Australia is on the verge of being hit with a carbon tax whether the Prime Minister likes it or not. But the profits will go abroad


Ten years ago, as Australia’s short-lived carbon price approached or the “carbon tax” (either description is valid), the deepest business fear was to lose to untaxed companies abroad.

Instead of buying Australian carbon taxed products, Australian and export customers would buy untaxed (possibly dirtier) products elsewhere.

This would give the laggards (countries that had not yet adopted a carbon tax) a “free kick” in the industries from coal and steel to aluminum to liquefied natural gas to cement, wine, meat and dairy products, or even to copy on paper.

This is why the Gillard government has issued free permits to so-called trade-exposed industries so that they do not face unfair competition.

As a band-aid, it sort of worked. The companies that had the most to lose were bought out.

But that was hardly a solution. What if all countries had done it? Then, wherever there was a carbon tax (and where there was none), industries exposed to trade would be exempt. The tax would not do enough to reduce emissions.

In 2011, Prime Minister Julia Gillard established an Independent Climate Change Authority to advise on carbon pricing and emissions targets.(PAA: Alan Porritt)

We are about to face carbon tariffs

The European Union has looked at flawed workarounds introduced by countries like Australia and is poised to turn things the other way around.

Instead of treating foreign and local producers the same and letting them both get away with it, this will put both at mercy.

He is poised to ensure that producers in higher emitting countries like China (and Australia) cannot undermine producers who pay the price for carbon.

A red and blue colored world map of explicit carbon prices

Unless foreign producers pay a price for carbon like Europe’s, the EU will impose a carbon price on their goods as they arrive – a mechanism for adjusting carbon borders, or “carbon tariff”.

Australian Energy Minister Angus Taylor has said he is “dead against” carbon tariffs, a position that is unlikely to hold much weight in France or any of the 26 other countries in the world. ‘EU.

Australia knows the arguments in their favor

From 2026, Europe will apply the tariff to direct emissions of imported iron, steel, cement, fertilizer, aluminum and electricity, along with other products (and possibly indirect emissions) that will be added later.

That is, unless they come from a country with a carbon price.

Canada is also exploring the idea, as part of “leveling the playing field”. The same goes for US President Joe Biden, who wants to stop polluting countries “undermining our workers and our manufacturers”.

Their arguments join those heard in Australia as our carbon price approaches: unless there is some kind of adjustment, a local carbon tax will push local employers into “pollution havens” where emissions are not taxed.

In practice, there is little Australia can do to stop Europe and others from imposing carbon tariffs.

As Australia discovered when China blocked its wine and barley exports, a free trade agreement, or even the World Trade Organization, can’t do much. The WTO was neutralized when former US President Donald Trump blocked every appointment to his appeals body, leaving it unstaffed, a position Biden did not reverse.

Despite this, the EU believes such action would be permitted under trade rules, pointing to a precedent set by Australia, among other countries.

Prime Minister Scott Morrison wearing a navy suit speaking at a press conference
Europe is considering imposing a carbon tariff, whether our policies like it or not.(PAA: Mick Tsikay)

Legality is not the goal

When Australia introduced the Goods and Services Tax in 2000, it passed laws allowing it to tax imports in the same way as locally produced goods, a measure it recently extended to small packages and services purchased online.

Nobel Prize-winning trade expert and economist Paul Krugman says he’s ready to talk to politicians like Australia’s trade minister about what’s legal and whether carbon tariffs would be “protectionist.”

But he says it’s irrelevant:

Yes, protectionism has costs, but those costs are often exaggerated, and they are insignificant compared to the risks of unmanageable climate change. I mean, the Pacific Northwest – the Pacific Northwest! – baked at triple-digit temperatures, and we’re going to be concerned about the interpretation of Article III of the General Agreement on Tariffs and Trade?

And some form of international sanctions against countries that fail to take action to limit emissions is essential if we are to do something about an existential environmental threat.

Calculations from the University of Victoria suggest that EU carbon tariffs will increase the price of iron, steel and grain imported from Australia by about 9%, and will increase the price of all other imports by less. Australia, with the exception of coal, the import price of which would increase by 53%. hundred.

The tariffs would be collected by Europe rather than Australia. They could be escaped if Australian manufacturers of iron, steel and other products could find ways to reduce emissions.

A graph showing the share of the EU in total exports
Assume an EU carbon price of 60 euros per tonne, which roughly corresponds to today’s price; assumes that CBAM covers CO2 emissions, including fugitive emissions involved in production other than direct combustion emissions which are already priced by the EU Emissions Trading System.(The conversation)

Tariffs could also be avoided if Australia introduced a carbon price or something similar, and collected the money itself.

This argues in favor of another look at Australia’s carbon price. If Australian emissions are down anyway, as Prime Minister Scott Morrison argues, there is no need to set them particularly high. If it is wrong, it should be resolved higher.

One thing that the sad story of the history of carbon pricing in Australia over and over again (through carbon tariffs) has shown is that politicians are not the best people to set tariffs.

In 2011, Prime Minister Julia Gillard established an Independent Climate Change Authority similar to the Reserve Bank to advise on carbon pricing and emissions targets, initially chaired by a former Reserve Bank governor.

Surprisingly, despite attempts to abolish it, it still exists. He may still have work to do.

Peter Martin is a visiting scholar at the Crawford School of Public Policy at the Australian National University. This article originally appeared on The Conversation.

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