Extract from The Guardian
If the Morrison government does not impose emissions reduction policies, exporters may need to buy carbon permits in the EU
Last modified on Thu 11 Feb 2021 06.02 AEDT
Big-emitting Australian businesses that export to Europe could soon face steep carbon levies of more than $70 a tonne unless the federal government imposes emissions reduction policies, according to a new analysis.
A research note by climate and energy advisory firm RepuTex said a proposal for a “carbon border adjustment mechanism” by no later than 2023 made it clear companies that imported emissions-intensive industrial goods into the continent would soon need to buy carbon permits.
The carbon tariff proposal was endorsed by the European parliament’s environment committee last week and is expected to form the basis for a European Commission policy due in June.
The cost on importers would be equivalent to that on the European carbon market, which is currently trading carbon permits at a record high A$60 a tonne of CO2 – more than twice the maximum price of the abolished Australian carbon scheme. The EU price is forecast to reach A$71 next year and up to $139 by 2030.
Data compiled by the Department of Foreign Affairs and Trade says Australia exported $11.7bn worth of goods to EU countries last financial year. Major exports included coal ($2.7bn), gold coin ($689m) and gold ($409m).
RepuTex’s executive director, Hugh Grossman, said the EU tariff would initially apply to emissions-intensive products not on this list, such as steel, cement, chemicals and fertilisers, but eventually extend to all commodities covered by the EU carbon market.
The objective was to ensure European industrial emitters were on a level playing field with competitors in other countries as the continent introduced more significant measures to address the climate crisis, he said.
“It is not a matter of if, it is a matter of when,” Grossman said. “We know the timetable is 2023 and the proposal has support in Europe. The question now is just what Australia does to respond – whether it allows its industry to be exposed to these sorts of prices or takes action to address it.”
Grossman said the European proposal would require other countries to have an emissions compliance system similar to its own to avoid the levy. That did not necessarily mean export businesses had to pay the same carbon price at home, but they would have to be part of a system that required emissions reductions and had equivalent climate goals for 2050 and possibly 2030.
He said the Morrison government’s “technology, not taxes” approach of subsidies and research and development funding to encourage emissions cuts would not be enough. “An incentive-based framework, in our opinion, is not equivalent to a compliance-based framework,” he said.
Tennant Reed, a climate adviser at the Australian Industry Group, agreed there was a strong likelihood carbon tariffs would be introduced. Beyond the EU, Joe Biden has promised a US “carbon adjustment fee against countries that are failing to meet their climate and environmental obligations” and the British prime minister, Boris Johnson, is considering using the G7 presidency this year to try to forge an alliance on carbon border taxes.
But Reed disagreed with RepuTex that the EU plan was likely to have a significant short-term impact on Australian businesses as they did not sell steel and cement, the goods Europe was primarily focused on, to the continent.
Reed said the European emissions trading scheme did not currently apply to fugitive methane emissions released in coalmining, which would make it difficult to justify applying a tariff to Australia’s metallurgical coal exports, for use in steelmaking, under the World Trade Organization rules the EU had committed to follow. Agricultural exports, such as meat and wine, were also not likely to be hit.
He said any industries charged a carbon tariff would not be disadvantaged against European producers of the same goods as both would face the same cost, but carbon-intensive exporters were likely to face reduced demand for their products.
Australia’s metallurgical coal falls into this category. He said its use in the EU was likely to shrink given the continent was aiming to meet ambitious climate targets – including a 55% cut by 2030 compared with 1990 levels – and cleaner alternatives were starting to emerge.
Reed said the biggest impact of the EU carbon tariff system on Australia may be to demonstrate where the world was headed. “It may be more relevant to us as a model to use in future rather than a risk we will be whacked by the [carbon tariff] stick,” he said.
The push for carbon tariffs has increased as countries consider how to reach the increasingly shared goal of reducing emissions to net zero by 2050. More than 120 countries, including all G7 members, have some form of mid-century zero emissions goal.
The Morrison government has resisted setting the target. Official government projections suggest emissions will fall by only 7% over the next decade, a period in which scientists say much more urgent action is needed.
The new Australian trade minister, Dan Tehan, has said carbon tariffs were yet to be an issue in negotiations with the EU on a free trade deal, and criticised the idea “as a new form of protectionism”.
Experts have dismissed the idea carbon tariffs are a form of industry protection, saying the rationale is to level the playing field for local businesses acting to cut emissions.
The EU emissions trading scheme initially allocated free permits to energy-intensive industrial businesses to protect them against competition from imports, but plans to phase this out as the continent makes deeper cuts to meet its new 2030 target.
Its carbon price has increased significantly since 2015, from about A$11 to nearly A$60 a tonne.
The EU carbon tariff proposal could require companies in other countries to measure the emissions intensity of their goods, or to use an estimate based on the global average emissions released in creating a product.
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