## 4.1 CBAM Exposure

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### Overview and context
- The EU CBAM introduced in October 2023 will impose a charge on imports of selected products based on their carbon content starting from 2026, unless a comparable emission price is already implemented in the exporting country.
- The CBAM links the carbon charge on imports to the ETS price paid by domestic producers.
- Free allowances for EITE sectors in the EU ETS will be replaced gradually by the CBAM as part of the ‘Fit for 55’ regulatory reforms; this phasing out is to occur gradually over ten years.
- The CBAM does not include export rebates in the current regulation.

### Data and methodological approach
- Product-level bilateral trade data between the EU and its trading partners for the year 2021 are used.
- Detailed input-output tables are used to derive the carbon content of EU imports.
- The analysis is a partial-equilibrium approach that takes existing trade patterns as given and does not account for endogenous adjustment in trade flows or general equilibrium effects.
- Because of delays in availability of detailed input-output tables and bilateral trade data, the analysis does not capture structural changes in CBAM exposure that may have occurred since 2021.
- Results should be interpreted as the upper-bound effect of the full levy on individual trade partners in the near term, if this full levy were introduced today.

### Key quantitative findings
- On average, the expected direct impact of the EU CBAM on EU countries’ trade is about 0.1 percent of the value of EU countries’ imports.
- On average, the expected direct impact on non-EU countries’ exports to the EU is 0.04 percent, with a range of 0 to 1.2 percent.
- Effects could be sizeable for specific products—particularly iron, steel and aluminum—in some countries.
- In the longer term, after a possible expansion of CBAM scope (for example, to most or all sectors covered by the EU ETS starting from the early 2030s) and a significant rise in the EU carbon price, an expanded EU CBAM could entail larger impacts.

### Interpretation and comparative literature
- The study’s partial-equilibrium results are consistent with Dechezleprêtre et al. (2025), which show the CBAM mitigates carbon leakage by redirecting EU imports toward less emission-intensive sources while causing only a small reduction in the value added of CBAM industries in the EU.
- Two broad modeling approaches in the literature:
  - Partial-equilibrium models: provide detailed sectoral impacts using granular input-output relationships but cannot capture economy-wide behavioral responses.
  - General equilibrium (CGE) models: capture economy-wide interactions and long-term behavioral adjustments but are more complex and typically use less granular data.
- The paper follows the partial-equilibrium approach to provide transparent, detailed estimates of direct exposure and extends the literature by focusing on the exporting-country perspective and measures of relative exposure.

### Limitations and caveats
- Analysis uses 2021 trade and input-output data and therefore does not capture later structural changes in trade patterns or carbon intensity.
- The partial-equilibrium framework excludes endogenous trade reallocation and other general equilibrium adjustments; hence estimated impacts are upper-bound short-term pressures.
- Behavioral responses over time (e.g., reallocations of exports, technology adoption) could alter the incidence and ordering of exposure across countries and sectors.

### Policy-relevant points highlighted
- Relative incidence measures (share of a country’s export revenue potentially impacted and carbon intensity of goods exported to the EU) are more appropriate for assessing vulnerability than absolute export values.
- Political salience of CBAM reflects concentrated impacts on specific products and countries despite small average effects across all trade.
- Potential future enlargements of scope and rising EU carbon prices could materially increase CBAM impacts, underscoring the importance of monitoring and further analysis.

*Source: IMF Working Paper — The EU’s CBAM: Implications for Member States and Trading Partners (content unit: 4.1 CBAM Exposure).*

### 4.1 CBAM Exposure ......................................................................................................

### 4.1 CBAM Exposure

### Overview and context
- The EU CBAM introduced in October 2023 will impose a charge on imports of selected products based on their carbon content starting from 2026, unless a comparable emission price is already implemented in the exporting country.
- The CBAM links the carbon charge on imports to the ETS price paid by domestic producers.
- Free allowances for EITE sectors in the EU ETS will be replaced gradually by the CBAM as part of the ‘Fit for 55’ regulatory reforms; this phasing out is to occur gradually over ten years.
- The CBAM does not include export rebates in the current regulation.

### Data and methodological approach
- Product-level bilateral trade data between the EU and its trading partners for the year 2021 are used.
- Detailed input-output tables are used to derive the carbon content of EU imports.
- The analysis is a partial-equilibrium approach that takes existing trade patterns as given and does not account for endogenous adjustment in trade flows or general equilibrium effects.
- Because of delays in availability of detailed input-output tables and bilateral trade data, the analysis does not capture structural changes in CBAM exposure that may have occurred since 2021.
- Results should be interpreted as the upper-bound effect of the full levy on individual trade partners in the near term, if this full levy were introduced today.

### Key quantitative findings
- On average, the expected direct impact of the EU CBAM on EU countries’ trade is about 0.1 percent of the value of EU countries’ imports.
- On average, the expected direct impact on non-EU countries’ exports to the EU is 0.04 percent, with a range of 0 to 1.2 percent.
- Effects could be sizeable for specific products—particularly iron, steel and aluminum—in some countries.
- In the longer term, after a possible expansion of CBAM scope (for example, to most or all sectors covered by the EU ETS starting from the early 2030s) and a significant rise in the EU carbon price, an expanded EU CBAM could entail larger impacts.

### Interpretation and comparative literature
- The study’s partial-equilibrium results are consistent with Dechezleprêtre et al. (2025), which show the CBAM mitigates carbon leakage by redirecting EU imports toward less emission-intensive sources while causing only a small reduction in the value added of CBAM industries in the EU.
- Two broad modeling approaches in the literature:
  - Partial-equilibrium models: provide detailed sectoral impacts using granular input-output relationships but cannot capture economy-wide behavioral responses.
  - General equilibrium (CGE) models: capture economy-wide interactions and long-term behavioral adjustments but are more complex and typically use less granular data.
- The paper follows the partial-equilibrium approach to provide transparent, detailed estimates of direct exposure and extends the literature by focusing on the exporting-country perspective and measures of relative exposure.

### Limitations and caveats
- Analysis uses 2021 trade and input-output data and therefore does not capture later structural changes in trade patterns or carbon intensity.
- The partial-equilibrium framework excludes endogenous trade reallocation and other general equilibrium adjustments; hence estimated impacts are upper-bound short-term pressures.
- Behavioral responses over time (e.g., reallocations of exports, technology adoption) could alter the incidence and ordering of exposure across countries and sectors.

### Policy-relevant points highlighted
- Relative incidence measures (share of a country’s export revenue potentially impacted and carbon intensity of goods exported to the EU) are more appropriate for assessing vulnerability than absolute export values.
- Political salience of CBAM reflects concentrated impacts on specific products and countries despite small average effects across all trade.
- Potential future enlargements of scope and rising EU carbon prices could materially increase CBAM impacts, underscoring the importance of monitoring and further analysis.

*Source: IMF Working Paper — The EU’s CBAM: Implications for Member States and Trading Partners (content unit: 4.1 CBAM Exposure).*

### 2.  Design Features of the EU CBAM

### 2.  Design Features of the EU CBAM

### Historical context and policy evolution
- Discussions about a border carbon adjustment mechanism in the EU emerged in connection with carbon pricing and carbon leakage concerns.
- Initial phase of the EU ETS (2005 to 2007):
  - Nearly all emission allowances were distributed for free.
  - Low allowance prices implied carbon leakage was not seen as a pressing concern.
- Phase two of the EU ETS (2008-2012):
  - EU started shifting from free allocation to auctioning of emission allowances.
  - A ‘Future Allowance Import Requirement’ concept was circulated but not adopted due to anticipated administrative complexities; free allowances were extended to at-risk (EITE) industries instead.
- Phase three (2013-2020):
  - Rising carbon price increased concerns about competitiveness of domestic producers.
  - Continued criticism of free allocation made continuation difficult.
- CBAM integration and drafting:
  - CBAM was integrated into the 2019 EU Green Deal, with draft regulations published in July 2021.
  - The CBAM aims at gradually replacing—between 2026 and 2035—the free allocation of emission allowances to industries at risk of carbon leakage.

### Phasing schedule and interaction with free allocation
- The phasing-out of free allocation under the EU ETS will take place in parallel to phasing-in of CBAM in the period 2026-2034.
- The share of the total CBAM charge applicable to CBAM products will increase as the share of emission allowances freely allocated to EU producers decreases, following the schedule depicted in Figure 1 (right panel).
- Box 1 timeline highlights:
  - The EU CBAM came into force on October 1, 2023.
  - Transition/transitioning period: until January 1, 2026 — importers must report GHG emissions embedded in imports without payments; fines for non-compliance with reporting.
  - Starting January 1, 2026: importers declare previous year’s quantities and embedded GHG emissions, then surrender corresponding CBAM certificates; CBAM incidence deferred by one year.
  - CBAM certificate price: calculated based on the weekly average auction price of EU ETS allowances expressed in EUR/ton of CO2e.
  - Deduction: for any carbon price paid in the country of origin; no adjustment for non-price policies.
  - Review during transitional phase: product scope review and timetable for inclusion of additional goods by 2030.
  - By 2035: importers and domestic producers to acquire emission allowances through auctions in the same marketplace (complete adoption of CBAM).

### Scope of products and coverage
- Effectiveness in preventing carbon leakage depends on product scope:
  - Broader scope reduces leakage risk across more product categories but increases administrative cost and technical complexity.
  - Focusing on upstream energy-intensive and trade-exposed (EITE) sectors secures significant leakage mitigation while reducing administrative burden (ERCST, 2023).
- Current EU scope:
  - Initially targets carbon-intensive goods at high risk of carbon leakage.
  - Sectors included: cement, iron and steel, aluminum, fertilizers, electricity, hydrogen, and certain intermediate products.
  - Present coverage: approximately 50 percent of the emissions covered by the EU ETS.
  - Future revisions anticipated to extend coverage to all sectors and emissions currently included in the ETS.

### System boundaries for greenhouse gas emissions
- Operationalization centers on emission intensity of imported products; the system boundary is determined by:
  - (i) number of upstream production stage(s) considered, and
  - (ii) type of greenhouse gas included at each stage.
- In the EU CBAM:
  - Direct CO2 emissions are included for all in-scope products.
  - Indirect emissions from electricity consumption are included only for specific products (e.g., cement and fertilizers).
  - For some products, non-CO2 GHGs (e.g., perfluorocarbons and nitrous oxide) may be relevant under the EU CBAM system boundary.

### Reporting obligations and covered entities
- The CBAM regulation currently provides for a ‘de minimis’ exemption for shipments below EUR 150 in value.
- The European Commission has proposed amending the administrative exemption threshold from EUR 150 to 50 tons of CO2e annually (proposal advanced February 26, 2025), expected to be approved and become effective by end-2025 according to the source.
  - Estimates by the European Commission suggest that under the simplified regime:
    - approximately 90 percent of reporting entities will be exempt from reporting obligations;
    - but 99 percent of the annual imported emissions currently within the scope of the CBAM will still be covered.

### Calculation of carbon content of imports and monitoring methods
- Implementing regulation outlines methods for monitoring and calculating embedded emissions of imported products; calculations depend on specific production processes and are complex.
- Reporting options until the end of 2024:
  - (a) full reporting according to the new methodology (EU method);
  - (b) reporting based on an equivalent method (three options available);
  - (c) reporting using default reference values (available only until July 2024).
- The "EU Method" consists of two approaches:
  - calculation-based approach: determines GHG emissions from source streams using activity data obtained through measurement systems and additional parameters from laboratory analyses or standard values;
  - measurement-based approach: continuous monitoring of concentration of relevant greenhouse gases in exhaust gas from production and associated flow.
- Flexibility to 2025:
  - Alternative GHG monitoring systems ("Other Methods") are permitted until 2025, including a carbon pricing scheme applicable to the production site, a compulsory GHG emissions monitoring scheme for the site, or an emissions monitoring scheme at the installation.
  - Default values published by the Commission may be used during the transitional period when reporting declarant lacks the information needed for EU Methods or Other Methods.
  - The reporting declarant must indicate the methodology used in CBAM reports; alternative methods must provide similar coverage and accuracy as the EU Methods.
- Use of default values:
  - Default values can be used during the transitional period, particularly for the first three quarterly reports until July 31, 2024, when importer lacks actual emissions data for a specific imported good.
  - After this period, reported values must be based on actual emissions data, with limited estimations allowed for complex goods only, and with a limit of 20 percent of the total embedded emissions.
  - Using default values qualifies as ‘estimation’.
  - These values can be certified through a combination of supplier declarations, verification schemes, and potential audits depending on complexity.

### Calculation mechanics and economic incidence
- Carbon content calculation:
  - Multiply the weight of the imported good by an emission factor specific to its production process to determine total CO2 emitted during manufacturing.
  - Importers must declare embedded emissions and purchase CBAM certificates to offset them based on the calculated carbon content.
- Static incidence measure used in the analysis:
  - A country’s CBAM cost is measured as the static incidence: the additional cost arising from CBAM measured as a share of the value of the corresponding trade flow.
  - Incidence depends on:
    - (i) the CBAM cost associated with each CBAM product,
    - (ii) the relative share of each product in total imports for EU countries and in total exports for the EU’s trading partners.
  - The CBAM cost for each product is determined by:
    - (i) the CBAM charge (difference between domestic EU carbon price and carbon price in country of origin, if any),
    - (ii) the carbon intensity of the product.
- Formal expressions provided:
  - t_i ≡ Σ_p (c_p^CBAM − τ_j,p) × e_j,p × s_j,i,p
  - Generalized formulation:
    - D_i ≡ Σ (c_p^CBAM − τ_j,p) × e_j,p × X_j,i,p / A_i
  - Definitions in equations:
    - c_p^CBAM: level of the CBAM obligation (USD/tCO2e), accounting for carbon price and volume of emissions covered by free allowances in destination area;
    - τ_j,p: level of the CBAM adjustment (USD/tCO2e), accounting for carbon price and share of product emissions covered by carbon pricing in country of origin j;
    - e_j,p: CO2 emissions intensity (ton/USD) of product p in country j;
    - s_j,i,p: share of trade in product p from country j to country i in total trade (exports or imports);
    - X_j,i,p: value (in USD) of imports from non-EU countries (or exports to EU countries) of product p from country j;
    - A_i: normalization (GDP or total trade in this paper).
- Normalization choice:
  - The paper uses total imports and total exports (of both CBAM and non-CBAM products) as denominators in the main index (A_i), not total imports/exports of CBAM products only; this yields lower estimates relative to studies using CBAM-only denominators.
- Simplifying assumptions for the paper:
  - For simplicity, the analysis abstracts from free allowances and other rebate mechanisms in both the CBAM area and the country of origin; hence c_p^CBAM and τ_j,p simplify to the carbon price applicable in the CBAM area and the country of origin, respectively.
  - Results are best interpreted as the impact of CBAM under its current scope once free allowances have been fully phased out in 2035.

### Data sources and methodology for incidence calculations
- Data sources:
  - Bilateral trade in goods from the UN COMTRADE database (United Nations, 2023) to measure countries’ exposure to the EU CBAM.
  - Identification of CBAM products using the product list published in European Union (2023) and corresponding CN and HS codes.
  - Global Resource Input-Output Assessment model (GLORIA) v.57 for economic accounts and 'satellite' GHG emissions data covering 164 countries from 1990 to 2021.
    - GLORIA classification based on ISIC rev.4 at 120 sector resolution.
    - Emissions data mapped from EDGAR (European Commission, 2023) following IPCC 2006 classification and mapped onto GLORIA using a concordance algorithm.
- Analysis year and steps:
  - Analysis performed on data for the year 2021 (latest available historical year in GLORIA v57).
  - Three-step static incidence calculation:
    1. Calculate product-specific trade shares s_j,i,p by retrieving bilateral trade flows from GLORIA (or COMTRADE for trade shares).
    2. Combine sector-level data on total output (USD) and CO2 satellite emissions to calculate emissions intensity (kg/USD) for each economic activity in each country (e_j,p).
    3. Determine CBAM charge for each bilateral country-product pair (c_p^CBAM − τ_j,p) and combine factors to compute CBAM cost.
- Scope of emissions accounted:
  - Analysis accounts for direct (scope 1) CO2 emissions; departs from EU CBAM system boundary which includes electricity-related (scope 2) emissions for some products and non-CO2 GHGs for some products.
  - For iron and steel, and aluminum (which together represent 82 percent of EU CBAM imports), scope-1-only assumption aligns with CBAM regulation (scope 2 excluded).
  - For fertilizers and cement (4.5 percent of EU CBAM imports), scope-1-only may underestimate CBAM cost.
- Data processing:
  - Trade shares can be calculated using COMTRADE or by aggregating GLORIA inter-industry flows; the paper uses COMTRADE for trade shares and GLORIA for inter-industry trade flows.
  - Statistical discrepancies between datasets are noted but relatively minor for large countries.
  - Processing executed in Python 3.

*Source: IMF Working Paper — 2.  Design Features of the EU CBAM (from wpiea2025125-print-pdf).*

### 4.  Results

### 4.  Results

### 4.1 CBAM Exposure
- Definition: CBAM exposure = share of CBAM products’ value within total trade flows.
- EU-wide findings:
  - CBAM products imported from non-EU partners account for 4.5 percent of total imports (2021).
  - In 2021, this represented approximately USD 110 billion worth of goods.
  - Exposure is heterogeneous across EU countries: up to 6 percent of total imports in the Baltics and some Eastern European economies.
  - Most EU countries (except Greece and Ireland) source a larger share of CBAM products from within the EU than from non-EU countries (implication: potential to reorient some imports to EU-based producers).
- Non-EU exporters to the EU:
  - The share of CBAM products in EU trading partners’ total exports is 6 percent on average across the 20 exporters with the largest share, and does not exceed 11 percent (Bosnia and Herzegovina).
  - Exporters typically export less CBAM products to the EU than to other non-EU partners, implying potential to redirect supply.
  - Notable country-product concentrations: Ukraine and Serbia export large quantities of iron and steel to the EU, representing 28 and 61 percent of that industry's exports respectively, while total CBAM exports to the EU represent 7.8 and 4.6 percent of total exports for Ukraine and Serbia respectively.
- Sectoral concentration:
  - Aluminum and iron and steel are the largest contributors to exposure; together they represent between 38 (Estonia) and 100 (Luxembourg) percent of total trade in CBAM products.
  - Product-specific import dependencies: 89 percent of Greece’s aluminum and 75 percent of Ireland’s iron and steel are imported from outside the EU, indicating high product-specific exposure and limited substitutability in some cases.

### 4.2 Emission Intensity
- Role: Emission intensity of in-scope products in exporting countries is a key determinant of CBAM costs.
  - For EU member states, total CBAM cost depends on emission intensity of suppliers across all imported products, weighted by import shares of supplier-product pairs.
  - For exporters to the EU, CBAM cost depends on their own product-specific emission intensity and the share of each CBAM good’s exports to the EU.
- Observations from emission intensity data:
  - Significant cross-country variation in CO2 intensity for each product, reflecting heterogeneous production processes and technologies (e.g., electric arc vs blast furnaces for iron and steel).
  - For all product categories except iron and steel and fertilizers, emission intensity of production in non-EU countries is significantly above the EU27 average.
  - Exporters whose emission intensity exceeds non-EU exporters’ average (e.g., Moldova for aluminum and cement) are expected to be most affected by CBAM, all else equal.
- Measurement note: Emission intensities are calculated using output values, assuming uniform commodity prices across countries; embedded emissions calculated using trade values assuming export prices are the same across all export markets.

### 4.3 CBAM Cost

#### 4.3.1 Total CBAM Cost
- Pricing assumptions:
  - Assume c_{EU} = USD 90/tCO2 and τ_{p,j} = 0 ∀ p,j (i.e., do not account for carbon pricing in country of origin).
- EU import-side impacts:
  - Direct impact on EU countries is small but heterogeneous: ranges from 0.025 percent of the value of total imports in Austria to 0.3 percent in Croatia.
  - The weighted average CBAM cost for the EU is 0.1 percent of total imports.
  - Main contributing products in most countries: iron and steel, aluminum, and electricity.
  - Country examples:
    - Portugal: ‘iron and steel’ is the main contributor, reflecting large import share and/or imports from emissions-intensive producers.
    - Croatia: average CBAM cost primarily driven by electricity imports from Bosnia and Herzegovina; electricity represents 26 percent of Croatia’s imports of CBAM products.
- Exporter-side impacts:
  - Overall implicit cost for exporters to the EU is small in aggregate but can be large for specific products.
  - Among the 20 countries where costs are largest, ad valorem equivalent CBAM cost varies between 0.1 percent (Iran) and 1.2 percent (Bosnia and Herzegovina).
  - Bosnia and Herzegovina’s large exporter-side cost is driven by electricity exports to the EU (mirror image of Croatia’s import exposure).
- GDP perspective:
  - CBAM cost represents at most 0.1 percent of annual GDP for EU countries and 0.3 percent of GDP for exporters to the EU.
  - When expressed as a fraction of GDP, costs are comparatively smaller for larger, more closed economies.
- Extended scope (all products currently subjected to the EU ETS):
  - For EU countries, incidence would be 4-8 times larger than under the current implementation scope, but still modest in absolute terms given low baseline incidence.
  - Extension would primarily increase incidence on EU countries, not substantially increase incidence for exporters already affected; instead it would broaden the set of affected exporters.
  - Timing and carbon price dynamics: extension likely in early to mid-2030s when carbon prices expected to be much higher due to permit scarcity.
    - Linear elasticity assumption implies CBAM cost scales proportionally with carbon price: e.g., if carbon price reaches USD 140/tCO2 in 2030 (55 percent higher than USD 90/tCO2 baseline), CBAM cost would increase by 55 percent for all countries.
  - Country ranking by incidence would remain broadly preserved under higher carbon prices.

#### 4.3.2 Product-Level CBAM Cost
- Aggregate vs product-level: macro impacts modest, but some country-product pairs face material effects.
  - Example magnitudes:
    - Ukraine’s exports of cement to the EU would be made 30 percent more expensive.
    - Bosnia and Herzegovina’s electricity exports to the EU would face a 20 percent CBAM charge.
- CBAM scope and supply-chain position:
  - CBAM currently applies primarily to upstream products (iron and steel, cement), partially correcting environmental bias in trade policy (upstream products are more carbon intensive and have lower average trade costs than downstream products).
- Selected product-level ad valorem CBAM cost on EU countries’ imports (percent of value of imports), examples from Table 1:
  - Austria: Basic Aluminum 0.4; Iron and steel 0.6; Cement, lime, and plaster products 1.0; Electric power 0.7.
  - Belgium: Basic Aluminum 1.0; Iron and steel 2.8; Cement, lime, and plaster products 4.9; Electric power 1.5.
  - Bulgaria: Basic Aluminum 2.7; Iron and steel 3.5; Cement, lime, and plaster products 21.3; Electric power 7.3.
  - Greece: Basic Aluminum 3.9; Iron and steel 2.9; Cement, lime, and plaster products 19.7; Electric power 4.5.
  - Croatia: Basic Aluminum 1.5; Iron and steel 1.2; Cement, lime, and plaster products 12.5; Electric power 8.8.
  - Lithuania: Basic Aluminum 2.0; Iron and steel 2.0; Cement, lime, and plaster products 13.8; Electric power 11.7.
  - Sweden: Basic Aluminum 0.7; Iron and steel 2.1; Cement, lime, and plaster products 3.7; Electric power 1.5.
- Selected product-level ad valorem CBAM cost on exporters’ exports to the EU (percent of value of exports), examples from Table 1:
  - Albania: Cement, lime, and plaster products 14.6; Non-nitrogenous and mixed fertilizers 9.7.
  - Bosnia and Herzegovina: Cement, lime, and plaster products 20.9; Electric power 19.4; Nitrogenous fertilizers 7.5.
  - Moldova: Cement, lime, and plaster products 78.0; Electric power 44.2; Nitrogenous fertilizers 21.8.
  - Ukraine: Cement, lime, and plaster products 30.1; Electric power 17.4; Basic inorganic chemicals 11.1.
  - Algeria: Basic aluminum 144.8; Basic inorganic chemicals 31.5; Iron and steel 17.3; Non-nitrogenous and mixed fertilizers 27.1.
  - Madagascar: Iron and steel 153.6; Cement, lime, and plaster products 51.7.
  - Tunisia: Iron and steel 25.4; Electric power 13.4; Nitrogenous fertilizers 22.8.
- Data sources for CBAM cost calculations: Global Resource Input-Output Assessment (GLORIA) and authors’ calculation.

### 5. Discussion and Limitations

- Nature of current results:
  - Findings are first-order, static effects and do not account for dynamic adjustments to trade patterns or general equilibrium effects.
- Potential adjustments induced by CBAM:
  - EU-based importers can: (i) shift toward EU-based suppliers, or (ii) shift toward suppliers with lower emission intensity (within or outside the EU).
  - Exporters to the EU can: invest in lowering emission intensity or redirect exports to non-EU markets.
- Market-structure dependence:
  - Under perfect competition, CBAM charge would be fully passed through to EU consumers.
  - Under imperfect/oligopolistic competition, the extent of pass-through or margin absorption by foreign exporters depends on the EU’s share of demand in international markets; a large EU share could lower world prices and dampen domestic impacts.
- Possible policy responses by exporters:
  - Countries with significant exports to the EU might introduce carbon pricing mechanisms aligned with the EU ETS to capture fiscal revenues otherwise accruing to the EU and to reduce the CBAM charge.
  - Higher carbon prices in exporting countries would lower the CBAM charge (potentially to zero) and could materially affect international product prices and incidence between exporters and importers.
- Upstream producer-cost effects:
  - CBAM may raise production costs of EU-based up- and mid-stream industries that use in-scope products; magnitude depends on emission intensity of non-EU imports, substitutability with intra-EU imports, and whether EU producers’ marginal costs rise to meet additional demand.
- Analytical limitation:
  - A comprehensive general equilibrium analysis is not pursued in this paper and is left for future work.

*IMF Working Paper — The EU’s CBAM: Implications for Member States and Trading Partners*

### 5.2   Introduction of Border

### 5.2   Introduction of Border Carbon Adjustment by Other Countries

### Context and purpose
- Several jurisdictions beyond the EU are considering the introduction of a border carbon adjustment mechanism.
- A key question is whether the simultaneous introduction of border carbon adjustments by multiple countries could disrupt some common trade partners due to combined effects of various carbon border taxes.
- To illustrate potential implications, the paper simulates the impacts of a hypothetical introduction of a border carbon adjustment in Australia using the same product scope and price assumption (USD 90/tCO2e) as the current EU CBAM.
- Australia has launched a review of carbon leakage and is considering options to address it, including a border carbon adjustment mechanism.

### Simulated Australian CBAM: main findings
- The introduction of a CBAM in Australia would primarily affect East and Southeast Asian countries, reflecting current trade flows and geographical proximity as predicted by the gravity model of trade.
- The impact of an Australian CBAM on its trading partners would be an order of magnitude smaller than that of the EU CBAM because Australia represents a smaller share of global trade and absorbs a smaller share of its trading partners’ exports.
- There is little overlap between countries affected by the EU CBAM and a hypothetical Australian CBAM given existing trade patterns; however, some countries located at the intersection of trading networks could face substantial impacts from both the EU and Australia CBAMs (example given: South Africa).

### Implications for trade policy and future scenarios
- Combined or simultaneous CBAMs across multiple jurisdictions could generate compounded effects on common trade partners even when individual border taxes are not highly disruptive on their own.
- The geographical pattern of impacts depends strongly on existing trade linkages; smaller trade partners’ CBAMs tend to have more localized effects centered on nearby economies.
- Countries at intersections of multiple trading networks may require particular attention, as they could experience substantial cumulative impacts from multiple CBAMs.

*Source: IMF Working Paper No. WP/2025/125 — Section 5.2 "Introduction of Border Carbon Adjustment by Other Countries"*

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_Source: https://www.imf.org/-/media/files/publications/wp/2025/english/wpiea2025125-print-pdf.pdf_