This report examines the planned extension of the EU Carbon Border Adjustment Mechanism (CBAM) to indirect emissions and its coordination with the existing indirect cost compensation under the EU Emissions Trading System. The study provides an overview of Finland’s CBAM sectors, estimates tariff elasticities using a gravity model for the years 2010–2023, and simulates three scenarios in which the inclusion of indirect emissions in the CBAM extension is combined with different changes to indirect cost compensation. The results indicate that import responses to the CBAM extension are most pronounced in the aluminium sector, while the effects on iron and steel are more moderate. The scenario analysis suggests that extending CBAM to indirect emissions would reduce imports by a few percentage points, whereas the simultaneous phase-out of indirect cost compensation would have only a limited additional impact. Consequently, the extension would help reduce the risk of carbon leakage, although it would also increase the cost of imports in Finland.
