Albanese government takes aim at “carbon leakage” to protect Australian industry

The federal government has opened public consultation on the introduction of policy changes to prevent the risk of carbon leakage, including the possibility of introducing an Australian carbon border tariff.

The first of two public consultations, announced by federal energy minister Chris Bowen on Monday night, will help assess the need for a carbon border adjustment mechanism and emissions product standards to protect Australian industries including steel, aluminium and cement.

Bowen says federal Labor is inviting stakeholders to provide feedback on the proposed approach to assess and address carbon leakage risk, which can happen when industries move from countries with more ambitious emissions reduction policies to countries with weaker policies.

The carbon leakage review, being steered by climate expert Professor Frank Jotzo, will look at policy options to address carbon leakage, such as a possible Australian carbon border adjustment mechanism, emissions product standards, further funding for decarbonisation, and multilateral initiatives.

To guide the consultation process, the department of climate change, energy, the environment and water (DCCEEW) published a consultation paper which provides a high-level reference of the issues and available options.

“We want to see Australia’s heavy industry decarbonise, while continuing to manufacture the steel, cement, aluminium and other products needed for the energy transformation,” said Bowen.

“By continuing to address carbon leakage risk, we will protect Australia’s reputation as a reliable and secure trading partner, promote our ambition to become a renewable energy superpower and secure a future home for green industrial goods like green steel.

“Highly skilled manufacturing jobs and industry will form the bedrock of the world’s decarbonisation and this review will help them have a long-term presence in Australia.”

The lengthy approach to addressing this issue may not be to everyone’s liking, however, something Bowen acknowledged in his speech to the AIG dinner.

A second round of consultation will take place mid-2024, during which Bowen claimed the review “will look at the feasibility of detailed policy options, ahead of the review findings being provided to the Government around the end of the third quarter of 2024.”

Bowen also hesitated over committing to a carbon border adjustment mechanism (CBAM) and acknowledged that some at the dinner “may have wished the paper set out the detailed design of an Australia CBAM – but the broad approach is entirely appropriate for this stage of consultation.

“Because as I said at the time of announcement – a policy of this volume and breadth cannot be rushed.”

The first round of consultation will be open until 12 December 2023, with the second round of consultation expected to be held in mid-2024.

Final advice from the review is expected to be provided to the government by 30 September 2024. Detailed design of any agreed policy options would then take place after the review and would be taken into account in the federal government’s Net Zero 2050 Plan.