Industry has realised that Australia is a sitting duck for the EU’s climate plans. The Morrison government has not.
Australian government ministers stating they are opposed to the European Union applying levies against carbon-intensive imports is about as effective as announcing they oppose the coronavirus in the hope it will go away.
Asked last week whether he opposed carbon tariffs, Energy Minister Angus Taylor declared he was “dead against” them. That should fix it: now that the Europeans know we’re against carbon tariffs they’ll no doubt apologise for offending us and abandon the idea.
Or they will press ahead, undaunted, as they did with the Common Agricultural Policy in the 1980s that so badly damaged our non-subsidised farmers.
In fact, a Carbon Border Adjustment Mechanism (CBAM) has already been approved by the relevant committee of the European Parliament, with passage through the full Parliament expected early next month. A detailed proposal will then be presented in the second quarter of 2021 for adoption in June and a commencement date of 2023.
The CBAM’s unveiling will be around the same time that British Prime Minister Boris Johnson will host a G7 summit to which Prime Minister Morrison has been invited. Johnson is advocating stronger action on climate change in Britain and globally.
Turning up the heat on other countries in the hope of turning it down for the planet, President Joe Biden is convening a climate summit on 22 April, to which Scott Morrison is also expected to be invited.
Having re-joined the Paris Agreement, Biden will lift America’s emission-reduction ambition and will expect other countries to do the same.
Ahead of the November 2020 presidential election, Biden and his running mate, Kamala Harris, committed the United States to a CBAM by a different name. Biden’s new Treasury Secretary, former Federal Reserve Chair, Janet Yellen, has previously advocated the formation of a customs union of high-ambition countries that would impose carbon levies on low-ambition countries https://www.afr.com/policy/energy-and-climate/morrison-left-exposed-to-climate-damage-by-biden-win-20201109-p56cpv
Australian ministers have argued that a CBAM would violate the rules of the World Trade Organization (WTO). A clumsily designed CBAM could do that, but the media statement released by the EU’s committee on 5 February explicitly states that the CBAM should be misused as a tool for protectionism.
A CBAM can be WTO compliant if it is just sufficient to prevent carbon leakage, which occurs where a good produced domestically using a low-emission technology is displaced by an imported good using high-emission technology whose emissions are not properly priced.
Since the form of a CBAM chosen by the committee among four options canvassed in last year’s consultation paper is one linked to the EU’s own emissions trading system, it can be WTO compliant.
Full compliance depends on its other design features. The CBAM would need, for example, to be based on the actual carbon content of particular imports, not on whether the exporting country had high or low ambition for emission reductions. It would not be enough for an exporter to the EU to claim exemption simply because the exporter’s government issued a media statement committing the country to high ambition.
A clear indication of Australia’s vulnerability can be gleaned from the resolution passed by the European Parliament’s committee, which “strongly deplores the non-cooperative and disloyal behaviour of some of the Union’s trade partners in international climate negotiations, as recently observed at COP25.”
It was Australia that reserved the right at that COP25 meeting in December 2019 to count carryover credits from the Kyoto Protocol to meet its Paris emission-reduction commitments https://www.afr.com/policy/energy-and-climate/australia-cheating-on-paris-says-former-un-climate-chief-20200308-p547yf
While it seems the Morrison government has since abandoned the contrivance of using the Kyoto carryover credits, the EU remains on a collision course with Australia.
If we had our own effective emissions trading scheme we would be exempted.
But the Abbott government scrapped that, exposing Australian industry to punishing tariffs not only in the EU but in all countries being mooted as members of a possible climate customs union. They include Britain, the US, Japan, Korea and possibly even China, which has committed to zero net emissions by 2060. What’s the betting China will bring forward that date to 2050 ahead of the COP26 meeting in Glasgow in November?
The EU’s CBAM is a speeding locomotive and Australia is a sitting duck. The locomotive is scheduled to arrive in June 2021 and no amount of quacking will stop it.
Yet Deputy Prime Minister Michael McCormack seems unperturbed, saying he’s not worried about what might happen in 30 years’ time, while former ministers Matt Canavan and Barnaby Joyce are insisting that agriculture be carved out from any zero net-emissions target https://www.afr.com/policy/economy/nationals-cite-nz-model-for-emissions-plan-20210207-p5708a
Never mind that peak agricultural groups including the National Farmers’ Federation and Meat and Livestock Australia support the target, having worked out that their members can make good money from it by generating and selling carbon credits from soil sequestration not only in Australia but abroad, including in the EU.
This is just another example of Australian businesses taking the lead in responding to the imperatives of climate change. In doing their business cases, they are factoring in a global carbon price, while banks and insurance companies will continue to shift away from financing carbon-intensive industries.
Quacking about protectionism will not stop the CBAM locomotive heading towards Australia. If the federal government ignores it there will be blood on the tracks.
Craig Emerson is managing director of Emerson Economics, a consulting economist to KPMG, a distinguished fellow at the ANU, director of the APEC study Centre at RMIT and an adjunct professor at Victoria University’s College of Business.