Border carbon adjustments in agri-food markets: Not as effective as one might think

Abstract

Abstract Using the EU as case study, we simulate the impact of border carbon adjustments on agri-food markets. While border carbon adjustments alleviate adverse carbon price impacts on EU agricultural competitiveness and emission leakage, our simulation results also reveal that (i) border carbon adjustments may diminish domestic mitigation efforts, thereby partly offsetting benefits from reduced emission leakage, and (ii) trade diversion further undermines global emission reduction. The results indicate that border carbon adjustments on agri-food products in major exporting countries with emission-efficient production systems may not reduce global emissions as effectively as commonly assumed, highlighting the importance of emission efficiency improvements especially in developing and emerging countries.