Australian exporters could face $140 per tonne carbon tax, thanks to weak Morrison targets

Australian exports could be slapped with a carbon tax of as high as $140 per tonne, under a new plan endorsed by the European Parliament – due to the unambitious climate policies adopted by the federal Coalition government.

The European Parliament has endorsed a proposal for a new Carbon Border Adjustment Mechanism, that would aim to level the playing field between European producers, which are subject to the EU emissions trading scheme, and international competitors, like Australia, which do not currently price carbon emissions.

The idea of a carbon border adjustment mechanism formed part of the European Parliament’s planned European Green Deal in response to the Covid-19 pandemic. It could see Australian exporters of fossil fuels, metals and beef and lamb forced to purchase carbon permits to sell their products in the European market.

Carbon markets analyst Reputex has estimated that a European Carbon Border Adjustment Mechanism could equate an additional charge of between A$65 and $140 per tonne of carbon emissions – reflecting the cost of carbon permits under the EU emissions trading scheme.

Under the proposed Carbon Border Adjustment Mechanism, industries seeking to import emissions intensive goods into the European Union would be required to purchase equivalent carbon permits at the market price. EU carbon permits, known as European Union Allowances, are currently trading above €38 (A$59.50) per tonne, with prices expected to rise as measures to reduce emissions are ramped up.

“Under the scheme, Australian companies would be required to measure the emissions intensity of their products, or an estimate would be made based on factors for global average emissions content for a product, informing the total emissions covered by the scheme, and the required compliance liability,” carbon markets analysts Reputex said in a briefing note.

To avoid the export tariffs, the Australian government would be required to introduce an equivalent pricing regime on carbon emissions, such as a carbon tax or an emissions trading scheme.

“As a result, while right-wing policymakers grapple with a net-zero emissions target, more stringent regulation of industrial emissions is likely to be required to avoid the levy,” Reputex added.

“One way or another, Australian policymakers are now likely to quickly find that the cost of continued policy inaction will be high – while the stakes are becoming even higher for local exporters.”

While prime minister Scott Morrison appears to be readying to announce the government will finally adopt a net zero emissions target for 2050, he is facing pressure from the National party to carve out certain sectors from any target.

This could include the mining, manufacturing and agricultural sectors – which would make three of Australia’s largest export industries easy targets for any border levy on carbon emissions by groups like the European Union.

The newly elected Biden Administration in the United States has also flagged the potential of introducing its own border adjustment tariffs.

A number of the federal Nationals caucus has expressed their intention to oppose any attempt to commit Australia to a zero emissions target, unless industries are excluded from the target.

The National’s moves to carve out industries from carbon targets have been met by stiff opposition from those very industries – particularly farming groups – who argue it would be a mistake to exclude the industries from the opportunities that exist in tackling climate change.

Australia is currently in the process of negotiating a new free-trade agreement with the European Union, and the bloc has made clear that it expects commitments to ambitious climate change targets to become a standard feature of national policies.

“We have indeed announced that the European Union has an objective for itself to become a net zero emission continent by 2050 and we now see that there’s a growing momentum around the world,” European Union’s Ambassador to Australia, Michael Pulch told ABC’s RN Breakfast program on Tuesday.

“Many more countries have now stepped forward and announced a similar target, including the US administration, including China for 2060, including many other countries around the world,”

“Going into the next COP meeting in Glasgow, we hope that other countries will follow a path of being more ambitious when it comes to climate action.”

The European Parliament intends to vote on the carbon border adjustment mechanism in March, with an aim to have the mechanism operational no later than 2023.