Experts say Australian industries will soon pay for their emissions through overseas taxes. 

Analysts at the Australian Industry Group have reviewed the European Union's Carbon Border Adjustment Mechanism (CBAM). 

In 2026, when the CBAM kicks in, a carbon levy will be placed on products from countries lacking serious pollution reduction programs. It will cover aluminium, cement, electricity, fertiliser and iron and steel, initially focusing only on the direct emissions of companies.

Countries with an emissions trading scheme (ETS) linked to the European ETS will be exempt from the tariff, but Australia is not one of these. 

The report suggests exporters will have to pay the new tax unless the Federal Government can convince the EU that existing Australian emissions data is valid.

“If anything, Australian producers may become slightly more competitive in Europe in the early phases of CBAM – if they are able to get their own emissions data accepted as valid by EU authorities,” says Ai Group climate and energy analyst and report author Tennant Reed. 

But if the EU does not accept Australian data, local imports would be considered as emissions-intensive as the worst emitters in Europe and be taxed accordingly. 

If the CBAM expands to consider the electricity emissions of a company, the profitability of Australia's coal-reliant aluminium and steel producers would be hit even harder.

Climate and Energy Director at the Australia Institute, Richie Merzian, says the new EU regime will be mirrored by other nations. 

“If the Australian government complains about protectionism, the whole time, in a sense, is dealing itself out of this conversation,” he said.

Japan and Canada are working on similar schemes, while the US is looking to tax imports from nations that lack aggressive climate change policies. 

As well as these taxes, much of the world is committing to phase out their demand for coal, gas and oil in coming years.

“Most of Australia's fossil exports go to economies which have now committed to net zero emissions by 2050 or 2060,” Mr Reed says.

“Ninety per cent of our LNG [liquified natural gas] exports go to countries with net zero by 2050 or 2060 commitments, so it is a significant issue,” Mr Reed says

The report suggests there is a strong need for Australia to take on a net zero emissions by 2050 goal, if local industries are to remain competitive.