As relevant Australian corporations prepare to meet the requirements of the Safeguard Mechanism, some corporations will also be preparing to meet international carbon pricing standards for carbon-intensive exports such as the EU’s Carbon Border Adjustment Mechanism (CBAM).
The EU has been developing a carbon border adjustment mechanism (CBAM) to address 'carbon leakage', which occurs when EU companies shift their carbon-intensive production to countries with less strict climate policies. On 10 May 2023, the legislators signed off on the CBAM Regulation which will start to take effect in its transitional phase on 1 October 2023.
The CBAM aims to put a price on carbon emissions from the production of carbon-intensive goods entering the EU. This encourages lower-emission industrial production in non-EU countries. By ensuring that a price is paid for the carbon emissions associated with certain imported goods, the CBAM ensures that the carbon price of imports is on par with the carbon price of domestically produced goods. This helps prevent the undermining of the EU’s climate objectives.
The EU is not the only jurisdiction to take this step with each of the following jurisdictions similarly responding:
The EU regime as well as those introduced by our major trading partners will affect Australian corporations supplying products to the EU whether directly or indirectly via trading partners who supply to Europe, due to compliance costs being passed on. Australian corporates trading internationally should be considering the introduction of internal carbon pricing to factor these developments as well as undertake full supply chain analysis to properly understand both their risks and opportunities out of these changes.
If you wish to speak to our team about how these changes could affect your business, please contact Louise Horrocks.