Abstract The EU’s unilateral carbon pricing requires effective border adjustment to prevent carbon leakage and protect industrial competitiveness. Using a computable general equilibrium trade model calibrated to 141 countries and 65 sectors, we compare three border adjustment designs against a no-adjustment baseline: the current EU Carbon Border Adjustment Mechanism (CBAM), a Leakage Border Adjustment Mechanism (LBAM), and a Climate Contribution. All designs outperform no adjustment, yet none dominates across all dimensions. The EU-CBAM incentivises foreign decarbonisation but disadvantages downstream industries; the LBAM prevents leakage broadly with low bureaucracy; the Climate Contribution offers administrative simplicity but burdens consumers.
Felbermayr et al. (2026) studied this question.