Lessons learned from modelling the EU CBAM: Potential impacts on least developed economies and neighbourhood countries

The EU Carbon Border Adjustment Mechanism (CBAM) seeks to prevent carbon leakage by equalising costs for emission‑intensive, trade‑exposed sectors. Although literature on CBAM has expanded since its 2021 proposal, few studies model effects on developing economies. Using the JRC‑GEM‑E3 model, we evaluate CBAM’s consequences for 50 countries and regions, including Least Developed Countries (LDCs), other emerging economies and EU neighbourhood partners. We compare a CBAM scenario (with the phase‑out of free allowances) to a baseline that continues existing EU climate policies, also assessing how emission intensities can affect modelling outcomes. We explore an alternative approach to calculate the emissions intensities based on the implied CBAM rate calculated from physical emission intensities (kg CO2e/tonne of output) instead of the emission intensities based on monetary terms. Overall, the impact on LDCs, developing countries and neighbourhood countries is relatively minor in aggregate, with small changes in GDP, but can be more substantial at sectoral level due to differences in emission intensities. We further explore these results in the paper, by looking at the impacts at sectoral and country level.