Using the CBO-EPPA Model to Analyze Carbon Import Tariffs and Export Rebates: Working Paper 2026-03

By Gokce Akin-Olcum and Kenneth Austin Castellanos.

In this working paper, we analyze the effects of carbon import tariffs and export rebates (implemented along with a carbon tax) on sectoral output, trade, and carbon dioxide emissions and compare them with the effects of a carbon tax alone. For that analysis, we used a modified version of the Massachusetts Institute of Technology's Economic Projection and Policy Analysis (EPPA) model, known as CBO-EPPA. This paper provides an overview of that model and outlines its strengths and limitations.

Using CBO-EPPA, we estimate that implementing a carbon tax would reduce the output of energy-intensive and trade-exposed (EITE) sectors in 2050 by 2.6 percent, would decrease those sectors' exports in 2050 by 2.2 percent, and would increase EITE product imports in 2050 by 0.2 percent. By contrast, implementing both a carbon import tariff and an export rebate along with a carbon tax would increase the output of affected sectors in 2050 by 0.2 percent, would increase those sectors' exports in 2050 by 4.8 percent, and would decrease EITE product imports in 2050 by 2.4 percent. Although those estimates account for key dynamics in global energy markets, they remain uncertain because of potential variations in policy design and market responses that the model cannot fully capture.

In addition to detailing those results, this paper discusses how carbon import tariffs and export rebates could be challenged under the rules in World Trade Organization treaties.