Export Carbon Leakage: Assessment of different policy options in the context of CBAM

Abstract

The Carbon Border Adjustment Mechanism (CBAM) levels carbon costs between EU and imported products but does not address export carbon leakage. As free allocation under the EU ETS is phased out, EU exporters face rising carbon costs, potentially reducing competitiveness in markets with weaker climate policies. This paper develops an assessment framework based on five criteria and applies it to four policy options: export rebates, export-linked free allocations, (sub)sector- specific adjustments to the free allocation phase-out, and targeted decarbonisation support. The analysis highlights trade-offs between leakage protection, decarbonisation incentives, targeting, financing, and administrative complexity, which are unique to each option.