Masters Theses
Date of Award
5-2025
Degree Type
Thesis
Degree Name
Master of Science
Major
Agricultural Economics
Major Professor
Seong-Hoon Cho
Committee Members
Andrew Muhammad, Xuqi "Ricky" Chen
Abstract
The Carbon Border Adjustment Mechanism (CBAM), a policy within the European Union’s (EU) Green Deal, will require EU importers to pay for carbon emissions associated with imported goods. Following implementation in 2026, shifts in EU demand could reduce carbon emissions, however EU importers will bear the cost of the increased prices. This study examines and weighs the economic costs and environmental benefits of the CBAM in a fertilizer sector-specific policy analysis, testing whether the reduction of imported carbon emissions justifies the cost to EU consumers.
To evaluate this trade-off, EU import demand is modeled and analyzed before and after the cost of CBAM credits are included in the import price. Economic costs are measured by determining changes in price and quantity demanded post-implementation. These estimates are evaluated through a welfare analysis which calculates the consumer surplus loss for EU importers. For environmental benefits, decreases in fertilizer demand are converted to equivalent carbon emission reductions. This decrease is then valued using the social cost of carbon (SCC) for a direct dollar-to-dollar comparison between environmental benefits and economic costs.
The baseline scenario results show that the cost of the CBAM, equal to $4.04 billion, outweighs the benefit, equal to $2.58 billion, by $1.46 billion annually, when using a CBAM credit cost of $73.5 and a SCC value of $254. However, sensitivity analysis reveals that the CBAM benefit outweighs the cost when CBAM credits cost $91.8 or the SCC is valued at $700, leading to a legislative imperative to value carbon emissions at an ecologically reasonable level.
This study will help prepare all relevant stakeholders for the coming market shift, with the understanding that the implications of the CBAM’s impact on the fertilizer sector are of particular note due to the interaction with the agricultural industry. In light of new EU agricultural policy goals aimed at reducing the use of synthetic fertilizers, the CBAM’s impact on demand for fertilizer imports could provide an opportunity for organic fertilizers as a substitute good on the fertilizer market, in alignment with the EU’s overarching carbon neutrality goal.
Recommended Citation
Crisci, Natalie E., "EU Environmental Policy: Cost-Benefit Analysis of the Carbon Border Adjustment Mechanism in Fertilizers for Sustainable Agriculture. " Master's Thesis, University of Tennessee, 2025.
https://trace.tennessee.edu/utk_gradthes/13876
Included in
Agricultural Economics Commons, Climate Commons, Economic Policy Commons, Environmental Health and Protection Commons, Environmental Indicators and Impact Assessment Commons, Environmental Policy Commons, Environmental Studies Commons, International Economics Commons, Natural Resource Economics Commons, Natural Resources and Conservation Commons, Natural Resources Management and Policy Commons, Policy Design, Analysis, and Evaluation Commons, Political Economy Commons, Sustainability Commons