Sitting Ducks: spread of Carbon Border Tax schemes leaves Australia defenceless on climate

by Callum Foote | Jul 22, 2021 | Energy & Environment

The sudden, global move to tax carbon puts billions of Australian coal and gas exports at risk, indeed this country’s largest sources of income. Hard on the heels of the EU’s carbon border tax declaration, the US declared a carbon border scheme. Others are poised to follow. Callum Foote and Michael West report on the immense risk to Australia’s largest source of income.

Australia lags the world on climate policy, and we are about to be punished for it big-time. This is perhaps why not much is being said about the impending carbon border taxes by our politicians and the corporate media establishment. In the face of the inexorable global movement to cut carbon emissions, they are helpless, left to cry “protectionism” in a world which doesn’t give a damn.

Just a week after the European Union announced its Carbon Border Adjustment Mechanism (CBAM), US Democrats have unveiled draft polluter tax legislation of their own.

Japan meanwhile, the second-largest importer of Australian goods, is also looking to follow suit, a move which would put at risk some $40 billion in iron, coal and gas exports Australia exports annually. Japan’s proposal would punish countries, not just for their carbon pollution, but for their poor environmental standards.

Yesterday, in its push to become carbon neutral by 2050, Japan revised its 2030 power mix targets. It slashed prospective LNG use in its power supply by 46% by 2030. This is bad news for Australia, which, in the face of a world fleeing carbon, is ramping up its gas production and is still espousing a “gas led transition” to renewable energy. Australian LNG exports to Japan were worth $19.3 billion in 2020.

The next decade appears dire for Australian exports. It has been ranked second last, beating only the US, in climate policy. Yet, under President Joe Biden, the US has rapidly turning around its climate laggard status.

According to the 2021 Climate Change Performance Index, Australian exporters have a lot to be worried about.

The carbon lobby is entrenched at the very pinnacle of Australian politics. The Prime Ministers Office is stacked with fossil fuel connections; and political donations to the major parties by the fossil fuel industry – $8.6 million to the major parties since 2013 – are larger than any other sector. So it is no surprise that the influence of the carbon sector rings loudly in government policy.

The magnitude of the impact on Australia is unclear at this point. The carbon border taxes are proposals at this point, there may be little to affect exports at first. But the momentum is clear. And coupled with the stampede by the world’s largest investors to dump their carbon exposures, an intransigent Australia is being left behind by the global community.

What is a carbon border?

Carbon border mechanisms impose tariffs on carbon-intensive imports into a country or region from ​​a country that either lacks a carbon price of its own or is otherwise failing to make reasonable climate policy.

Presently both the EU and US proposals would only initially consider heavily carbon-intensive goods such as iron and steel, cement, fertiliser, aluminium, and electricity generation with the US proposal to commence in 2024 and the European CBAM coming into play in 2026.

With the EU and US leading the way, Japan, Canada and the UK have also signalled that they will consider similar mechanisms to price the carbon pollution of imports to their countries.

What’s the damage to Australian exports?

The first tranche of the CBAM won’t heavily affect Australia’s exports with the European Union accounting for just over 3% of Australia’s total exports or $11.7 billion in 2020.

However, among these exports are $2.7 billion in mostly metallurgical coal exports, primarily for Germany’s steel making industry, which are set to come under fire as soon as the CBAM is introduced in 2026

In the post Donald Trump US, the Democrats are taking real steps to introduce their own Carbon Border mechanism, the polluter importer tax legislation which is slated to be attached to the $3.5 trillion infrastructure package now rumbling its way through the US senate.

In its current rough form, the legislation would levy an import fee on goods including aluminium, cement, iron, steel, natural gas, petroleum, and coal starting in 2024. 

The US is the 4th largest importer of Australian goods, accounting for $17.9 billion of Australian exports. However, Australian exports to the US are mostly not carbon-intensive with the largest, being gold, accounting for roughly $3 billion annually, falling outside the remit of the initial piece of US legislation.

Canada is also considering a carbon border tax of some description, however, Australia’s Canadian exports are relatively minor topping out at $2 billion in 2020, mainly consisting of alcohol and beef.

As the crisis quickly unfolded in recent weeks, Federal Trade Minister Dan Tehan played down the effects of both the EU and US carbon border mechanisms while criticising their effects on Australian trade and jobs. “Protectionism”, he said.

Tehan’s first instinct appears to be right, with only $2.7 billion in coal exports set to be effected the EUs current proposal.

Despite this, if the pandemic of carbon borders spreads to Japan – legislators there have been debating it since February – then Australia is in strife.

With the list of potential international trading partners without carbon taxes dwindling, China – as Australia’s largest trading partner by a margin of more than $70 billion annually – may be more important to Australia than ever before. 

Chinese President Xi Jinping has come out strongly against the EU’s plans for a Carbon Border mechanism, claiming the EU is weaponising climate change for geopolitical purposes. The irony is stark. As China hawks in the government beat the “drums of war” with our biggest trading partner, we may be left alone with China on the world stage, railing against carbon border taxes in a bizarre case of “My enemy’s enemy is my friend”.

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Callum Foote was a reporter for Michael West Media for four years.

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