Readiness of the European trading countries toward carbon border adjustment mechanism: Evidence from Indonesia

The serious consequences of greenhouse gas emissions destabilizing the world's climate have led the European Union (EU) to introduce the Carbon Border Adjustment Mechanism (CBAM) regulation. This regulation will be fully implemented by the EU in 2026 for its trading partner countries for six products, namely fertilizers, cement, iron and steel, aluminium, electricity, and hydrogen. This study, taking Indonesia as one of the EU's trading partners, aims: (1) to estimate the values of Indonesian export products to the EU affected by CBAM and their competitiveness, and the dynamic changes in the competitiveness level of the export product subject to the CBAM, and (2) to analyze the perceptions on the readiness of government and business actors to face the implementation of the CBAM. By applying the Revealed Comparative Advantage (RCA), Revealed Symmetric Comparative Advantage (RSCA) Indexes, and Export Product Dynamic (EPD) methods using the data published by the International Trade Centre (ITC) and Indonesia Iron and Steel Industry Association, the results indicate that the values and shares of Indonesia's export products to the European Union under CBAM are very low. Fertilizers and cement products are in the retreat position, which indicates a negative growth in a country's export share of a product, accompanied by a decrease in total exports, resulting in an uncompetitive and stagnant position. While aluminium and iron or steel products are in the lost opportunity position, indicating that the global export markets for iron-steel and aluminium products are very open, with opportunities for exports. Furthermore, the results of the PESTEL (Political, Economic, Social, Technological, Environmental, and Legal) factor analysis based on interviews and focus group discussions with resource persons emphasize the importance of this country having policies in place to face CBAM including a policy to increase its carbon price, economic incentives, anticipating the social impact of CBAM on increasing unemployment, and fostering research and innovation in technologies with low carbon footprint.