Background: Border Carbon Adjustments (BCAs) are designed to regulate carbon emissions and reduce carbon leakage. So far, BCAs are mainly applied for imported carbon-intensive products. On the other hand, harvested wood products (HWPs) are the extension of forest carbon stocks, whose changes affect a country’s carbon stock level. Nonetheless, the trade of HWPs also raises the problem of carbon leakage when their carbon stocks are exported, which can be partially solved by applying export BCAs.
Result: By constructing a two-stage game, governments’ and forestry companies’ strategies under BCAs are analyzed. The government imposes BCAs on exports of HWPs when the carbon stock value exceeds a threshold. Moreover, the export BCAs on HWPs can effectively reduce the amount of HWPs exported. The results also show that BCAs diminish forestry exporters’ revenues and consumer surplus while having no significant detrimental impact on a country’s welfare.
Conclusion: BCAs help include carbon stock values into HWPs’ prices and reduce carbon leakage, so they are beneficial for climate change. Thus, exporting countries can maintain their welfare by implementing BCAs, and the affected forestry companies can effectively cope with BCAs by improving the utilization efficiency of raw materials and their product quality.