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Australia labels possible EU carbon border tax “discriminatory”
04 August 2021IHS Markit Energy Expert
Australian officials continue to criticize the EU's proposal to
implement a Carbon Border Adjustment Mechanism (CBAM), labelling it
"discriminatory," building on an earlier attack on the tariff as
"protectionist."
"At a time when liberal democracies are working together to
rebuild confidence in the benefits of free and open trade, a new
wave of protectionism now threatens to sweep across the world," he
wrote. "This unilateral step, taken outside of the rules-based
international system, discriminates against countries like
Australia. Countries that provide the raw materials that global
supply chains need to create the goods and infrastructure sought
after by consumers in Europe and elsewhere."
The border adjustment is one of nearly a dozen major EU policy
measures proposed as part of the Fit for 55 package announced in
July and will be written into law over the next two years. Fit for
55 is a comprehensive and interlocking set of proposals that would
enable the 27-nation EU to meet a goal of reducing CO2 emissions by
55% by 2030 from a 2005 baseline.
In July, the Australian Minister for Trade, Tourism and
Investment Dan Tehan labeled the proposed tariff as "protectionist"
and said it could breach trade rules.
From the EU's perspective, the CBAM is designed to ensure
imports from overseas face the same carbon price imposed on goods
produced in Europe under the EU's own emissions reduction scheme.
It would avoid the problem of "offshoring" carbon emissions by
allowing imported goods to be made under looser standards.
As announced under Fit for 55, the CBAM would be implemented in
2026 and would initially target products from six
carbon-intensive sectors: cement, iron, steel, aluminum,
fertilizer, and electricity. Other sectors such as chemicals and
polymers are being studied and also could be included as early as
2026.
The CBAM would require importers of specific goods to register
with customs authorities and surrender certificates, with prices
that are set weekly, purchased from climate authorities in EU
member states.
Imposing Europe's standards
But those actions would force EU's internal standards and
domestic carbon taxes on the rest of the world, Taylor said in his
open letter. "It will punish sectors like aluminum, cement, and
steel that will be covered in the first phase of this new European
protectionism," Taylor said, and he speculated that agriculture
could eventually be included as well.
Emerging economies that rely on exports of energy-intensive
products would be punished even more severely than developed
countries, given their need to lift their citizens out of poverty,
Taylor added.
In the 2019-2020 financial year, Australia exported A$11.7
billion (US$8.7 billion) worth of goods to the EU (excluding the
now departed UK), making the bloc the country's seventh-largest
trading partner. However, exports to the EU are barely a tenth of
the value of Australian annual exports to China, which were more
than A$136 billion in 2019-2020.
Australia is only the 35th largest importer to the EU, and the
EU runs a trade surplus with Australia of more than A$34 billion
per year.
Australia's largest export to the
EU in 2019-2020 was coal, with shipments valued at A$2.7
billion, according to data published by the Australian Department
of Foreign Affairs and Trade (DFAT).
Coal exports would clearly suffer under a CBAM, and the cost of
the tax would likely accelerate the phaseout of coal from the EU
that's underway. In 2019-2020, it exported 213 million mt of
thermal coal, worth A$20 billion, according to the June 2021
edition of the Resources and Energy Quarterly by the Office of the
Chief Economist. Coal exports are already facing a crunch as China,
the largest destination for Australian coal in past years, has
banned the imports in a trade dispute.
The Australian government says it's the largest coal exporter in the
world and that total fossil fuel exports account for about A$80
billion in revenue annually. This has placed pressure on the
country to adapt to rising global decarbonization expectations.
While Australia Prime Minister Scott
Morrison spoke this spring about the country's progress towards
meeting its carbon emissions goals, those targets are, arguably,
the least aggressive of any developed nation. Australia's
nationally determined contribution under the Paris Agreement, which
was updated on 31 December 2020, is to reduce GHG emissions 26-28%
below 2005 levels by 2030. The country has focused on reducing
emissions intensity, rather than on total emissions reduction.
"Emissions already are reduced by 19% from 2005 levels, and by
36% when you exclude exports," Morrison said in April at the
Leaders' Summit on Climate organized by US President Joe Biden.
Those references are to emissions intensity, not actual
emissions.
"We are applying renewable energy technology 10 times faster
than the world average, per person. We have the highest uptake of
rooftop solar in the world…. In meeting our target for 2030, we
will see emissions per-capita fall by almost half," Morrison
continued.
Renewables are expected to supply more than half of the
country's electricity by 2030, which could help to decarbonize
other key export products, such as iron ore.
--Reporting by Trisha Huang, OPIS, and Kevin Adler, Net-Zero
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