Australia is facing growing pressure over its climate policies as the US edges closer to following the European Union in imposing new charges on imports of emissions-intensive products.
The trade minister, Dan Tehan, has criticised the EU’s new carbon tariffs, saying they are revenue raising and will undermine free trade. But Labor declared the Morrison government had its “head in the sand” and was “completely isolated” on the world stage as more countries consider such tariffs.
With a major UN climate conference looming, the government faces renewed calls to firmly commit to net zero emissions by 2050 and to pledge deeper cuts over the coming decade to convince trading parters Australia is serious about tackling the climate crisis.
Exports to Europe of cement, iron and steel, aluminium, fertiliser and electricity are the first to face potential costs from 2026 as part of sweeping new climate plans unveiled by the EU late on Wednesday night Australian time.
The Australian government’s initial assessment is that local businesses are more likely to face indirect costs than direct costs from the scheme because the products covered are not a major share of Australia’s exports to the EU.
But the EU has left the door open to expanding the scheme to other sectors in the future, and other countries are considering similar plans.
Shortly after the EU’s announcement, Democrats in the US included a “polluter import fee” in a sweeping $3.5tn budget plan, aiming to target nations that lacked aggressive climate policies. Little detail was released, and it was unclear if the proposal would have the support needed in Congress.
The Australian Industry Group said “at first blush” Australia was not at great risk from the European proposal and urged the government to engage with the EU over its plan, not just oppose it.
Its chief executive, Innes Willox, said the “the carbon tariff genie is out of the bottle” and “not engaging isn’t the answer”, especially once other countries such as the US started to consider carbon border costs.
Willox said the organisation’s initial analysis suggested Australia’s exports – some steel and a small amount of aluminium – would be “about as profitable” after the cost came in as they were today. Fears the carbon border adjustment mechanism would be a “punitive big stick” for the EU “to monster other countries into changing their policies” or a form of “greenwashed protectionism” had not been borne out by the detail, he said.
“We should seek to improve these carbon tariffs, making them fairer and easier to navigate, rather than simply oppose them,” Willox said.
“And we should also learn from Europe’s experiment. If [it] performs well, Australia should consider a border adjustment of our own alongside alternative options to ensure continued competitiveness as we develop plans for net zero emissions.”
Labor frontbenchers said the EU and the US were “likely to be the first two dominoes to fall among Australia’s major trading partners as nations around the world impose carbon tariffs”.
The opposition’s trade and resources spokesperson, Madeleine King, said the government was “completely isolated on the world stage on this issue”, with Scott Morrison’s inaction on climate change exposing Australian exporters to higher costs.
“Mr Tehan has his head in the sand if he thinks he can stop our major trading partners from taking this action,” King said.
Labor’s climate change and energy spokesperson, Chris Bowen, added: “I worry that there will be a carbon tax in Australia but not one imposed by the Australian government, one imposed on the Australian people and on Australian industry.”
The EU will offer deductions to importers if the non-EU exporters can show they have already paid a carbon price for the production of the goods elsewhere. Australia repealed its carbon pricing scheme in 2014 after Tony Abbott mounted a relentless campaign to “axe the tax”.
The proposal released on Wednesday reduced the expected cost on some goods compared with an earlier draft as it excluded “scope 2” or indirect emissions – those released in the creation of the electricity used to make the product. This would significantly reduce the potential impost on aluminium, which is sometimes described as “congealed electricity”.
The trade minister, Dan Tehan, says the EU carbon tariffs will undermine global free trade and could hurt Australian jobs. Photograph: Sam Mooy/Getty Images
The Greens called on the government to reintroduce a carbon price and ratchet up Australia’s 2030 targets in order to protect exporters from the tariffs from the EU and other trading partners.
“For years, the Liberals have tried to hold back the tide – but the reality of the world moving on carbon pollution is about to come crashing down,” the leader of the Greens, Adam Bandt, said.
Tehan said the government had “made it clear that our aim is to try and get to net zero by 2050 or some time very near that”, but the question was how to achieve it without imposing “huge costs” on business, industry and the community.
In an interview on ABC radio, Tehan said countries should collaborate on climate policies at the Cop26 conference in Glasgow in November rather than “unilaterally” adopting carbon tariffs. He suggested the EU was “focused more about raising revenue than really reducing emissions”, pointing to estimates the tariffs would raise €9bn (A$14bn) by 2030.
Jeffrey Wilson, a trade specialist who is research director at the Perth USAsia Centre, said the EU was targeting “low-hanging fruit” with its choice of which products would be covered in the first phase of the scheme.
Wilson said the argument that such tariffs were needed to prevent carbon leakage – or high-emitting industries moving to countries with less stringent policies – made sense, but the international community needed to agree on “the rules of the road” because “they absolutely can be used for thinly disguised protectionism”.
He said though major Australian exports to the EU were not initially targeted, the scheme was likely to be expanded to other sectors and versions of it adopted by other countries. “The ball is rolling down the hill and we’re in the way of it,” Wilson said.
The EU proposal document said a carbon border adjustment mechanism was already in place in California, where a cost is applied to some electricity imports, and that countries including Canada and Japan were planning similar schemes.
Richie Merzian, from the progressive Australia Institute, said the EU had designed the carbon border tax to comply with World Trade Organization rules. “Instead of blindly claiming this is a protectionist measure the Australian government could engage constructively in the interests of Australian exporters,” he said.