New study: EU carbon border tariff leaves European heavy industry worse off but the wider economy better off

Pressmeddelande—8 Oktober 2026 08:00

New study: EU carbon border tariff leaves European heavy industry worse off but the wider economy better off

Replacing free emissions allowances with the EU’s Carbon Border Adjustment Mechanism (CBAM) leaves European heavy industry less protected, while improving the outcome for the wider economy. Sweden provides a striking example: despite having some of the cleanest heavy industry in Europe and seemingly being well placed to benefit from a tariff on carbon-intensive imports, its industry loses protection under CBAM. These are some of the key findings of a new SNS report by economists Christoph Böhringer and Knut Einar Rosendahl.

As the EU tightens its climate policy, differences in carbon costs between European industries and their competitors abroad become increasingly important, raising concerns about competitiveness and carbon leakage. Starting in 2026, the EU is changing how it addresses these concerns, gradually replacing its long-standing system of free emission allowances with CBAM

The researchers compare free allowances with a fully phased-in CBAM, which under current legislation is due to be completed by 2034. Free allowances offset part of EU producers’ carbon costs on both domestic and export sales, whereas CBAM requires importers to pay for the carbon emissions embodied in their goods, but provides no corresponding relief for EU exports

“Sweden’ heavy industry is cleaner than that in the rest of the EU. So, at first glance it has less to lose when free allowances disappear. But how much an industry will gain instead from a tariff on imports depends on how exposed each country’s home market is to competing carbon-intensive imports from outside Europe. And carbon tariffs stand-alone no longer provide support to export-oriented industries The transition to CBAM will therefore play out very differently across heavy industries in the Union depending on their differences in emissions intensities and trade exposure,” says Christoph Böhringer, Professor of Economics at the University of Oldenburg.

Europe’s cleanest heavy industry loses – but society gains

Sweden’s steel, pulp and paper and chemical industries are energy-intensive but low-carbon, run largely on CO₂-free electricity, and sell a substantial share of their output outside the EU. Sweden’s industry might appear well placed to benefit from a tariff on carbon-intensive imports. Yet the researchers find in their simulations that the production loss for Swedish heavy industry roughly doubles, from 0.6 per cent under today’s free allowances to 1.3 per cent under CBAM, measured against a world without climate policy. The shift is most prononuced for iron and steel production, moving from a slight production gain under free allowances, to a 1.7 per cent loss under CBAM.

The reason is that CBAM offers no protection in export markets outside Europe, which is particularly important for Sweden’s export-oriented heavy industry. While a common EU carbon price hurts Swedish producers less than their peers in the rest of Europe, that advantage does not offset the loss of export protection. For Sweden as a whole the picture is brighter. The cost of climate policy to the Swedish economy, around 0.05 per cent of real income under today’s rules, falls to close to zero under CBAM. One reason for this result is that CBAM has more beneficial impacts on Swedish import and export prices than today’s free allowances: Sweden’s export prices rise relative to its import prices. This means it can buy more imports with the same amount of exports, increasing its purchasing power and disposable income.

The same pattern across Europe

A similar but more pronounced pattern holds for the rest of Europe . Its heavy industry is on average more carbon-intensive, and its output under CBAM is 2.6 per cent lower than in a world without climate policy, against 1.3 per cent under free allowances. For the wider economy, the rest of Europe gains slightly more than Sweden from the switch to CBAM: their cost of climate policy falls from 0.25 to 0.17 per cent of real income, from a level five times higher than Sweden’s.

“The bigger gains are in the rest of Europe, where the cost of carbon pricing was much higher to start with. Sweden gains less from the switch, but it also starts from a much lower economy-wide cost under free allocation. But everywhere the same question arises: heavy industry loses protection on markets outside Europe, and whether the sector interest or the overall national interests should take precedence is ultimately a political choice,”says Knut Einar Rosendahl, Professor of Economics at the Norwegian University of Life Sciences.

Transiting from free allowances to CBAM has little effect on carbon leakage

Both free allocation and CBAM are designed to counter the risk that emissions cut in Europe reappear elsewhere as production moves abroad. The researchers find only a small difference in their effectiveness. The share of European emission cuts offset by higher emissions elsewhere falls from 16.9 per cent under free allocation to 16.0 per cent under CBAM – compared to 28.5 per cent for the case that EU climate policy does not adopt either of the two anti-leakage instruments. Yet, leakage could be further reduced to 10.6 per cent if CBAM would be complemented by export rebates to protect European exports.

Key findings

Carbon tariffs protect heavy industry less than free allowances.Moving to CBAM roughly doubles the production loss for the Swedish heavy industries from 0.6 to 1.3 per cent. The main reason is that – as compared to free allowances – CBAM does not protect exports, which matters for an export-oriented country like Sweden. The shift is largest for iron and steel, which moves from a slight production gain under free allowances to a 1.7 per cent loss.
What is better for protected industries is not necessarily better for a country as a whole.For the Swedish economy at large, the cost of climate policy falls from around 0.05 per cent of real income with free allowances to close to zero under CBAM. Free allowances also protect industry, but they are less beneficial as compared to CBAM for improving the terms of trade, i.e., a country can buy more imports with the same amount of exports. .
As compared to free allowances, CBAM barely moves carbon leakage.The share of European emission cuts offset by higher emissions elsewhere goes from 16.9 per cent under today’s rules to 16.0 per cent under CBAM – providing a similar reduction in the leakage rate from 28.5% if the EU would not apply any of the two anti-leakage measures. CBAM combined with export rebates, meaning compensation to European exporters for their carbon costs, could furthter reduce the leakage rate of 10.6 per cent.
·No single policy performs best on every dimension.Free allowances tend to protect European heavy industry better than the current CBAM design as it provides some protection on foreign export markets while CBAM tends to reap somewhat higher economy-wide gains though improved terms of-trade
Widen CBAM to cover emissions from electricity (scope 2).Today’s CBAM mainly covers emissions from the factory (scope 1), which is less than half of a typical product’s CO₂ footprint. Including indirect emissions from electricity improves not only the cost effectiveness of CBAM, but also rewards the position of producers running on clean power. This is where Sweden has most to gain: it reduces the CBAM production loss from 1.3 to 1.0 per cent, though still short of today’s 0.6 per cent.
Address exports.Adding rebates for the carbon costs of European exporters would restore protection almost to today’s level and cuts carbon leakage the most. It is the most cost-effective option globally, while it raises legal questions as a potential export subsidy.
Do not expect CBAM on its own to solve carbon leakage.Neither free allowances nor CBAM addresses leakage through global energy markets, and CBAM targets less than 2 per cent of global emissions.
Look further down the value chain.In the debate on extending CBAM, complex regulatory challenges arise for industries that buy emissions-intensive materials and the carbon embedded in imported finished goods.

Policy recommendations

Remaining design choices are still to be decided at the EU level. The report points to the following key issues:

Widen CBAM to cover emissions from electricity (scope 2).Today’s CBAM mainly covers emissions from the factory (scope 1), which is less than half of a typical product’s CO₂ footprint. Including emissions from electricity improves not only the costeffectiveness of CBAM, but also rewards the position of producers running on clean power. This is where Sweden has most to gain: it reduces the CBAM production loss from 1.3 to 1.0 per cent, though still short of today’s 0.6 per cent.
Address exports.Adding rebates for the carbon costs of European exporters would restore protection almost to today’s level and cuts carbon leakage the most. It is the most cost-effective option globally, while it raises legal questions as a potential export subsidy.
Do not expect CBAM on its own to solve carbon leakage.Neither free allowances nor CBAM addresses leakage through global energy markets, and CBAM targets less than 2 per cent of global emissions.
Look further down the value chain.In the debate on extending CBAM, complex regulatory challenges arise for industries that buy emissions-intensive materials and the carbon embedded in imported finished goods.

About the report

Economic Impacts of CBAM for Sweden and Beyondby Christoph Böhringer and Knut Einar Rosendahl is a part of the research programme SNS Climate. The aim of the programme is to deepen society’s understanding of the possibilities and limitations of climate policy, and to shed light on how policy can be designed in a rapidly changing environment

The authors use empirical multi-region input-output data to run simulations with a model of the global economy comparing different designs of EU climate policy: carbon pricing alone or carbon pricing combined with three alternative measures to combate carbon leakage; free allowances, carbon tariffs (CBAM), and carbon tariffs with export rebates. In the model, each policy is simulated relative to the same hypothetical world without climate policy, allowing the effects of the different policies to be compared with each other.

The authors are solely responsible for the analysis, conclusions and proposals presented. SNS as an organisation does not take a stand on these

About the authors

Christoph Böhringer is Professor of Economics at the Carl von Ossietzky University of Oldenburg, Germany. Contact: christoph.boehringer@uni-oldenburg.de

Knut Einar Rosendahl is Professor of Economics at the Norwegian University of Life Science (NMBU), Ås, Norway

Contact: knut.einar.rosendahl@nmbu.no

Miljö, klimat och energi

Stockholm

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