The European Union (EU), the US, Canada, Japan and the UK are ramping up climate commitments ahead of the COP26 Climate Summit, including through domestic carbon prices. To enable their carbon pricing to operate effectively across the global economy, they are contemplating carbon border adjustment mechanisms (CBAMs). Once implemented, CBAMs will tax the carbon content of imports from countries with unpriced carbon, such as Australia.
In a few weeks, the EU Commission will present the world’s first detailed CBAM proposal, a central part of their economic recovery plan under the European Green Deal and their efforts to meet their ambitious target of at least a 55% cut in emissions this decade.
Australia stands almost alone among high-income advanced economies in increasing emissions from fossil fuel combustion since 2005 and falls well short of its international peers in the commitments it has made under the Paris Agreement to reduce emissions. It is also now one of the very few high-income countries without some form of a carbon price.
This paper argues that Australia should lean in, rather than push back, on the development of such a proposal while taking advantage of the opportunities in existing and new export industries.