The European Central Bank published a working paper estimating the direct, short-run incidence of the European Union’s Carbon Border Adjustment Mechanism (CBAM) on EU member states and the EU’s trading partners. Using ad valorem tariff-equivalent indices, the authors find the current CBAM’s average direct effect on trade to be limited, adding about 0.1 percent to the value of EU imports and increasing non-EU exporters’ average cost of selling into the EU by 0.04 percent, with a maximum of 1.2 percent across countries. The analysis focuses on CBAM-covered emissions-intensive products including aluminium, cement, electricity, iron and steel, fertilisers and hydrogen, drawing on 2021 bilateral trade data and input-output tables to derive embedded CO2. It reports that CBAM products account for about 4.5 percent of EU countries’ total imports from non-EU partners (around USD 110 billion in 2021), with estimated import-side incidence ranging from 0.025 percent of total import value in Austria to 0.3 percent in Croatia, and with iron and steel, aluminium and electricity typically contributing most. While macro-level impacts are small, the paper finds potentially material product-level charges for specific country-product pairs, including Ukraine’s cement exports to the EU and Bosnia and Herzegovina’s electricity exports. The paper situates these results in CBAM’s phased implementation, with reporting-only requirements during the transitional period and an obligation to surrender CBAM certificates from 2026, alongside the gradual replacement of free allocation under the EU Emissions Trading System through 2035. It also models scenarios in which CBAM’s scope expands to all Emissions Trading System sectors and carbon prices rise, implying proportionally larger costs over time and a larger incidence on EU importers than on any single exporter, while noting that the estimates are static and do not incorporate behavioural or general equilibrium adjustments.
European Central Bank 2026-01-27
European Central Bank working paper estimates EU CBAM would have small average trade effects but higher costs for iron, steel and aluminium
The European Central Bank's working paper assesses the short-run impact of the European Union's Carbon Border Adjustment Mechanism (CBAM) on trade, finding a limited average direct effect, adding 0.1% to EU import values and increasing non-EU exporters' costs by 0.04%. The analysis highlights potential product-level charges for specific exports, situating these findings within CBAM's phased implementation and potential future expansions.