Australia Should Have CBAM on some Commodities: Review

Why It Matters

A CBAM would protect domestic producers from unfair competition while aligning Australia with global carbon‑pricing trends, influencing trade, investment and emissions pathways.

Key Takeaways

• Cement and clinker identified as first CBAM candidates
• Fees preferred over ACCU surrender for import liabilities
• Hydrogen, steel, ammonia flagged for future CBAM expansion
• Export rebates deemed inconsistent with net‑zero goals
• Teba baseline discounts may be removed after CBAM implementation

Pulse Analysis

Carbon border adjustment mechanisms have become a cornerstone of climate policy in the European Union, Canada and several Asian economies, aiming to level the playing field for domestic producers facing stricter emissions rules. Australia’s latest carbon‑leakage review, commissioned as part of the 2023 safeguard mechanism reform, extends that logic to its own trade‑exposed sectors. By quantifying leakage risk for 75 commodities through 2030, the study highlights that declining baseline allowances could eventually make imports appear cheaper on a carbon‑adjusted basis. Targeting cement and clinker first reflects both their high embodied emissions and the relative ease of measuring scope‑1 outputs at the border. The safeguard mechanism already caps emissions for facilities emitting over 100,000 t CO₂e annually, rewarding under‑performance with Safeguard Mechanism Credits and penalising excess with Australian Carbon Credit Units (ACCUs). The review recommends that any CBAM liability be calculated only on scope‑1 emissions that exceed the current baseline, using an explicit carbon price differential between the exporter’s market and an Australian benchmark. Stakeholder feedback favoured a simple import fee over ACCU surrender, avoiding the administrative burden of credit trading and mitigating concerns about tightening ACCU supply. Once a CBAM is in place, the trade‑exposed baseline‑adjusted (Teba) discounts could be phased out. Implementing a CBAM would send a clear signal to overseas producers that Australia will not tolerate carbon leakage, reinforcing its net‑zero commitments and reducing the risk of trade disputes over export rebates. The report estimates that downstream price effects on construction, renewable‑energy projects or agricultural inputs would be marginal, easing industry resistance. However, extending the mechanism to hydrogen, steel or ammonia will require robust accounting for diverse production pathways and supply‑chain complexities. As the government prepares its safeguard mechanism review for the 2026‑27 fiscal year, the CBAM proposal is likely to shape future policy, investment decisions and the competitive landscape for Australia’s heavy‑industry exporters.