"The Carbon Leakage Review described by Climate Minister Chris Bowen today is a crucial step towards maintaining the competitiveness of Australian industry throughout the journey to net zero emissions," Innes Willox, Chief Executive of national employer association Ai Group, said today.
"Based on the Minister's remarks today, the Review is asking the right questions on an issue that is central to the future of essential Australian industries. It looks to be a solid process for thrashing this out.
"The global transition to net zero is clearly underway, but different economies are moving at different paces and using varied mixes of sticks and carrots to get there. Every nation is keen to ensure that emissions and industry don't simply leak from one region to another based on uneven policies rather than economic advantage. Australia has strengthened our climate policy suite through the recent Safeguard Mechanism reforms, and there is clearly more to come. We need to ensure that industries with a strong future in a net zero world are able to pursue that future here, rather than being driven offshore.
"Australia and the world will continue to need steel, cement, aluminium, ammonia, and many other materials and products that are currently emissions intensive to produce. Technology pathways to low, zero or negative emissions are opening up, albeit with high upfront investment needs and currently-significant green cost premiums that will come down over time and with wider deployment. Industry needs the confidence that transformative investments will make a return if they are managed well.
"The Safeguard changes included important measures to forestall leakage even as emissions baselines drop and carbon prices rise. While very helpful, those measures are placeholders for a longer-term solution. The Carbon Leakage Review will consider what that solution might be, including the option of an Australian Carbon Border Adjustment Mechanism comparable to that recently approved by the European Union.
“Ai Group's 2021 Swings and Roundabouts report showed the potential of CBAMs to be a more sustainable, efficient and effective solution to carbon leakage than existing alternatives. We've also highlighted the complexity and sensitivity of this reform option. Any move towards border adjustments would need to:
1. be about supporting effective emissions mitigation and building more credible markets for low-emissions goods;
2. respect our World Trade Organization and bilateral trade commitments, facilitating non-discriminatory trade rather than discouraging it; and
3. be practical to implement, minimising transaction costs and tightly focussing on goods that matter.
"Emissions reductions are a deepening imperative, and so are competitive industries in an uncertain world. That means Australia will need to tread carefully, not stand still," Mr Willox said.
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