Australia’s Fossil Fuel Industry Is Under Threat From a New Carbon Border Tax by the EU

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As the European Union moves closer to enacting a world-first carbon tax on imports, Australia’s industries are positioned to be severely affected by international climate taxes due to its continued reliance on coal and gas and lack of official carbon pricing.

The proposed Carbon Border Adjustment Mechanism, or CBAM, a groundbreaking legal measure that will impose a carbon price on non-EU imports passing the European border, has been approved by the European Parliament this week.

According to Richie Merzian, director of TAI’s climate and energy program, “it is in Australia’s best interest to engage constructively in the design of CBAMs, invest in clean production processes for materials like aluminium and steel, and develop a more resilient manufacturing sector.”

“Carbon taxes are slowly but surely coming, and if Australian companies don’t decarbonise, they will become less competitive, and the revenue will be collected and spent outside of the country.

“Just look at alumina refining and aluminium smelting in Australia, which is dominated, in terms of majority ownership and control, by two global companies – Rio Tinto and Alcoa,” Merzian added.

The provision is intended to address the issue of carbon leakage, which happens when rising emissions offset the EU’s efforts to reduce emissions outside of its borders due to consumer demand for cheaper, more carbon-intensive goods.

Only countries with the same climate goals as the EU will be permitted to sell to the EU without purchasing CBAM certificates under the new regulation.

The EU CBAM will first include several distinct, carbon-intensive items, including iron and steel, cement, fertilisers, aluminium, power, and hydrogen, as well as some additional downstream products like screws and bolts, according to the European Parliament.

The CBAM agreement has been achieved in the EU, but it still needs to be approved by the European Parliament and ratified by the member states’ ambassadors before it can be considered complete.

According to preliminary plans, CBAM will go into effect in October 2023 and initially solely call for a reporting-based approach.

While no final decision has been made, it’s clear that this carbon border tax could significantly impact Australia’s fossil fuel industry. 

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