The Carbon Market Institute welcomes today’s release of an analysis of potential future “carbon leakage” risks and policy options, and an assessment of the impacts of border carbon adjustments.
The Carbon Leakage Review into carbon leakage risks in Australia is led by Professor Frank Jotzo, and conducted by the Department of Climate Change, Energy, the Environment and Water (DCCEEW).
The preliminary findings of the review include that a border carbon adjustment could be an appropriate solution to carbon leakage risks for selected, at-risk commodities—beginning with cement and clinker and expanding then to ammonia and derivatives, steel and glass.
Mitigating carbon leakage risks will be critical to supporting Australia’s ongoing international competitiveness in a decarbonising global economy, as well as ensuring Australia’s strengthened climate policy suite is driving overall reductions in global emissions.
The preliminary findings of the Carbon Leakage Review broadly align with CMI’s submission to the first consultation from December 2023, which recommended the Australian Government introduce a Carbon Border Adjustment Mechanism (CBAM), with earlier commencement for highly trade-exposed, essential industries such as steel and cement.
Kurt Winter, CMI Director of Corporate Transition, commented that: “CMI has advocated for robust policy measures to address carbon leakage risks to the Australian economy and accelerate Australia’s industrial decarbonisation in the net zero global economy.”
“For high-exposure sectors, early commencement of trade measures could play a critical role in leveling the playing field and supporting the ambition that was made possible through the government’s Safeguard Mechanism reforms.”
“An Australian CBAM or similar mechanism will ensure the carbon price of imports is equivalent to the carbon price of domestic production, so that the competitiveness of Australian industry and global efforts to limit global heating are not undermined,” said Winter.
“Careful consideration will be required on the design on these measures, to ensure they are targeted towards commodities that are most at risk while supporting simplicity for industry.”
‘Carbon leakage’ refers to the spillover effect where emission reductions in one place are ‘cancelled out’ by a related hike in emissions elsewhere. This may occur due to differences between emissions reduction policy settings, whereby industries covered by an emissions reduction policy (such as Australia’s reformed Safeguard Mechanism) may be incentivised to offshore production to a country or region with weak or no carbon pricing to avoid compliance costs.
CMI looks forward to work with the Review to refine preliminary findings and recommend policy approaches and leakage risks, and to develop robust policy measures to prevent carbon leakage. The Review’s final recommendations are due to government by the end of 2024.
