GVCs and embedded carbon emission dynamics: implications of CBAM for EU downstream sectors

Purpose This paper aims to examine the evolving patterns of carbon emissions embedded in global value chains (GVCs) across regions and sectors. It also evaluates how the Carbon Border Adjustment Mechanism (CBAM) may affect the competitiveness of European manufacturers in downstream sectors dependent on emission-intensive imports. Design/methodology/approach The multiregional input-output (MRIO) model is used to trace emissions embedded in GVCs and assess the CBAM’s potential impact on manufacturers within the European Union (EU). Findings Increased participation of developing countries in GVCs has raised emissions embedded in their exports, while developed countries have experienced increased net imports of embedded emissions. Within the EU, the share of imported emissions has grown, notably from China and India. In CBAM-covered sectors, imported emissions are often absorbed during downstream value addition, potentially raising input costs for EU manufacturers and challenging their competitiveness. Practical implications CBAM may raise production costs for EU industries dependent on emission-intensive imports, potentially affecting their competitiveness in global markets. This outcome may intensify as free allowances are phased out. Social implications While the CBAM supports several sustainable development goals (SDGs) like responsible consumption and climate action (SDG 12 and 13), it may negatively impact others, like industry innovation (SDG 9) and special treatment for developing countries (SDG 10.8). This underscores the need for coordinated climate policies within GVCs to balance environmental goals with trade and competitiveness. Originality/value This study contributes novel insights into the dynamics of emissions embedded in international trade and assesses the broader implications of CBAM on EU manufacturers through GVC linkages.