The Impact of Border Carbon Adjustment in China on Russian Economy: Analysis Based on GTAP Models

Abstract

The paper assesses the impact of China’s carbon regulation on the Russian economy. It examines the scenario which is not highly probable but has been discussed in Russia–namely, the potential introduction of carbon border regulation on imports of carbon-intensive products by China. The study employs a scenario-based approach using computable general equilibrium models GTAP-Power and GTAP-E, developed by the Global Trade Analysis Project (GTAP). The GTAP 10 data are used to calibrate the model, and preliminarily adjusted to Western sanctions imposed on Russian trade flows in 2022–2023. The results indicate that the introduction of carbon border regulation by China has virtually no impact on the output of Russia’s energy- intensive industries. The non-ferrous metal sector increases exports due to the relatively low carbon intensity of Russian production compared to other countries, whereas the chemical industry appears to be sensitive to the hypothetical implementation of China’s carbon border regulation. The introduction of a domestic carbon price in Russia mitigates the risks for exports to China; how ever, it leads to a relatively small decline in real GDP–p to –0.06%–at a carbon price of $20 per ton of CO₂ equivalent (in 2014 prices). The most sensitive sectors to national carbon regulation include coal production, natural gas extraction, and iron and steel industry.