EU slaps carbon levy on key steel and aluminium exports

The EU has warned Australian steel and aluminium exports won’t escape the bloc’s planned carbon border levy.

EU ambassador to Australia Michael Pulch

The European Union has warned Australian steel and aluminium exports won’t escape the EU’s planned carbon border levy, but argues the tax will provide vital support for the nation’s green hydrogen and rare earths industries.

EU ambassador to Australia Michael Pulch said the European parliament’s “overwhelming” commitment to the levy would ­ensure the bloc’s $65/tonne carbon tax was not undercut by imports from countries with lower emissions standards.

He said Europe would also require Australia to formally lift its ambition to cut carbon emissions in an upcoming Australia-EU free-trade agreement, which negotiators hope to finalise by the end of the year.

Dr Pulch said the EU’s proposed Carbon Border Adjustment Mechanism would create a level playing field for companies within the 27-member union by preventing “leakage” of carbon emissions to states with lower standards.

“We have to lead by example but we also have to make sure that if our companies work under these very tough standards, that these industries aren’t relocated to countries that are more polluting,” Dr Pulch told The Australian.

“That is a process that is also very aligned now with the thinking in Washington, in Tokyo and other places.”

The EU parliament voted last week to move forward with the carbon border levy, with a design due by July. British Prime Minister Boris Johnson is also considering calling for UK carbon border levies at the upcoming G7 summit in London in June, which Scott Morrison is due to attend.

Dr Pulch said the EU understood its trading partners were concerned about the negative ­impact of the levy on their energy-intensive export industries. But he said the levy was “not a one-sided issue for Australia”.

“I am amazed that no one involved in this debate here in Australia has looked at the upside — because Australia is bound to become one of the world’s largest hydrogen exporters, and there is a real future in that,” Dr Pulch said.

“There is also a future in the export of rare earth materials that we need for energy efficient technologies that are to be developed.”

Australian goods exports to Europe were worth more than $20bn in 2016 and, combined, EU member states bought nearly a million tonnes of Australian steel over the past decade.

Trade Minister Dan Tehan, who met with EU ambassadors in Canberra on Monday night, called the proposed carbon border levy “protectionism”, and argued instead for an elimination of tariffs on clean energy equipment such as solar panels and wind turbines.

But Dr Pulch said the EU was determined to design the levy in a way that was compliant with World Trade Organisation rules.

“We want to avoid anything that could be seen as protectionist,” he said.

A recent OECD paper stated that it was possible that carbon border adjustment mechanisms could be designed to be compatible with WTO rules, “provided that they are aimed at reducing carbon leakage and not about protecting competitiveness”.

Australian and EU negotiators recently completed a two-week round of talks on a free-trade agreement, which includes an entire chapter on sustainable trade.

“The European parliament is very adamant that all of our agreements around the world, whether it is in development or trade or political, contribute to our objective of making this world carbon free,” Dr Pulch said. “That’s how the European parliament will look at that, which will ultimately ratify it — but also member states.”

Australia’s lack of a clear commitment on net-zero carbon emissions by 2050 continues to be a stumbling block, but Dr Pulch said the EU was encouraged by signals of the government’s intent to go carbon neutral within 30 years.

“We see a shift here across the board. All countries have to take into account technology — and Australia has the Technology Road Map in that regard — to ­upgrade their ambitions,” he said.