Australia is deeply exposed to carbon border tax adjustments due to our lack of action in reducing emissions
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‘Australia looks like becoming totally isolated from the G7
and internationally on climate change.’ Photograph: Luis Ascui/Getty Images
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Author
Bill Hare, a physicist and climate scientist, is the managing director
of
Climate Analytics.
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Global momentum is building on increasing climate action to meet the
Paris agreement’s 1.5C limit, with all countries under pressure to
increase their 2030 emission reductions ahead of the next United
Nations Climate Change Conference in Glasgow this year.
But Australia appears to be going backwards.
Now another issue has arisen from its inaction: border taxes.
Climate change is firmly on the G7 agenda. Along with two other
countries, India and South Korea, Australia has been invited to join
the G7 process this year under the presidency of the United
Kingdom.
With many large countries, including the US, the EU, China, Japan,
South Korea, looking at deeper emission reductions – the whole
question of how to deal with those who are not moving as fast to
decarbonise is naturally rising to the surface.
The instrument of choice in the international policy community has
long been carbon border tax adjustments, constructed in such a way
as to be World Trarde Oranisation-compatible and which add to the
cost of imports from climate-laggard countries into those that are
pressing ahead.
Australia is deeply exposed to carbon border tax adjustments due to
its export fundamentals, exporting commodities that have a high
carbon content either intrinsically or in the course of their
production.
Our top three importers of coal and LNG – Japan, South Korea and
China – have net zero goals for mid-century. These countries are
moving ahead with policies to achieve this and they account for
about 75% of the value of these commodities exported.
Fundamentally, Australia is most exposed to border taxes due to its lack of
action. Despite the government’s rhetoric and repeated statements that it will
meet its weak targets at a canter, the numbers are there for everyone to see,
and they are not good.
Exacerbating this exposure is the bizarre and debilitating character of the
governing parties’ positions on climate change. Discussions of a net zero 2050
position for Australia have quickly led to calls for mining, agriculture and
other energy-intensive sectors to be excluded, with the range of exclusions
extending from about 12% up to about 33% of Australia’s national emissions.
There are multiple countries pushing ahead with or considering border tax
adjustments and an increase in the likelihood that these countries will
coordinate either bilaterally or even informally within the G7 context.
All of the G7 countries –
Canada, France, Germany, Italy, Japan, the United Kingdom and the United States –
are actively considering, either alone or within regional groupings such as
the European Union, carbon border tax adjustments.
The
UK prime minister, Boris Johnson, is well-known to be pushing for a border tax adjustment
approach to be discussed and possibly agreed this year. The Biden
administration is actively working in concepts for carbon border tax
adjustments for the US, as is Canada.
By far the most advanced in this area is the
European Union. The EU parliament’s vote on Friday to endorse a carbon border adjustment
mechanism (CBAM) has serious implications for Australia, not least because it
could well end up extending to other major Australian export markets.
The proposed EU measure could see exporters in countries without a price on
carbon – like Australia – having to pay some kind of charge to export goods
into the region.
While such carbon border charges have been discussed before, the European
Commission’s proposal was greeted this time with much more acceptance.
Now the EU has increased its Paris agreement 2030 target to a 55%
reduction of emissions below 1990 levels, and committed to net-zero by 2050.
It is looking to level the playing field for its industry with countries
failing to contribute to the climate mitigation effort and hence free-riding
on global efforts.
There are questions around whether it would be an actual tax: exporters to the
EU could, for example, be obliged to buy EU emissions allowances under the EU
Emissions Trading Scheme. However, it still has a way to go before it would be
enacted, not least because it would need to fit into a large overhaul of the
EU climate change governance laws currently under way.
Australian carbon markets experts, RepuTex, has
calculated
that the effect of the CBAM on Australian exporters could mean that by 2030
they would have to pay €56-89 (A$88-139) per tonne of greenhouse gas emissions
– based on the volume of greenhouse gas (GHG) emissions used in making and
shipping their products.
And now that Biden’s “all of government” policies on climate change are
beginning to take shape, it is not unreasonable to expect that the
US could join in an alliance with the EU
on carbon border charges. Equally, Johnson, under pressure to introduce a
carbon price now that the UK is out of the ETS, could also join that
club.
China is in the process of setting up ETS systems across the nation and is
likely to establish an economy-wide carbon pricing scheme
that could be aligned with the EU ETS mechanism long before the US has one.
Although it may seem a long shot now, this would also bring China within a
border tax adjustment system.
For those paying attention and listening, China’s officials and diplomats have
been quietly asking and thinking about how this might work, in particular how
to avoid destructive competition in this area as opposed to constructive
cooperation.
Australia is, sadly, the global poster child for a lack of effort. Its 2030
target, translated into a comparable baseline to the EU, would be a reduction
of just 8-11% below 1990 levels, compared with the EU’s 55% target. The
government’s “technology neutral” approach has translated into increased
support for the fossil fuel industry.
Federal climate policies have gone backwards – investments into renewables
have dropped, and the government is promoting a carbon-intensive, gas-led
recovery entirely inconsistent with the Paris agreement. Most recently, the
government’s electric vehicle policy transmuted into an anti-EV policy called
the Future Fuels Strategy, with the bizarrely appropriate acronym FFS.
There is no price on carbon anywhere in the Australian system today, and each
time the Morrison government goes near any climate policy, the result has been
to weaken it, to advantage the fossil fuel industry.
It could all have been very different. Australia did once have a carbon price
mechanism, set up under the Gillard government in 2012, and that would have
ratcheted up over time, increasing the price on carbon and driving fossil fuel
emissions out of Australia’s energy mix. But it saw its demise just two years
later when the Senate voted through Tony Abbott’s “pledge in blood” to “axe
the tax”.
Australia looks like becoming totally isolated from the G7 and internationally
on climate change and the Morrison government’s attempt to fight a large
movement towards border tax adjustments linked to carbon intensity is a
symptom of this.
Our leaders need to focus on adopting a real net zero goal by 2050, backed by
legislation, with Paris-compatible 2030 targets well north of 50% reductions.
It would be foolish, ultimately futile and damaging for our country to
continue down our current path.
Links
- Australia's climate policy is a mix of delusion and denial. We need to get real
- Australia's climate wars were always stupid. Now they've got even dumber
- Joe Biden’s move to net zero emissions will leave Australia in the (coal) dust
- Australia won’t meet the Paris targets despite what recent research claims
- Coal Phase Out 1.5°C - key facts
- Nepal’s ambitious climate target has socio-economic prosperity at its heart
- Renewed hope for tackling climate change - could it boost South Asia cooperation?
- Tackling gender inequality is ‘crucial’ for climate adaptation
- Climate change: Temperature analysis shows UN goals 'within reach'
- Coal phase out and energy transition pathways for Asia and the Pacific
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