The distributional effects of European climate policies in the Global South A model-assessment for Egypt

This paper assesses the macro- and microeconomic impacts of the European Union’s Carbon Border Adjustment Mechanism (CBAM) on Egypt, a lower middle-income country with export exposure to the EU in carbon-intensive sectors: iron and steel, aluminium, fertiliser and cement. Employing a combined macro–micro simulation approach, the analysis finds that the overall macroeconomic effects are relatively limited. This is primarily due to the modest share of CBAM-covered goods in Egypt’s total exports and the country's capacity for trade diversion. However, the microsimulation results indicate regressive distributional consequences, with the most adverse effects borne by poor, rural, and unskilled households. Moreover, the gender dimension reveals that men are more affected than women, largely due to the higher concentration of male employment in the impacted industries. These findings suggest that CBAM may exacerbate poverty and inequality in vulnerable economies. The study underscores the necessity for targeted mitigation policies and demonstrates the value of integrating a computable general equilibrium (CGE) model with a behavioural microsimulation framework to capture both aggregate and distributional effects effectively