CSIS Indonesia this week released a new analysis stating that the EU’s carbon border adjustment mechanism is likely to disadvantage developing countries such as Indonesia by imposing higher trade barriers on carbon-intensive exports due to less stringent domestic climate policies.
The paper employs a hybrid computable general equilibrium model, drawing on GTAP and Indonesian national accounts data, to quantify how the CBAM transmits international climate-related trade policy shocks to the Indonesian domestic economy.
The analysis states:
We can conclude that the effect from EU’s CBAM will not heavily affect Indonesia’s domestic macroeconomic indicators. Several factors leading to the minimal economic impact on Indonesia include the constrained scope of products subjected to tariff adjustments due to the CBAM policy, alongside the relatively limited share of Indonesian exports to the EU in CBAM-related products.
However, it is suggested from the simulation that Indonesia’s industrial output in the selected CBAM commodities will be affected the most. In addition, Indonesian government’s plan to impose a carbon tax of US$2 per ton CO2 in the energy sectors is unlikely to make a significant contribution to carbon reduction endeavors. Hence, there is a need to elevate carbon prices and extend their application to other sectors to continue developing greener industries.
Read the full analysis: The EU carbon border adjustment mechanism (CBAM): implications for Indonesia