A Comparative Study on the Impact of EU Carbon Border Adjustment Mechanism on Korea, China, and Japan

Purpose - The present article provides a comparative overview of the prospective economic impact of implementing the EU Carbon Border Adjustment Mechanism (CBAM) carbon tax on exports into the EU27 by Korea, China, Japan, and other EU27 trading partners. Design/Methodology - We employed the GTAP-E, a global computable general equilibrium (CGE) model, alongside the GTAP database version 11b. Our simulation involved two main scenarios: a baseline scenario reflecting a business as usual (BAU) scenario projecting the global economy from 2017 to 2026, and a set of six policy scenarios corresponding to the CBAM carbon tax. The CBAM carbon tax was estimated and decomposed into emission Scopes 1, 2, and 3. Findings - The simulation results indicated notable impact variations among Korea, China, and Japan in 1) industry output, 2) export and import flows, 3) carbon emissions, and 4) trade balances. China has experienced a marked drop in export and import demand, likely causing its domestic output to decrease. Korea also faces substantial declines, while Japan experiences the most negligible impact. Korean exports, particularly in iron and steel, fall more sharply, while China and Japan experience significant reductions in chemical exports. Originality/value - We recommend addressing the CBAM carbon tax through national mitigating policies and enhanced cooperation among Korea, China, and Japan. The feasible mitigation policies include internalizing carbon tax revenue and developing low-carbon production technologies nationally and collaboratively.