The Business Council of Australia (BCA) welcomes the opportunity to make this submission to the Carbon Leakage Review consultation paper. In the context of the Safeguard Mechanism reforms, the BCA supports broad consideration of a Carbon Border Adjustment Mechanism (CBAM) to address the potential for carbon leakage in relation to emissions intensive and trade exposed (EITE) industries.

A CBAM is a potentially useful complement to provisions within the Safeguard Mechanism designed to assist EITE industries $600m in funding from the Powering the Regions Fund (PRF). Any use of a CBAM should be limited to industries covered by the Safeguard Mechanism, should be carefully targeted to offset carbon cost differentials, and should be implemented in a manner that is consistent with World Trade Organization obligations and principles.

A CBAM is just one of a suite of measures the government should use to facilitate the domestic energy transition and reduce cost burdens on Australian industry, including EITE sectors. The need for a CBAM should be evaluated against the full range of government policies affecting exposed sectors and form part of a portfolio approach to addressing carbon leakage and its broader economic implications.

The BCA is also supportive of -led Climate Club initiative. Australia should use its participation in this forum to push for harmonisation of the very different national approaches to meeting Paris commitments and to minimise the potential for trade conflicts to arise from these different approaches to addressing climate change.

The BCA note that this is the first consultation paper ahead of a second phase of the review that will assess leakage risks and the feasibility of policy options to address those risks, with a second consultation paper scheduled for mid-2024. It is vital that the government fully engages with industry on the detailed design of any policy options via the second stage consultation paper and affords industry sufficient time to evaluate and provide feedback on those options.

There is also merit in waiting to observe the operation of the EU, UK and Canadian CBAM initiatives, which are only in their early stages of operation and could yield important lessons for the design of an Australian mechanism given that CBAM is still a largely untested concept. The EU approach was the product of a very lengthy and carefully considered design process.

It is also vital that this review is coordinated with other review processes in the climate and energy space, particularly around the future of the gaseous fuels sector.

The BCA offers the following responses to questions.

You can read our full submission here.