As part of the European green deal European Union (EU) has proposed a Carbon Border Adjustment Mechanism (CBAM). Its purpose is to compensate for emission taxes within the EU to avoid carbon leakage to non-taxing countries. In CBAM, border tariffs for products imported from non-taxing countries to EU countries are set equal to emission taxes. This appears fair, but the economies of scale effects are not considered. This paper examines the effects of realistic cost functions and taxes on the resulting production allocation. We experiment with a single product, four-country, equilibrium model where three countries are potential producers, and all four countries are markets. In our model, demand and supply (producer cost) function parameter values and transportation costs are equal for all countries, and total producer profit is maximized. Our producer long-run cost function is a power curve entailing economies of scale. The results show that the amount of economies of scale strongly affects the profit maximizing production allocation. It appears that under economies of scale the EU border tariff levels are far too low to create a fair marketplace. Low border tariffs under economies of scale lead to centralized production by a non-taxed producer probably using polluting technology, whereas sufficiently large border tariffs decentralize production to different countries, and the amount of polluting production is reduced significantly. On the other hand, economies of scale benefit and utility to society is reduced.