Should Australia join the emerging club of carbon trading nations?
Australia鈥檚 exports risk being hit with environmental charges if it doesn鈥檛 move quickly in the face of trade mechanisms being considered by climate-progressive nations as they seek to prevent the leakage of jobs and investment to climate laggard nations.
Last week, the UK announced that it would start the process necessary to work out how to set up a Carbon Border Adjustment Mechanism (CBAM) and next week the European Parliament will debate the detail embodied in its proposed CBAM. Expedited implementation and an expansion to around 60 more sectors is under consideration.
Canada is well down the CBAM development pathway and, last year, the US considered introducing a carbon import tax.
The rules that have been governing international trade for many years are under significant challenge.
Anticipating the formation of a club of nations interested in finding a way to prevent the leakage of jobs from climate-progressive to climate-laggard nations, the 成人大片鈥檚 Institute for International Trade (IIT) has released a paper that puts forward .
鈥淏y moving first, the EU has gained a massive political advantage.鈥 Author of the paper, Professor Mike Young, says: 鈥淚f the paper鈥檚 principles are accepted then the EU would need to add at least two new features to its proposal.鈥
The first need is to add an equivalent contribution provision that would exempt the requirement to pay for the cost of purchasing the emission permits that would be necessary if imports of iron ore, steel, cement, fertilizers, aluminium and electricity were produced in the EU.
鈥淚t is critical that the EU鈥檚 proposal is consistent with World Trade Organisation rules and does not enable one country to prevent policy choice in another, especially when it can be shown that other policy choices may be equally effective."Professor Peter Draper
鈥淚mports from any country that has been reducing emissions as fast, or faster than, the EU should be exempt from the proposed CBAM payment,鈥 says Professor Young.
Drawing on Australian experience in the use of Producer Subsidy Equivalents in agriculture as a means to help increase agricultural trade, Professor Young says that the second need is to 鈥渟hift from a requirement to have the equivalent of a carbon tax to an equivalent pricing arrangement that recognises the impact of regulations and standards on production costs.鈥
鈥淯nder the current EU proposal, the impact of Australia鈥檚 Renewable Energy Targets on production costs would count for nothing. Similarly, a decision to offset carbon emissions would gain zero recognition. The only things that count are direct carbon payments to a government.鈥
As Australia begins the process of re-evaluating its climate change policies, it needs to think carefully about whether or not it wants to join and even play a significant role in shaping the structure of CBAMs. 鈥淭ime is no longer on Australia鈥檚 side,鈥 says Professor Young.
鈥淎t the moment Australia has no carbon tax and no emissions trading system in place. If Australia wishes to avoid the imposition of a carbon tax on its exports, it needs to act quickly.鈥
Professor Young鈥檚 paper proposes a new set of rules for the use of carbon border adjustment mechanisms including:
- Limitation of the use of trade mechanisms to truly global environmental problems like climate change and plastics contamination in the world鈥檚 oceans;
- Mechanism exemptions for imports from any country that has been making an equivalent contribution to the reduction of the environmental problem;
- A requirement that the import charges take full account of equivalent price signals including indirect signals like Australia鈥檚 requirement for a proportion of all electricity to be produced from a renewable source;
- Objectivity in the provision of concessions to least developed countries; and
- A requirement that imports from no country be exempted from the mechanism unless in accordance with the proposed principles.
The 成人大片鈥檚 Professor Peter Draper, Executive Director, Institute for International Trade, said: 鈥淚t is critical that the EU鈥檚 proposal is consistent with World Trade Organisation rules and does not enable one country to prevent policy choice in another, especially when it can be shown that other policy choices may be equally effective.
鈥淭here is a real risk that CBAM could be used as a backdoor way to protect struggling industries from international competition rather than tackling climate change by reducing imports from countries that are seen to be not tackling carbon emissions.鈥
The paper, which was produced with the support of a grant from the Erasmus + Programme of the European Union, may be downloaded from
Media contacts:
Professor Mike Young, School of Economics and Public Policy, The 成人大片. Mobile: +61 408 488 538, Email:聽mike.young@adelaide.edu.au
Crispin Savage, Acting Manager, News and Media, The 成人大片. Mobile: +61 481 912 465.
Email: crispin.savage@adelaide.edu.au