Update on the assessment of an Australian Carbon Border Adjustment Mechanism - 100% Renewables

Update on the assessment of an Australian Carbon Border Adjustment Mechanism

Over the last few months, the Australian Government has been in the process of evaluating a carbon border pricing mechanism, aiming to mitigate the risk of carbon leakage – a situation where businesses relocate production to countries with lenient emissions regulations, resulting in higher overall emissions.

The proposed mechanism, known as the Carbon Border Adjustment Mechanism (CBAM), is set for further review following initial public consultation earlier this year. The CBAM development has drawn heavily on consultation in an effort to tailor the approach to national circumstances while drawing insights from the EU model. Professor Frank Jotzo, appointed by the Australian Government to assess the feasibility of the CBAM, announced in June he would shortly be releasing a second consultation paper, ahead of completing his review by the end of September.

The CBAM initiative is in response to concerns about maintaining a level playing field for domestic industries in the face of rising compliance costs. The European Union (EU) has already paved the way with its own CBAM, which entered a transitional phase in October 2023, to be fully enacted by 2026. The EU CBAM requires companies importing certain goods to pay a tax reflecting the disparity between carbon prices in the exporting country and the EU’s carbon allowance prices.

While industry stakeholders recognise the necessity of addressing carbon leakage, they also acknowledge the complexity involved. A phased implementation strategy has been proposed, starting with industries most exposed to trade dynamics, such as cement, steel, iron, aluminium, and fertilisers. This measured approach would  help ensure the policy aligns effectively with industry realities while bolstering the existing Safeguard Mechanism.

In this evolving landscape, Australian businesses are striving for a balanced solution that fosters domestic industries, curbs emissions, and aligns with global efforts to combat climate change. John Connor, CEO of the Carbon Market Institute, has emphasised the importance of careful implementation and suggests that focusing initially on the most exposed sectors could yield positive results.

To prepare for the potential implementation of a CBAM or similar carbon tariff, Australian businesses should keep abreast of the latest developments and consider assessing their exposure and potential impacts, including identifying affected goods and sectors, estimating financial implications, evaluating trade relationships, and engaging in dialogue with key stakeholders.

As Australia charts its course toward a sustainable future, a well-designed and implemented CBAM initiative could represent a significant stride towards environmental responsibility and market integrity.



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