Can a Carbon Border Adjustment Mechanism (CBAM) reduce negative social and environmental international spillovers from EU food consumption?

Abstract
Europe’s SDG achievements are at least in part at the expense of other countries. While reduction of environmental spillovers is explicit in the Green Deal, it may lead to negative social spillovers. Such a reduction in environmental spillovers while increasing social spillovers fits with the empirically observed trade-off between environmental and social achievements. Our objective is to assess the potential impact of the CBAM on social and environmental international spillovers of EU food consumption.

An extensive literature on the direct and indirect global linkages between consumption and production builds on global MRIO tables rooted in life cycle analysis. While providing important insights in historical patterns this footprint literature is less suitable for ex-ante policy analysis where both production, consumption and input-output coefficients are likely to change. Multiregional CGE models start from the same type of data as used in global MRIO studies, but by adding behavioural responses CGEs are suitable for ex-ante policy assessments. From CGE models counterfactual MRIO databases can be constructed allowing ex-ante footprint studies while accounting for behavioural responses to the simulated policies (or other drivers like population growth). To our knowledge a combination of CGE with ante MRIO-style tracing has not yet been used to trace social impacts of production with ex-ante policy analyses, which is the focus of our study.

We use a global modular CGE model, MAGNET to simulate a business-as-usual (BAU) and counterfactual CBAM scenario up to 2034. For tracing of material flows MAGNET has been extended with a definition of quantities in dollar-based values which improves upon existing value-based tracing of commodity flows. We combine this improved tracing with indicators on wage inequality and occupational injuries to assess direct and indirect impacts by 2034 of changing EU food consumption on third countries when a CBAM is put in place.