The EU carbon border adjustment mechanism: implications on Brazilian energy intensive industries

Abstract

As an instrument supporting the realization of EU climate neutrality targets by 2050 and encouraging decarbonization outside its borders, the current proposed Carbon Border Adjustment Mechanism (CBAM) is facing opposition from some countries. Focusing on Brazil, this paper evaluates the impacts of the CBAM on the Brazilian economy through a comprehensive analysis of various scenarios based on the potential EU implementation of the CBAM and Brazil’s climate scenarios. Results obtained in this research alleviate concerns of detrimental and competitiveness losses from Brazilian industries. Rather, the implementation of the EU CBAM improves the trade balance of Brazil’s Energy-Intensive Industries (EII). The relatively low CO2 contents of Brazilian EII are elemental to this result, while contributions of carbon-free technologies in electricity generation are also critical factors in maximizing this trade surplus. Other consequential factors affecting these results are the contributions of CO2 removal from Brazil’s forestry of land used, and homogeneity of CBAM-imposed products.