Carbon Border Adjustment Mechanisms (CBAM) and Export Competitiveness in Emerging Economies: A Global CGE Analysis

The implementation of Carbon Border Adjustment Mechanisms (CBAM) by major developed trade blocs presents a major economic challenge for industrializing developing nations. This paper evaluates
the macroeconomic and sectoral impacts of a unilateral European Union CBAM tariff ($75/t CO2) imposed on Energy-Intensive Trade-Exposed (EITE) imports. Utilizing an extended multi-region, multi-sector
Computable General Equilibrium (GTAP-E CGE) model benchmarked on global trade data up to 2020, we simulate four distinct policy design scenarios evaluating trade diversion, terms-of-trade degradation, carbon leakage mitigation, and domestic fiscal recouperation. Empirical modeling indicates that an unassisted $75/t CO2 CBAM induces a aggregate real GDP contraction of -2.35% across low- and middle-
income exporters, with severe output losses in fertilizers (-12.4%), primary steel (-9.8%), and aluminum smelting (-8.5%). Trade diversion modeling proves that export volumes to the EU drop by -24.5% in steel
and -18.2% in chemicals, forcing market redirect toward lower-margin non-EU regional partners. Terms of trade deteriorate most sharply in Sub-Saharan Africa (-2.85%) and Middle East/North Africa (-3.12%).
However, interaction modeling demonstrates that if exporting nations implement domestic carbon price floors, net tariff liabilities paid to foreign customs can be fully recouped domestically as national tax
revenue, mitigating aggregate GDP losses by up to 65%. The paper provides strategic policy blueprints for developing market trade negotiators to navigate international carbon border adjustments.