Returning European Union carbon border adjustment revenues to specific products increases global welfare and reduces emissions

The European Union (EU) introduced the Carbon Border Adjustment Mechanism (CBAM) to mitigate carbon dioxide emissions by charging imported products based on their embedded emissions. Existing studies mainly assess national-level effects, leaving product-level impacts unclear. Here we integrate a product-level CBAM-equivalent tariff accounting framework with a multi-country partial equilibrium model to quantify its effects on carbon emissions and economic welfare, focusing on 222 steel products across the EU and its major trading partners. We find that the CBAM modestly reduces global emissions in the iron and steel sector, while increasing EU welfare but imposing substantial global welfare losses. Effects differ across products, driven by differences in export values, emission intensity, and reliance on the EU market. Returning CBAM revenues to vulnerable products could increase global welfare and further reduce emissions compared with standard implementation. Our results emphasize the importance of product-level analysis for designing more effective and feasible CBAM policies. Redirecting the European Union’s carbon border adjustment revenues toward vulnerable products can offset global welfare losses while reducing emissions in the iron and steel sectors, according to a product-level tariff accounting framework and a multi-country partial equilibrium model.