Conference Agenda

Session

Thematic Session: Trade implications of different climate policy regimes

Time:

Thursday, 02/July/2026:

4:30pm - 6:15pm

Session Chair: Zoi Vrontisi, Ricardo PLC

Location: B008

Session Abstract

Climate policies are increasingly implemented in a global economy characterised by heterogeneous climate ambition, trade fragmentation, and the emergence of border measures such as the EU Carbon Border Adjustment Mechanism (CBAM). While these policies aim to reduce emissions and limit carbon leakage, they also reshape international trade patterns, competitiveness, and comparative advantage in complex and interrelated ways. This session examines how different climate policy regimes, ranging from global mitigation pathways to regional decarbonisation strategies, affect trade flows, production structures, and regional and sectoral economic adjustment costs across countries and sectors. Using state-of-the-art global general equilibrium and energy-system modelling frameworks, the papers collectively shed light on the macroeconomic, sectoral, and distributional trade implications of climate ambition under varying degrees of international coordination.

Presentations

Greening Global Trade: How Climate Policies Reshape Comparative Advantage of Developing Countries

Maksym Chepeliev¹, Maryla Maliszewska², Amit Kanudia³, Wen Jin Yuan⁴, Channing Arndt¹, Dominique van der Mensbrugghe¹

¹Purdue University, United States of America; ²World Bank, United States of America; ³KanORS-EMR, India; ⁴U.S. International Trade Commission, United States of America

This paper uses a combination of the global energy system model KINESYS and global computable general equilibrium (CGE) model ENVISAGE to analyze the impact of future climate mitigation policies. Results are subsequently linked to an atmospheric source-receptor model. Principal findings are as follows: (i) Holding global temperatures below 2oC requires significant policy effort. A uniformly applied tax of nearly $400 (2014 USD) per tonne of CO2eq is required. (ii) Ignoring benefits and co-benefits of mitigation policy, the cost to the global economy is relatively small. Holding global temperature rise below 2oC implies a loss of about 1.1% of global GDP. Using the revenue from carbon taxation to offset distorting taxes, as opposed to transferring carbon revenues in a lump sum manner to households, further reduces or reverses economic losses. (iii) However, benefits and co-benefits are significant. Benefits relate to reduced climate-related damages, such as lower frequency/intensity of extreme weather events. The co-benefit in focus relates to reduced air pollution. The monetized co-benefits of reduced air pollution substantially exceed the costs of mitigation alone by 2050 in most scenarios. Low-income countries experience a higher benefit-to-cost ratio compared to high-income economies. (iv) As mitigation effort increases, global trade-to-GDP ratios decline. Mitigation substitutes strongly traded fossil fuels for mostly domestically generated electricity. This downdraft on trade volume is a major and robust result. (v) The composition of trade shifts in logical ways, with production/trade in energy-intensive products tending to decline more and production/trade in less energy-intensive products tending to decline less.

European climate policy under trade fragmentation: Fit-for-55, steel decarbonisation, and macroeconomic impacts

Alice Di Bella, Paola Rocchi

CMCC Foundation - Euro-Mediterranean Center on Climate Change, Italy

This paper assesses how European climate policy outcomes are shaped by an increasingly fragmented global trade environment. Focusing on the EU Fit-for-55 package, it analyses the interaction between climate ambition and recent trade disruptions affecting energy-intensive industries, with particular attention to steel. By combining detailed representations of energy-system transformation with a global computable general equilibrium framework, the analysis captures both technological feasibility and economy-wide adjustment mechanisms along the transition path. Two key results emerge. First, the paper quantifies economy-wide feedbacks associated with steel decarbonisation under EU climate policy. Second, while EU decarbonisation targets remain technically achievable, trade fragmentation amplifies economic adjustment costs and regional disparities. These findings underscore the importance of aligning climate, industrial, and trade policies to support a resilient lowcarbon transition.

Will the CBAM initiate changes in international trade patterns? Evidence from a general equilibrium assessment

Dimitris Fragkiadakis, Ioannis Charalampidis, Zoi Vrontisi, Eleni-Christina Gkampoura

Ricardo PLC, Greece

This study investigates the macroeconomic and trade implications of the European Union’s Carbon Border Adjustment Mechanism (CBAM) and its potential global expansion using the GEM-E3 general equilibrium model. Three scenarios of increasing CBAM adoption are analysed to assess impacts on GDP, trade patterns, and sectoral performance. Results highlight the importance of both direct and indirect effects, with GDP changes ranging from −0.02% to −0.11%. Country-level outcomes depend on fossil fuel dependence and emission intensity in CBAM-related sectors. Economies with cleaner production profiles, such as Japan and South Korea, gain competitiveness and record GDP gains. Interestingly, CBAM introduces downstream cost pressures that offset gains in protected sectors, underscoring the need for coordinated policy design and transitional support.

Macroeconomic impacts of the EU Net-Zero Industry Act: A model-based assessment of clean-technology manufacturing

Dimitris Fragkiadakis, Zoi Vrontisi, Nicolas Caballero, Sakis Morfis

Ricardo/E3Modelling

The EU Net-Zero Industry Act (NZIA) aims to strengthen domestic clean-technology manufacturing to support climate neutrality and industrial competitiveness. This paper presents methodological extensions to the GEM-E3 computable general equilibrium model that explicitly represent clean-technology value chains and their economic linkages. The enhanced framework is applied to scenarios assessing alternative pathways to meet NZIA targets. Results show heterogeneous impacts across technologies: while wind, heat pumps, electric vehicles, and CCS already exhibit high domestic content, photovoltaics and batteries lag behind. Macroeconomic effects are modest overall but entail significant sectoral reallocation, trade reshaping, and employment gains in clean-technology manufacturing.