CBAM, Switchability and Market Headroom: A Portfolio Approach to Climate-Compatible Export Strategy in a Small Island Fossil-Fuel Exporter

Carbon Border Adjustment Mechanisms (CBAM) create asymmetric risks for small, fossil-fuel-dependent exporters. We analyse Trinidad and Tobago’s 2020–2024 merchandise exports using HS6-by-market mirror data to compute CBAM Value-at-Risk (VaR) at €90/tCO₂, construct a Switching Potential Index (SPI) to measure product-level switchability, simulate partial-equilibrium reallocation of CBAM-affected flows, and solve a capacity-constrained export-portfolio optimisation problem. Exports peak at USD 19.9 bn in 2022 before falling 51% to USD 9.8 bn by 2024. CBAM VaR is highly concentrated (fertiliser mixtures alone exceed USD 500 m), and CBAM-covered products exhibit systematically lower SPI (median 0.17). CBAM-covered EU/UK exports embed about 0.61 MtCO₂, almost entirely in two strategic quadrants: “Reallocate now” and “Retain & decarbonize”. A modest 30% emissions-intensity reduction for the latter cuts export-embedded emissions by roughly 90 ktCO₂ (≈ 15% of CBAM-embedded emissions). Reallocation can offset EU (− USD 25.2 m) and UK (− USD 13.5 m) losses with Rest-of-World gains (+ USD 38.6 m), but creates a new concentration risk: a USD 369 m un-allocated gap, a 90.9% energy share, and a market HHI of 0.258 dominated by the United States. Capacity sweeps show that only with ~ 40–50% additional market headroom do Attainability reach 1.0 and HHI fall to 0.206. We conclude that T&T’s principal vulnerability is a market-capacity bottleneck; effective CBAM adjustment requires both targeted decarbonisation of low-SPI products and diversified headroom for non-EU/UK exports.