Will the Carbon Border Adjustment Mechanism Impact European Electricity Prices? A GNN-Based Network Analysis

2026-05-04

AI Summary

Traditional static analyses struggle to capture the cross-border spillover effects of the Carbon Border Adjustment Mechanism (CBAM) on interconnected European electricity markets and its dynamic impacts on power prices and carbon intensity. This study pioneers the application of spatiotemporal graph neural networks (GNNs) to CBAM policy evaluation, developing an integrated simulation framework encompassing eight national subnetworks to quantify the mechanism’s joint influence on electricity pricing and emissions intensity. The findings reveal that CBAM imposes heterogeneous tax burdens, fundamentally altering market-clearing dynamics: low-carbon countries such as France and Switzerland gain a competitive edge and exert downward pressure on prices, whereas high-carbon nations like Poland face rising costs and diminished competitiveness. These results empirically validate CBAM’s capacity to reconfigure regional electricity market structures.

Abstract

The European Union's Carbon Border Adjustment Mechanism (CBAM) creates a complex challenge for the interconnected European electricity market. Traditional static analyses often miss the cross-border spillover effects that are vital for understanding this policy. This paper addresses this gap by developing a spatio-temporal Graph Neural Network (GNN) framework. It quantifies how CBAM affects electricity prices and carbon intensity (CI) at the same time. We modeled a subgraph of eight European countries. Our results suggest that CBAM is not just a uniform tax. Instead, it acts as a tool that transforms the market and creates structural differences. In our simulated scenarios, we observe that low-carbon countries like France and Switzerland can gain a competitive advantage. This suggests a potential decrease in their domestic electricity prices. Meanwhile, high-carbon countries like Poland face a double burden of rising costs. We identify the primary driver as a fundamental shift in the market's merit order.

Problem

• Carbon Border Adjustment Mechanism
• electricity prices
• cross-border spillover effects
• carbon intensity
• European electricity market

Innovation

• Graph Neural Network
• Carbon Border Adjustment Mechanism
• spatio-temporal modeling
• electricity market
• carbon intensity