The Impact of the EU CBAM and Carbon Pricing in Bosnia and Herzegovina

This paper assesses the macroeconomic implications of the European Union’s Carbon Border Adjustment Mechanism (CBAM) on Bosnia and Herzegovina and examines policy options to mitigate its effects. It finds that CBAM will affect key export sectors, including aluminium, cement, electricity, and iron and steel, and is estimated to have a significant negative GDP impact in the absence of a domestic policy response. The paper then evaluates alternative policy responses and finds that domestic carbon pricing can help to retain revenues, reduce emissions, and partially offset the macroeconomic costs of CBAM when combined with well-designed revenue recycling measures.