Carbon tariffs on emissions-intensive imports to nurture domestic manufacturing

To adhere to the proposed emission targets, Climate Change and Energy Minister Chris Bowen put forward a proposal to enforce pollution caps on the country’s 215 biggest emitters, with the view to reduce their greenhouse output by 5 per cent a year until 2030.

There’s no doubt that these emission targets are aggressive – but with penalties in place if organisations don’t comply, we expect to see a positive impact on the adoption of sustainable practices across businesses, manufacturing processes and along the supply chain.

Creating an even playing field

The proposed carbon tariff will support domestic manufacturers, ensuring they aren’t disadvantaged if they invest money into carbon footprint reduction measures to comply with the government emissions targets. The carbon tariffs are likely to incentivise and increase investment in domestic manufacturing capabilities, through the appeal of clean emission manufacturing, more environmentally friendly produced goods, and therefore more sustainable supply chains.

Alongside driving more sustainable practices, the tariff will also be instrumental in driving environmental, social and governance (ESG) practices during import and export. With "greenwashing" practices increasingly common, this measure will hopefully help move beyond compliance and competitor performance metrics, driving truly sustainable practices.

Working alongside the ‘Made in Australia’ campaign, the tariff has the potential to create new opportunities for valued-added manufacturing in Australia beyond driving sustainability. It’s an opportunity to reconsider your operations, strategic ambitions, and how they tie into your ESG, people and community promises.

This tariff introduction will also position Australia at the forefront of these measures, alongside the European Union’s planned Carbon Border Adjustment Mechanism, and other key trading partners including Japan, the United Kingdom and Canada. Being ahead of the curve on carbon emission targets on certain goods will help create new export markets with key trading partners, and drive skilled employment and jobs across the supply chain.

Impacts on goods and compliance

The carbon tariffs potentially will be applied based on the origin and tariff classification of the goods. Therefore, importers will need to evaluate the potential impact to their business. This includes having a thorough understanding of their customs profile, and how any additional tariffs may impact their cost of goods sold. For companies with related party transactions, it may have a flow-on affect if they change where goods are sourced from, as it may impact their transfer pricing.

Organisations will also need a strong understanding of their compliance obligations, as incorrect reporting could result in evasion of tariffs. To minimise business risks and ensure your processes are set up in the most efficient way, please reach out to our team.