The Morrison government has renewed fears that the European Union’s new carbon tariffs could hit Australian jobs, despite Australia’s major exports being largely spared from the first stage of the scheme.
Exports to Europe of cement, iron and steel, aluminium, fertiliser and electricity are the first to face potential costs under a new climate policy unveiled by the EU late on Wednesday night Australian time.
The carbon border adjustment mechanism will require EU-based businesses that import goods to pay a price, linked to what they would have paid if the items had been produced under the EU’s own emissions trading scheme.
The goal is to prevent “carbon leakage” – or the movement of emissions-intensive industry – to countries with less ambitious climate policies. The policy also aims to encourage producers globally to reduce their emissions and for countries to adopt greener policies.
Deductions will be offered to importers if the non-EU producers can show they have already paid a carbon price for the production of the goods in another country – but the Abbott government repealed Australia’s own carbon pricing scheme in 2014.
The Australian trade minister, Dan Tehan, said the government would seek to understand the full impact on Australia’s trade and economy, but argued it was important to “incentivise not penalise when it comes to emission reductions”.
“Australia is very concerned that the EU’s carbon border adjustment mechanism is just a new form of protectionism that will undermine global free trade and impact Australian exporters and jobs,” Tehan said from Japan, the latest stop in a two-week trade mission.
Trade figures show Australia exported $11.7bn worth of goods to EU countries in the 2019-20 financial year, with major exports including coal ($2.7bn), gold coin ($689m) and gold ($409m).
Australia is not listed in the top-10 exporters in the sectors initially covered by the carbon border adjustment mechanism. China, Russia, Turkey and the United Kingdom are the top exporters of iron and steel to the EU.
Analysts said the policy would affect Australia directly, as it exported a small amount of iron to the EU, but also indirectly as Australia provides goods along the supply chain like alumina to Mozambique which is smelted and exported as aluminium to the EU.
“The Australian government claims that its approach to climate is dictated by technology not taxes,” Richie Merzian, the director of the climate and energy program at the Australia Institute, said.
“It’s clear now that the taxes on Australian high-polluting goods are coming and the revenue will be collected and invested into our trade competitors.”
The EU has left the door to expanding the scheme to other sectors in future. There are also concerns in the Australian government that other countries, including the UK, the United States and Japan, may also consider similar policies.
In a sign of action in the US, Democrats agreed on Wednesday to include a “polluter import fee” in a sweeping $3.5tn budget plan. The New York Times reported the Democrats’ proposal would target nations that lacked aggressive climate change policies, but it faces a number of political and procedural obstacles before it becomes a reality.
The EU plans to phase in its scheme, with businesses facing monitoring and reporting obligations from 2023 to 2025, before paying from 2026 onwards.
Climate has been raised as an issue during ongoing negotiations between Australia and the EU on a free trade agreement.
Guardian Australia understands Australia has raised questions about the operation of the carbon border adjustment scheme during those talks.
The EU has repeatedly said it would design the scheme to comply with World Trade Organization rules. Prior to the announcement of the details on Wednesday, analysts in Australia had offered differing estimates about the costs facing Australian businesses.
Tehan said the government was now analysing the legislation to fully understand whether it was consistent with the EU’s WTO obligations.
He said reductions in carbon emissions would not be achieved “by raising barriers to trade”.
Instead, Tehan said, reductions would be achieved by “lowering the cost, and accelerating the uptake, of green technology globally, particularly in developing countries”.
A senior German government official has previously dismissed claims from Tehan and Australia’s emissions reduction minister, Angus Taylor, that carbon border charges could become a new form of protectionism.
The Australian government has faced mounting international pressure to lift its emission reduction commitments, including from the US and the UK, but the Nationals have been campaigning against a firm commitment to net zero emissions by 2050.
The EU ambassador in Canberra, Michael Pulch, said in February that Europe wished to see all of its partner countries head in the direction of net zero by 2050. All countries should also consider upgrading their 2030 targets, he said, as part of “a more ambitious climate objective”.
The Australian prime minister, Scott Morrison, said he wants to achieve net zero as soon as possible but preferably by 2050. Two Liberal backbenchers on Wednesday called on Morrison to set the firm 2050 target before the Glasgow climate conference and to restore funding and advisory powers to the Climate Change Authority.