New analysis by the Australia Institute Climate & Energy Program shows that the use of carbon border adjustment mechanisms, to be under discussion at the G7 Summit this week, will put Australian industry and manufacturing processes – mainly steel, aluminium and alumina, at risk if Australia continues its recalcitrant role on the global stage.

At the G7 Summit, which runs from June 11-13 in Cornwall, Prime Minister Scott Morrison has indicated he will warn world leaders against the use of carbon tariffs at the G7 Summit, questionably labelling the carbon border adjustment mechanisms being considered by world leaders at the G7 as ‘protectionist’ without justification.

Key findings:

• A carbon border adjustment mechanism (CBAM) is a levy by a country with its own carbon pricing on the carbon content of emissions-intensive imports.
• The UK has confirmed that the G7 Summit will include discussions on CBAMs.
• The CBAM proposed by the EU is not a tariff and unlikely to be considered protectionist, as it is designed to comply with World Trade Organisation rules.
• To date, the Australian Government has not been able to justify its claims that CBAM and carbon pricing are ‘protectionist’ measures.
• Australia is exposed to a potential CBAM implementation as one of few high-income countries without a carbon price and having energy-intensive trade products that will be taxed by other countries.
  • Australia is most exposed for primary metals manufacturing: emissions-intensive alumina and aluminium are valued at $12 billion in exports.
  • Australia’s alumina and aluminium are highly reliant on coal or gas for production and would benefit from switching to clean energy.
• It is in Australia’s best interest to engage constructively in the design of CBAMs and invest in clean production methods for products such as aluminium and steel to prevent economic damage and support a resilient manufacturing sector.
  • Australia could benefit from the global transition to net-zero emissions economies if it chose to be proactive in cleaning up exposed sectors and building clean export industries.

“The Australian Government has repeatedly attacked Europe’s proposal as protectionist but not backed up this claim with serious analysis.  It is Australia’s lack of climate ambition and failure to price carbon that will be viewed as protectionist by countries making greater efforts to reduce emissions,” said Frank Muller, international climate policy expert and lead author of the report.

“Australia’s natural endowments and human resources position it better than most countries to prosper in a low carbon world.  Carbon border adjustments in destination markets will assist Australia to develop new zero emission export industries,” Mr Muller said.

“Some sectors of the economy are going to be highly vulnerable if Australia doesn’t act. Almost all Australian aluminium and alumina goes to export. Australia needs to ensure the competitiveness and future of these industries, and our broader manufacturing sector, by investing in clean production methods,” said Dr Hugh Saddler, Honorary Associate Professor Crawford School of Public Policy at ANU.

“All G7 members have locked in net zero by 2050, increased their 2030 targets and have or plan to price carbon. Border adjustments are the next logical step and in my decades of working on these issues I’ve never seen this much broad interest in the idea,” Dr Saddler said.

“The Australian Government claims that it’s approach to climate is dictated by technology not taxes. Make no mistake, if Australia continues to stonewall its trading partners and allies on climate, the taxes will come anyway. But the revenue is going to be collected outside of Australia,” said Richie Merzian, Climate & Energy Program Director at the Australia Institute.

“This isn’t trade protectionism by the G7. It’s climate protectionism. Australia needs to engage constructively on carbon border adjustment mechanisms in the interests of our economy and climate,” Mr Merzian said.