Australia weighs carbon tariffs to shield local industry from cheap imports

Australia’s ambitious climate policies are pushing up the cost of manufacturing and risk driving the production of cement, steel, iron and aluminium to countries with weaker goals, a government review has found.

The findings of the long-awaited review, which says cross-border carbon tariffs on imports may be needed in the medium to long term to shield local businesses from overseas competitors in lower-cost jurisdictions, will ignite a political clash between Labor and new Opposition Leader Angus Taylor over Australia’s climate pollution targets.

Energy Minister Chris Bowen received the report’s findings a year ago but publicly released them on Friday afternoon, as the media’s attention was focused on the Coalition’s leadership change.

Led by ANU professor Frank Jotzo, the wide-ranging review urges the government to slap a carbon levy on a “select group of commodities”, initially covering cement and clinker, while finding other commodities, such as steel, iron and glass alumina and aluminium may also need carbon tariffs in the future.

Taylor used his first public remarks to pledge to tear down the government’s climate targets, including its signature emissions-reduction policy, the safeguard mechanism, which he labelled a “bad carbon tax”.

“We will get rid of Labor’s bad carbon taxes on the family vehicle, on manufacturing and food in this country, of course, on electricity,” Taylor said on Friday.

The Albanese government imposed Australia’s first-ever binding pollution limits on the 215 major polluters in 2023, requiring them to invest in new technology or carbon offsets to cut their greenhouse gas output by 5 per cent a year until 2030.

The targets are considered critical for Australia to meet its commitment under the Paris Agreement to cut emissions at least 62 per cent by 2035.

Bowen on Friday said the government had commissioned Jotzo to examine how to “keep Australia on a level playing field” as the world acted on climate change. The report would now inform Labor’s negotiations with heavy emitters over ongoing policy settings, Bowen said.

“We will always back Australian industry to be competitive at home, and on the world stage,” he said.

Jotzo said Australia’s policy settings were mitigating the risk of “carbon leakage” – the relocation of industries from countries with more ambitious emissions policies to nations with weaker ones – but that some sectors would need greater support in time.

“Border carbon adjustments for selected commodities can enhance the durability of industrial decarbonisation policies … and help strengthen future emissions reductions,” he says in the report.

Other countries have developed similar policies to shield their local manufacturing industries, and the report comes amid growing protectionism in world trade.

Manufacturing industry leaders have backed the safeguard mechanism and the introduction of carbon tariffs.

Australian Industry Group chief executive Innes Willox said: “The review recommends careful development of a border carbon adjustment system for those industries where carbon policy gaps make the biggest difference, and where an honest adjustment is actually practical.”

While the safeguard mechanism was working well today, a “durable solution” was required to keep a level playing field in the future, Willox said.

Sanjeev Gandhi, chief executive of explosives and fertiliser maker Orica, has long been calling for levies on high-emissions imports to help level the playing field for Australia against “unfair” global competition.

“If that product comes into this market, and I have to compete with my higher costs against a cheaper product, that’s not fair,” he said.

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