Economic Impacts of CBAM for Sweden and Beyond

Carbon pricing can reduce emissions but may also affect the competitiveness of emissions-intensive industries and lead to carbon leakage. The EU has long sought to limit these effects through free allocation of emissions allowances, a system that is now being gradually replaced by the Carbon Border Adjustment Mechanism (CBAM), which puts a carbon price on certain imports into the EU. The two approaches provide different forms of protection for European industry, with different implications for production, trade and emissions. In this report, economists Christoph Böhringer and Knut Einar Rosendahl compare the economic effects of free allocation and carbon tariffs, with a particular focus on Sweden. They analyse the effects on Swedish emissionsintensive and trade-exposed industries, the Swedish economy as a whole and global carbon leakage. The report also examines how the results change with broader emissions coverage and when carbon tariffs are combined with rebates for exports. The analysis is based on data on global production, emissions and trade together with a multi-sector, multiregion model of the world economy. Christoph Böhringer is Professor of Economics at the University of Oldenburg. Knut Einar Rosendahl is Professor of Economics at the Norwegian University of Life Sciences. The report is part of the research project SNS Climate.