Winners and losers of the EU carbon border adjustment mechanism. An intra-EU issue?

The paper builds a Multi-Regional Input-Output model to study the recently adopted carbon border adjustment mechanism (CBAM) by the EU. This policy introduces carbon tariffs to replace free allowances in several ETS industries, intending to reinforce the carbon price signal within the EU while mitigating the risk of carbon leakage. Yet, the policy has prompted immediate international equity concerns, particularly regarding its potential burden-shifting effect, especially on low-income countries. In this context, the analysis provides a comprehensive examination of the distributional impacts of the EU CBAM, shedding light on the countries and industries most likely to experience significant losses or gains due to the policy. Contrary to the apprehensions, the findings indicate limited evidence of burden shifting, with such a phenomenon being confined to a few specific geographical areas and industries. Instead, the results unveil more pronounced redistributive impacts within the EU, with certain Eastern EU countries facing particular losses from replacing free allowances with CBAM. Adverse competitiveness effects and carbon leakage in various downstream industries are also identified.