The Devil is in the Subheadings: Estimating product- and country-specific carbon costs imposed on imports under the EU CBAM and their implications for trade

This paper estimates the carbon costs of the EU Carbon Border Adjustment Mechanism (CBAM) for representative country–product combinations, using the European Commission's country- and product-specific default emissions intensity values. Whereas previous studies analyzed CBAM at the level of 5–30 aggregated sectors, the default values are specified for many goods at the eight-digit subheading level of the EU's Combined Nomenclature (CN), enabling highly granular cost estimates. The analysis shows that CBAM's impact varies greatly by country–product combination: some combinations are likely to alter trade flows, while for many products the impact is negligible. For iron and steel, trade effects should be assessed jointly with anti-dumping duties, safeguards, and sanctions against Russia. Exporting countries can reduce the burden by reporting actual emissions where default values overstate them, by directing output from lower-emission domestic processes to EU exports, and by exporting processed products rather than basic materials.