By refusing to budge on setting a net zero date, Canberra risks being forced to act anyway.
Canberra, we have a problem. Unless Australia commits to zero net emissions by 2050 the Biden administration is likely to impose tariffs on our carbon-intensive exports. So will the European Union and possibly Japan and Korea.
Yet, in an act of economic self-harm, the federal government has reaffirmed since the US presidential election https://www.afr.com/politics/federal/pm-will-work-with-biden-on-climate-but-won-t-change-policy-20201108-p56cid that it will make no such commitment.
Under President-elect Joe Biden’s climate-change policy https://joebiden.com/climate-plan/ the US will apply a carbon adjustment fee to countries that lack the US ambition on emission reductions. A carbon adjustment fee is the same concept as the European Union’s impending carbon border adjustment mechanism. The European Commission has released a consultation paper on the design features of its mechanism.
The idea is simple: as a country raises its ambition to reduce its carbon emissions, it seeks to avoid carbon leakage. That is, to prevent its industries that use domestic clean energy being displaced by imports from high-emitting countries, a tariff is imposed on those imports to negate any advantage the importer might enjoy.
In principle, the tariff is set at just the level to avoid carbon leakage and no higher. Otherwise, the country or group of countries could be in breach of their obligations to the World Trade Organization.
Not that those obligations have been met in recent years, as the Trump administration repeatedly flouted the rules of a global rules-based trading system it helped establish. For good measure, Trump neutered the dispute-settling procedures by vetoing new appointments to the Appellate Body as the terms of sitting members expired.
But expect the Biden administration to re-engage with global institutions such as the World Trade Organization, as evidenced by its post-election confirmation that it will re-join the Paris agreement and the World Health Organization.
Australia’s nightmare was summarised last month by former chair of the US Federal Reserve, Janet Yellen, who foreshadowed https://www.reuters.com/article/us-usa-climate-tax-idUSKBN26T23L that countries introducing carbon adjustment fees could form “carbon customs unions” that complied with World Trade Organization rules.
Biden’s climate-change policy commits the US to zero net emissions by 2050 and “will use every tool of American foreign policy to push the rest of the world to raise their ambitions alongside the United States.”
When Britain’s prime minister, Boris Johnson, recently urged prime minister Morrison to adopt a target of zero net emissions by 2050, Morrison reportedly declined, stating, when this part of the conversation came to light: “I am not concerned about our exports. We’ll set our policies here. Our policies won’t be set in the United Kingdom, they won't be set in Brussels, they won't be set in any part of the world other than here.”
Actually, Australia’s policies might be set in the United Kingdom, the European Union, the United States and in Japan, Korea and even China.
It is true that China has committed to zero net emissions by 2060 not 2050, but don’t be surprised if it brings forward that date to 2050 in the lead-up to the climate-change conference in Glasgow in November next year, when countries are expected to make fresh emission-reduction commitments.
Even if China doesn’t sign up to zero net emissions by 2050 and apply carbon tariffs to Australian coal and gas exports, Australia exports plenty of energy-intensive goods to the US, Europe, Japan and Korea.
To illustrate, the European Commission’s consultation document on its carbon border adjustment mechanism identifies more than 127 economic activities and processes for possible coverage, including 13 in agriculture, forestry and fishing, 95 in manufacturing and 10 in mining. So, it’s not just Australian energy exports that would be subject to carbon tariffs, it would be goods produced with electricity generated by coal-fired power stations.
When every Australian state and territory government and every major business organisation including the Business Council of Australia, the Australian Industry Group and the National Farmers’ Federation have committed to zero net emissions by 2050, it should be easy for the Morrison government to do likewise.
The Coalition’s state counterparts in NSW have today signalled their intention replace ageing coal-fired electricity generation in the state with renewable energy https://www.afr.com/companies/energy/nsw-unveils-energy-superpower-vision-backed-by-batteries-20201107-p56cgm If NSW Nationals Leader, John Barilaro – who, with environment minister Matt Kean and treasurer Dominic Perrottet – was instrumental in developing the policy, can make the intellectual transition from coal-fired power, why can’t prime minister Morrison?
Morrison is a pragmatist. He would not be ideologically opposed to shifting to zero net emissions by 2050. His obstinacy can be explained only by internal pressure from the coal brigade, whose insurgency brought down former prime minister Malcolm Turnbull and who wouldn’t hesitate to destabilise Morrison’s leadership.
But any fading opportunity to wedge Labor in the regions for committing to net zero emissions by 2050 evaporated with the NSW Coalition government’s shift to renewables to replace coal.
Damaging Australian exports and jobs by inviting the imposition of carbon tariffs on Australian goods by the Biden administration and most of our other major trading partners is bad policy and bad politics, a uniquely losing combination.
Craig Emerson is managing director of Emerson Economics. He is a distinguished fellow at the ANU, director of the Australian APEC Study Centre at RMIT and adjunct professor at Victoria University’s College of Business.