The carbon border adjustment mechanism is inefficient in addressing carbon leakage and results in unfair welfare losses

The European Commission has proposed a Carbon Border Adjustment Mechanism(CBAM)to reduce carbon leakage and create a level playing field for its domestic products and imported goods.Nevertheless,the effectiveness of the proposal remains unclear,especially when it triggers threats of retaliation from trading partners of the European Union.We apply a Computable General Equilibrium model-Global Trade Analysis Project-to assess the economic and environmental impacts of different CBAM schemes.Here we show that the effectiveness of the CBAM to address carbon leakage risks is rather limited,and the CBAM raises concerns over global welfare costs,Correct to Gross Domestic Product(GDP)losses,and violation of equality principles.Trade retaliation leads to multiplied welfare losses,which would mostly be borne by poor countries.Our results question the carbon leakage reduction effect of a unilateral trade policy and suggest that climate change mitigation still needs to be performed within the framework of international cooperation.

Which sectors should be covered by the EU Carbon Border Adjustment Mechanism?

The European Union(EU)is developing the Carbon Border Adjustment Mechanism(CBAM)to address carbon leakage in international trade.However,the EU has paid inadequate attention to input-output linkages,specifically those in the steel,aluminum,and fertiliser industries.This study aims to identify priority sectors eligible for initial regulation within the emissions-intensive trade-exposed(EITE)industries based on input-output linkages and compare its impacts with the current CBAM sector coverage.This study constructs a Global Production Network(GPN)and Carbon Flow Network(CFN)to present the input trade and embodied carbon flows for the EITE industries.This study highlights the role of the EITE industries as influential nodes in the production network and how the EITE industries in the EU contribute to carbon emissions.To improve the economy and political acceptability,CABM should cover four priority sectors with low economic impacts but a crucial role in reducing emissions,such as plastics,phosphorus fertiliser,aluminum,and copper industry.

China and the World under the Goals of Carbon Peaking and Carbon Neutrality:Green and Low-Carbon Transition,Green Finance,Carbon Market,and Carbon Border Adjustment Mechanism

China has always tried to maintain multilateralism and advocated working together to deal with global climate change through multilateral mechanisms.Although China's announcement to peak its carbon emissions by 2030 comes as no surprise,its commitment to carbon neutrality does.As the period between its carbon peaking and carbon neutrality is far shorter than that in the developed countries,China's economic and energy structures need to be adjusted toward the low-carbon and carbon-free end with unprecedented efforts.To that end,China should define the responsibilities of local authorities and industrial entities to promote the orderly accomplishment of carbon peaking in all regions and industries.To supply the huge investments needed to achieve the goals of carbon peaking and carbon neutrality,China has an urgent need to accelerate the development of green finance and a national carbon emissions trading market,guide the rational allocation of resources,and channel resources to eco-friendly projects for green and low-carbon development.At the same time,China and the international community should strengthen dialogue and coordination,promote international cooperation on the way to carbon neutrality,formulate widely acceptable policy guidelines as soon as possible,and avoid unilateral measures that may cause conflicts.