The EU’s CBAM Implications for Korea’s GVC Exports

Purpose: The purpose of this paper is to measure the implications of the EU’s CBAM for Korea’s GVC exports, since Korea is ranked fifth in GVC participation and is the EU’s major trading partner. Research design, data, and methodology: This paper uses data from the OECD’s “Carbon dioxide emissions embodied in international trade” (TECO2), the IEA-EDGAR CO2, and the OECD’s Trade in Value Added (TiVA). It also uses the total probability formula and Bayes’ theorem to analyze much of the statistical data. Results: The world’s top 10 carbon emitters are China, the U.S.A., Russia, India, Japan, Germany, Canada, Korea, the U.K., and Iran, accounting for 66% of global CO2 emissions between 1990 and 2020. The top 10 CO2 emitters are also ranked highest by their share of GVC participation, with a 22.09% influence on CO2 emissions from GVC trade. China and the U.S.A. affect most of the countries they trade with, including Korea, when it comes to CO2 embodied in intermediate and final GVC goods. Conclusions: China, the U.S.A., Japan, and India are the closest trading partners to Korea under the GVC structure. These four countries, as top CO2 emitters, are highly interconnected with other trading partners, which means damage from the EU CBAM can have ripple effects on their partners, especially Korea. Therefore, Korea needs to develop and apply carbonreducing technology to achieve export competitiveness in response to potential EU CBAM implications.