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 EUR56-89 (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.