The role of carbon border adjustment in steel decarbonization

Abstract Emission-intensive and trade-exposed sectors, such as steel, are especially challenged by emissions leakage and loss of competitiveness with the implementation of climate policies. A carbon border adjustment mechanism (CBAM) is one of the principal policies suggested to minimize these impacts. This study examines the implications of CBAM for the global iron and steel industry using a modified version of the Global change analysis model (GCAM). We introduce an expanded steel sector representation and a differentiated trade market to assess the impacts of CBAM implementation across OECD and non-OECD regions under deep decarbonization scenarios. Additionally, we explore the role of free emissions allowances, export rebates, and green subsidies in modifying CBAM outcomes. Our findings indicate that CBAM can reduce emissions leakage and incentivize the adoption of low-carbon steel technologies but may disadvantage exporters in regions implementing CBAM, leading to a net-loss of production in CBAM regions. This study contributes to the literature by modelling CBAM in an integrated assessment framework and providing insights for policymakers balancing climate action and economic competitiveness.