon border adjustment mechanism
  • gravity model
  • computable general equilibrium
  • global value chains
  • EU law
  • international law

Cite this