What question did this study set out to answer?

This research aims to evaluate different border adjustment mechanisms in the context of EU carbon pricing.

May 27, 2026Wirtschaftsdienst0 citationsOpen Access

Grenzausgleich für die EU-Klimapolitik: Optionen und ihre ökonomischen Wirkungen

GFGabriel Felbermayr FLFriedrich Lührs HMHendrik Mahlkow

Key Points

This research aims to evaluate different border adjustment mechanisms in the context of EU carbon pricing.
Utilized a computable general equilibrium trade model
Calibrated model to 141 countries and 65 sectors
Compared three designs against a no-adjustment baseline
All designs outperformed the no-adjustment baseline
EU-CBAM incentivized foreign decarbonization but disadvantaged downstream industries
LBAM prevented leakage broadly with low bureaucracy

Abstract

Abstract The EU’s unilateral carbon pricing requires effective border adjustment to prevent carbon leakage and protect industrial competitiveness. Using a computable general equilibrium trade model calibrated to 141 countries and 65 sectors, we compare three border adjustment designs against a no-adjustment baseline: the current EU Carbon Border Adjustment Mechanism (CBAM), a Leakage Border Adjustment Mechanism (LBAM), and a Climate Contribution. All designs outperform no adjustment, yet none dominates across all dimensions. The EU-CBAM incentivises foreign decarbonisation but disadvantages downstream industries; the LBAM prevents leakage broadly with low bureaucracy; the Climate Contribution offers administrative simplicity but burdens consumers.

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