European Union’S Carbon Border Adjustment Mechanism as a Global Governance Tool

Abstract. This paper considers a greenhouse gas (GHG) emissions management system with an international component and taxation of the imported carbon-intensive goods. As an example, we discuss European Union’s Carbon Border Adjustment Mechanism (CBAM). CBAM is expected to be introduced in 2023. It will have global coverage by countries and companies. We overview the available scientific literature on mathematical methods for analysis and assessment of CBAM for socio-economic development. As noted, carbon border adjustment provides ample opportunities for mathematical analysis, calculations, and modeling. We outline some classes of models to investigate CBAM: DSGE models, Inter-Country Input-Output Tables, game-theoretic models, and others. Their capabilities for conducting economic analysis are described. Special attention is paid to the analysis models of Global Value Chains. We compile the block diagram of the CBAM management system based on the EU regulatory documents. Its main blocks, participants, and connections are studied. We present and analyze the generic formulas for determining GHG emissions in the European Union. As concluded, CBAM introduction will form a new and broad area of studies on fundamental and applied economics, including management of international carbon border trading markets.

Keywords: Carbon Border Adjustment Mechanism, greenhouse gas (GHG) emissions, European Union, global governance, models, mathematical methods.