Australia should consider introducing CBAM for certain goods – overview

Australia should consider introducing a cross-border carbon adjustment mechanism (CBAM), starting with imports of cement and clinker and potentially extending it to hydrogen, steel, ammonia, and its derivatives. This is stated in the Carbon Leakage Review published by the Australian government on February 13.

As noted, the current safeguard mechanism (SGM) provides Australian manufacturers with incentives to reduce emissions in production. It covers about 220 of Australia’s largest industrial facilities, which together account for about 30% of annual national emissions.

The current settings are effective in reducing the risk of carbon leakage in the short and medium term, the report says, but over time they may need to be supplemented with additional measures.

The review recommends planning for the introduction of carbon border adjustments for a small group of goods that Australia both produces and imports, and where carbon leakage is likely to be a significant issue.

The report by S&P Global identifies clinker as most vulnerable to carbon leakage risk (with the potential for imports to increase by approximately 14% by 2030 under the maximum scenario), followed by lime and cement.

With regard to steel, there is a caveat that although a cross-border carbon adjustment mechanism could help address leakage risks, its implementation should be approached with caution.

For example, BlueScope, a steel manufacturer based in Melbourne, noted in a consultation statement in November 2023 that the potential for irreversible damage is very high – a poorly designed CBAM would make iron and steel production in Australia unviable.

The review proposes testing the scheme on specific steel products with relevant characteristics before extending it to a broader group of ferrous metallurgy products.

The report rejects the introduction of carbon rebates for exports, as such measures would be “inconsistent with Australia’s emissions reduction targets.”

The carbon leakage review is part of a broader program to reform the Australian government’s safeguard mechanism, which was adopted in March 2023 and set lower baseline levels for large industrial facilities by 2030, making carbon leakage risks more significant.

It should be noted that the expansion of the European Cross-Border Carbon Adjustment Mechanism (CBAM) is expected to increase its revenues by 23%, potentially generating an additional €500 million by 2030.