13/02/26
Australia should have CBAM on some commodities: Review
Sydney, 13 February (Argus) — Australia should consider introducing a carbon
border adjustment mechanism (CBAM), starting with imports of cement and clinker
and potentially expanding to products such as hydrogen, steel, and ammonia and
derivatives like urea and ammonium phosphate, according to a key report released
by the government today. The identified commodities face risk of future carbon
leakage from imports, which could lead to greenhouse gas (GHG) emissions being
relocated from Australia to overseas. The carbon leakage review , led by
Australian National University professor Frank Jotzo between July 2023 and March
2025, assessed leakage risks in 2030 for all 75 trade-exposed commodities under
Australia's safeguard mechanism across 42 commodity groups. The review was
announced as part of the 2023 reform of the safeguard mechanism While current
safeguard mechanism settings are effective at mitigating carbon leakage risk in
the short- to medium-term, the declining emissions baselines under the scheme
could put some of the identified sectors at a "more significant" risk over time,
according to the report. Cement and clinker first, others to follow Risks are
higher for cement and clinker, and the implementation of a border carbon
adjustment for these products "is likely to be simplest," according to the
report. Australian production of lime and glass, on the other hand, is only
partially covered under the safeguard mechanism, and a CBAM application would
face more complexity. Hydrogen, steel, and ammonia and derivatives carry
material carbon leakage risks, but feature more complexity with respect to
production methods, supply chains, and product diversity. Some of these products
are also only partially covered by the safeguard mechanism. The government
should also consider potential risks for a second group of commodities,
consisting of aluminium and alumina, refined petroleum, and pulp and paper.
These products face mixed evidence related to leakage risk indicators and
analysis of trade and investment leakage, but the government could assess them
in the forthcoming review of the safeguard mechanism scheduled for the July
2026-June 2027 financial year and consider particularly the suitability of
arrangements for emissions-intensive trade-exposed activities for all
commodities under the scheme. Preference for fees instead of ACCU surrenders The
safeguard mechanism covers over 200 individual facilities emitting more than
100,000t of CO2 equivalent (CO2e) in a compliance year across the oil and gas,
mining, manufacturing, transport and waste sectors. Facilities earn Safeguard
Mechanism Credits (SMCs) if their reported scope 1 emissions fall below their
baselines, and must surrender SMCs or Australian Carbon Credit Units (ACCUs) if
emissions exceed the threshold. If the Australian government decides to pursue a
CBAM, it should consider applying liabilities only to scope 1 emissions that
exceed the relevant safeguard mechanism baseline at the time of import. The
assessment should be based on explicit carbon prices only, and the liability
should account for the differences between the effective carbon price paid in
the originating country and an Australian benchmark price. While importers
could, in principle, clear the liability by paying a fee or surrendering ACCUs,
there was "broad support" for the fee option during the consultation, according
to the report. Surrendering ACCUs would more closely reflect domestic
requirements, but trading in ACCUs has legislative requirements that would have
to be met by importers which would require careful consideration, the report
warned. The ACCU purchase option would create additional demand for the product,
raising prices. But stakeholder feedback "reflected concerns about the potential
impact on ACCU supply" if these carbon credit units were used to meet carbon
border adjustment liabilities. The government should not consider a carbon
border adjustment that provides rebates for exports, as that would be
inconsistent with Australia's emissions reduction targets and could raise
considerable international trade law concerns. "Rebating emissions obligations
to exports would effectively exempt production for export from emissions
reductions obligations, running counter to overall policy objectives towards net
zero and increasing the required emissions reductions elsewhere in the economy,"
the report read. Teba provisions could be removed Trade-exposed,
baseline-adjusted (Teba) facilities operating in emission-intensive sectors that
might face unfair competition from imports from countries with weaker or no
emission reduction policies currently benefit from discounted baseline decline
rates under the safeguard mechanism. Decline rates can be as low as 2pc for
non-manufacturing sectors or 1pc for manufacturing sectors, compared with the
standard 4.9pc/yr declining rate until 2030. The Teba provisions for a commodity
should be removed once a border carbon adjustment is fully implemented for that
commodity, according to the review. Limited impact on downstream activity The
report also noted that analysis indicates the impact of a carbon border
adjustment on downstream activity, such as construction, would be "very
limited". "The review's analysis suggests that the maximum price impacts on
final goods that incorporate commodities that may be subject to a border carbon
adjustment, such as wind farms, house construction and crops like wheat, would
be vanishingly small as a share of product prices," the report said. The
government said today it will continue to consult on carbon leakage with
affected industries, and will consider the report's recommendations in the
safeguard mechanism review. By Juan Weik Send comments and request more
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