Impact of EU’s Carbon Border Adjustment Mechanism on Russia

Abstract

The article presents an assessment of the consequences of the introduction of Carbon Border Adjustment Mechanism (CBAM) by the European Union on the Russian economy. The concept of Carbon Border Adjustment Mechanism, which is currently being actively discussed and approved by the authorities of the European Union in the context of combating climate change, will represent a payment on the import of goods into the European Union, the production of which is associated with greenhouse gas emissions. Since the European Union is one of the most important destinations for Russian exports, the introduction of this mechanism can have a significant impact on the profits of Russian exporters and, accordingly, on the Russian economy as a whole.

The paper presents the results of calculating the losses of the Russian economy due to the introduction of CBAM taking into account different options for possible extension of the mechanism in terms of affected products and scope of emission covered. Both direct CBAM payments and cumulative losses of Russian economy are assessed. Calculation of direct payments is based on data on the carbon intensity of Russian products. Payments are estimated to vary between 50,0 bln euro and 72,3 bln euro during 2026-2035 period. The calculation of indirect losses is based on supply and use tables and allows to assess, at the industry level, the effects associated with the price growth for intermediate products that fall under the scope of CBAM and effects associated with decrease of output of those products that are not covered by CBAM, but used in the production chains of the goods, falling under this mechanism.