DP19644 Firms' Supply Chain Adaptation to Carbon Taxes

A study investigates how firms adapt their sourcing of clean and dirty inputs in response to EU’s Emissions Trading System (EU ETS) and Carbon Border Adjustment Mechanism (CBAM). The research finds that firms increased dirty imports from non-EU countries in the 2010s, while simulations show that carbon taxes and tariffs can reduce emissions but lead to higher prices and decreased household welfare.