"Australian Industry Group research finds that carbon border adjustments are not an imminent threat to Australia, and could be an important opportunity if we get on the front foot," said Innes Willox, Chief Executive of national employer association Ai Group today.
"Our patchwork world is moving towards net zero emissions messily and at different speeds. In the long term, industry won't be competitive unless it reaches low-, zero- or negative-emissions. But in a messy world nations still fear that tight carbon constraints could cost their industries competitiveness along the way.
"One solution that has been talked about for many years is to impose an equal carbon cost on imports to that facing domestic industry – a carbon border adjustment, sometimes shorthanded as a carbon tariff. It now looks likely that Europe will actually implement such a Carbon Border Adjustment Mechanism (CBAM). Other major economies may well follow. It is becoming urgent to understand border adjustments better.
"Ai Group's new report, Swings and Roundabouts offers the deepest analysis yet of how Europe's CBAM will affect Australia. It also lays out the policy challenges that CBAM is trying to solve and the economic, legal and practical issues involved.
"Our conclusions may surprise many people.
"Australia appears to have little to fear in the medium term from actually implementable border adjustments by the EU or anyone else. This is only partly because only 0.25% of our trade with Europe is affected by the current proposal. The EU CBAM will likely expand, and similar schemes in the United States, Japan or other economies could affect much more trade.
"The more important factors in Australia's favour are:
- Fairly applied CBAMs lift product prices as well as producer costs, limiting the profit impact; and
- The EU CBAM focusses on products and emissions where Australian producers are currently comparable to the European average.
"As a result our research finds that if anything Australian producers may become slightly more competitive in Europe in the early phases of CBAM – if they are able to get their own emissions data accepted as valid by EU authorities.
"In the longer term Australian producers' continued competitiveness would depend on keeping up with the pace of decarbonisation in global industry and our nation's success in building a new advantage in cheap clean energy.
"The potential future introduction of stronger emissions policies in Australia would have no direct effect on the net costs of exporting to the EU, as CBAM liabilities would be reduced only to the extent of any mandatory carbon costs in Australia.
"The research also finds that CBAM-style schemes can be much cheaper for governments than existing approaches to preserving competitiveness under strong carbon constraints. Those savings increase the likelihood that other major economies adopt border adjustments.
"These findings have important implications for Australian policy. Australia should continue to study the EU CBAM and other emerging proposals. We should help Europe stick to its promise that their CBAM will respect WTO commitments and avoid protectionism. And we should put our exporters in the best near-term position by negotiating agreements with the EU and others for mutual recognition of facility-level data from Australia's world-class National Greenhouse and Energy Reporting System (NGERS).
"For the longer term Australia needs to lay out a path to net zero emissions and policies that enable industry to invest in their successful transition. Australia's policies will also need to maintain nearer term competitiveness, and border adjustment should be considered on its merits alongside other options to that end.
"For all the fears of some and hopes of others, the EU and other major economies are not trying to cudgel Australia but to make their own domestic emissions policies work better. That is a universal challenge. Ai Group hopes that our research can underpin an effective response to the EU – and a vibrant debate about Australian solutions," Mr Willox said.
NOW AVAILABLE:
Click here for the full report, Swings and Roundabouts: the unexpected effects of Carbon Border Adjustments on Australia
Click here for a two-page factsheet on the EU CBAM
Click here to register for an Ai Group webinar on the report on 7 September
