Carbon Border Adjustment and Emerging-Economy Exporters: Exposure, Measurement Capability and Firm Response

Abstract

The European Union's carbon border adjustment mechanism entered its transitional phase in 2023 and its definitive regime begins in 2026, covering cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. Analysis of its consequences for emerging-economy exporters has concentrated on price exposure. This study argues that for such exporters, and for the small and medium enterprises within their supply chains, the binding constraint is not the carbon price but the capability to document embedded emissions at product level. The method is a structured review of research published between 2017 and 2024, combined with a firm-capability analysis that traces how the mechanism's default-value provisions convert a measurement deficit into a price penalty. Three findings follow. Exposure is highly uneven, with many developing economies having more than two per cent of exports and one per cent of production affected, concentrated in a small number of sectors. Emissions measurement is unreliable even among large listed firms, where harmonisation of reporting roughly doubles measured footprints and corporate reports omit about half of total emissions, which makes measurement capability a first-order constraint rather than an administrative detail. And the evidence base underpinning the mechanism is contested: no carbon leakage was detected in European manufacturing under emissions trading, and carbon pricing has generally shown no significant competitiveness effect. The study concludes that the first-order strategic response for exposed firms is investment in emissions accounting rather than abatement, and that a credible domestic carbon price is what converts exposure into actual emission reduction.