Empirical Evaluation of CBAM and ETS Linkages: Impacts on Trade, Welfare, and Developing Country Exporters

Abstract

The operationalization of the EU’s Carbon Border Adjustment Mechanism (CBAM) alongside its Emissions Trading System (ETS) presents a critical, yet under-explored, nexus of trade and climate policy. This study fills that empirical gap by applying gravity-model estimations and stylized computable general equilibrium simulations to six developing-country exporters (Vietnam, Indonesia, Morocco, South Africa, Egypt, and India). We show that the CBAM×ETS linkage contracts carbon-intensive exports by 9–21%—with variations driven by emission intensity and adaptive capacity—and nearly doubles EU welfare losses relative to an ETS-only regime. By integrating bilateral trade-elasticity estimates with welfare modeling, we deliver the first multidimensional empirical assessment of climate-linked border adjustments, offering a rigorous framework for designing equitable, effective carbon-pricing measures in global trade.