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By: Richard Nutt
21 Aug 20233 min read
Australia's Climate Change Minister, Chris Bowen, has revealed plans for a potential ‘green tariff’ or carbon border adjustment mechanism on steel and cement imports. The tariff’s objective is to support the creation of a level playing field for domestic manufacturers and protect them from overseas competitors with weaker decarbonisation policies. This strategic decision aims to protect the interests of Australian manufacturers, who are often struggling to meet the new standards for reducing carbon emissions.
Australia’s priority to reduce carbon emissions has driven our domestic manufacturing sector to transformation. Sub-sectors including cement, steel, and aluminium – recognised as ‘hard-to-abate’ due to the complex nature of their decarbonisation processes – are at the forefront of this shift, striving to reach ambitious decarbonisation goals. However, this objective has caused concerns about carbon leakage, in particular in the context of production relocating to countries with less stringent emission regulations.
This proposed carbon border adjustment mechanism has gathered support from influential businesses in the 'hard-to-abate' sectors. While investment in technology and carbon offsetting strategies is required to adhere to these demanding decarbonisation targets ahead, these companies expect a more level competitive landscape, countering imports from countries with less strict environmental standards. This adjustment therefore has the potential to reshape the business environment by introducing increased costs on imports, more formal reporting obligations and a growing focus on customs compliance.
Australia's consideration of this mechanism is well-aligned to other jurisdictions, including the European Union's in-principle approved Carbon Border Adjustment Mechanism (CBAM). Under the CBAM, importers are required to show certificates that match the current cost of carbon in their trading system. This ensures incoming goods comply with local environmental standards, which reduces the risk of carbon leakage.
Challenges in capturing data and failure to be compliant with these international models could create complexities in trade dynamics. Preparation is therefore crucial to encourage the smooth movement of goods across borders.
While compliance may appear to be at the centre of this shift, the benefits reach much further. Businesses may shift their focus towards developing domestic manufacturing capabilities, driven by the recognition of the need for adjustment. This adjustment is has been acknowledged and supported by the Labor Government's industry policy ambitions, which include the $15 billion National Reconstruction Fund, and coming strategies on battery-making critical minerals. Through these, we hope to see more manufacturing jobs, greater innovation, and opportunities in to expand into new export markets.
As this green tariff progresses, a critical aspect will be its alignment with other international policies such as CBAM, to support smooth international trade processes.
While challenges remain in the mechanism’s design and implementation, the Government’s commitment to creating a level playing field and encouraging clean energy transition ensures this policy will play a pivotal role in shaping a more sustainable future.
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