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The introduction of Border Carbon Adjustments (BCA) aims to reduce emissions while securing the competitiveness of domestic industries. However, a recent study by ZEW Mannheim highlights that the specific design of these measures is crucial for their effectiveness. Using the global steel industry as an example, the study shows that benchmark-based models, which rely on emission intensities, significantly weaken the price signal.
Impact of different approaches
According to the study’s findings, intensity-based approaches only transfer about 36 percent of the required CO₂ price to achieve the same global emission reduction as quantity-based models. As a result, the welfare losses in the affected sectors increase. Eunseong Park, a researcher in the „Environmental and Climate Economics“ department at ZEW, emphasizes: „Our results show that the choice of BCA design is not a technical detail, but has fundamental implications for climate protection and competitiveness.“
An intensity-based approach can be viewed as a combination of CO₂ price and implicit subsidy for production, which dilutes the steering effect of the measures, according to Park. Prof. Dr. Sebastian Rausch, head of the research department, points out that without a clear CO₂ price incentive domestically, the goals of these instruments cannot be achieved. Instead of reducing emissions, economic advantages would be shifted in favor of domestic industries.
