According to mynewsdesk.com, a new SNS report by economists Christoph Böhringer and Knut Einar Rosendahl finds that replacing free EU emissions allowances with the Carbon Border Adjustment Mechanism (CBAM) reduces Swedish heavy industry output by 1.3 per cent—nearly double the 0.6 per cent loss under current rules—while cutting the economy-wide cost of climate policy from 0.05 per cent of real income to close to zero.
Sweden’s Clean Industry Loses Export Protection
Sweden’s steel, pulp and paper, and chemical industries are energy-intensive but low-carbon, relying largely on CO₂-free electricity and exporting a substantial share of output outside the EU. Despite this advantage, CBAM delivers no relief for exports—unlike free allowances, which offset carbon costs on both domestic and export sales. As a result, iron and steel production shifts from a slight gain under free allowances to a 1.7 per cent loss under CBAM. The transition begins in 2026 and is scheduled for full implementation by 2034.
The researchers attribute Sweden’s disproportionate impact to its high trade exposure: while its domestic market faces limited competition from carbon-intensive imports, its export orientation means it loses critical protection in non-EU markets. A common EU carbon price hurts Swedish producers less than peers elsewhere—but that advantage fails to offset the erosion of export competitiveness.
“Sweden’s heavy industry is cleaner than that in the rest of the EU. So, at first glance it has less to lose when free allowances disappear. But how much an industry will gain instead from a tariff on imports depends on how exposed each country’s home market is to competing carbon-intensive imports from outside Europe. And carbon tariffs stand-alone no longer provide support to export-oriented industries,” says Christoph Böhringer, Professor of Economics at the University of Oldenburg.
Economy-Wide Gains Across the EU
For the broader Swedish economy, CBAM improves terms of trade: export prices rise relative to import prices, boosting purchasing power and disposable income. The same pattern holds across the EU, though more pronounced. Heavy industry output in the rest of Europe falls by 2.6 per cent under CBAM—compared to 1.3 per cent under free allowances—while the economy-wide cost of climate policy declines from 0.25 per cent to 0.17 per cent of real income.
“The bigger gains are in the rest of Europe, where the cost of carbon pricing was much higher to start with. Sweden gains less from the switch, but it also starts from a much lower economy-wide cost under free allocation. But everywhere the same question arises: heavy industry loses protection on markets outside Europe, and whether the sector interest or the overall national interests should take precedence is ultimately a political choice,” says Knut Einar Rosendahl, Professor of Economics at the Norwegian University of Life Sciences.
CBAM’s effect on carbon leakage is modest: the share of EU emission cuts offset by higher emissions abroad falls only from 16.9 per cent under free allowances to 16.0 per cent under CBAM—versus 28.5% without either instrument. Leakage could fall further to 10.6 per cent if CBAM were paired with export rebates.
Policy Recommendations
The report recommends two key design improvements. First, widening CBAM to cover scope 2 emissions—including indirect CO₂ from electricity—would reduce Sweden’s production loss from 1.3 per cent to 1.0 per cent. Second, adding export rebates would restore export protection and deliver the largest reduction in carbon leakage. However, such rebates raise legal questions as potential export subsidies. The report stresses that neither free allowances nor CBAM addresses leakage through global energy markets—and CBAM currently targets less than 2 per cent of global emissions.
- CBAM replaces free allowances starting in 2026, fully phased in by 2034
- Swedish heavy industry production loss rises from 0.6 per cent to 1.3 per cent under CBAM
- Iron and steel production shifts from slight gain to 1.7 per cent loss
- Economy-wide cost of climate policy falls from 0.05 per cent to near zero in Sweden
- Carbon leakage rate drops from 16.9 per cent to 16.0 per cent under CBAM
Source: mynewsdesk.com
Compiled from international media by the SCI.AI editorial team.
