Paul Cornick (AU)’s Post

Preliminary Findings from Carbon Leakage Review Consultation (Paper 2) 🌿    The second consultation paper from Australia's Carbon Leakage Review was released yesterday. Whilst we digest the paper, here are some quick insights:     🚢 Emissions-Intensive Trade-Exposed Activities: The Consultation Paper clearly identifies that if an import-based carbon border adjustment were to be implemented for trade exposed industries (under the Safeguard Mechanism), the “policy basis for TEBA provisions” would be removed (the result of which could mean the removal or prompt phasing out of the TEBA concessions currently in place).     🏭 Sectoral Carbon Leakage Analysis: The Consultation Paper identifies cement (clinker and lime) to be the logical first sectors captured by a potential carbon border adjustment, primarily due to their comparatively simply supply chain and inputs. More complex goods (such as ammonia, steel, and glass products) could be considered in the future, drawing on emerging international experiences in how to deal with commodities with complex and diverse productions methods, supply chains and product specifications.     💵 Public Investment: The Consultation Paper notes that whilst public investment can help reduce emissions intensity, it is not seen as a standalone solution for emissions reductions for high-carbon commodities. The paper suggests a balanced approach, combining public investment with regulatory measures (including carbon-based market measures).    🏢 Comparability: The Consultation Paper also notes that any import based Australian carbon border adjustment should be on the same terms as the existing Australian safeguard mechanism. As a result, any future carbon border adjustment mechanism will likely only apply to Scope 1 emissions and only to those emissions in excess of the domestic sectoral baselines under the Australian Safeguard Mechanism. The complexity of applying the principles of the Safeguard Mechanism to production systems overseas, to then calculate any potential Australian carbon border adjustment fee, may make this calculation difficult.  The consultation paper invites feedback on these preliminary findings, with a view to shape the final recommendations to the Government by the end of 2024. Impacted industries should move now to consider how they would respond to these recommendations, including undertaking an assessment of potential funding programs to support decarbonisation. Businesses should also consider taking the first steps to identify their Scope 1 emissions and assess these in light of Australia’s newly implemented mandatory sustainability reporting requirements.      Please do not hesitate to contact myself, Paul Cornick (AU) or your local PwC contact, should you have any insights you wish to share or questions related to the above.     🔗 https://lnkd.in/et3X-PGj   #CarbonLeakage   #Australia   #NetZero   #EmissionsReduction

Today the Australian government released the second consultation paper for the Carbon Leakage Review. The paper and other information is available here: https://lnkd.in/gVhD3Cbg As lead reviewer, I’ll anchor the consultations, together with the Review team at the Department for Climate Change, Energy, Environment and Water (DCCEEW). We warmly welcome input from stakeholders in Australia, and internationally. Consultation is open until 3 December. In a recorded webinar on 6 Nov, 11.30 AEST we’ll run through our analysis and preliminary findings. The Review will make its recommendations to government by the end of 2024. Government has not yet considered the findings. The paper describes our analysis and sets out our preliminary findings. The Review has ·     analysed potential future carbon leakage risks including materiality of such risk for individual commodities, on the basis of quantitative and qualitative analysis; ·     assessed different possible policy approaches to address leakage risks; and ·     investigated the feasibility and potential impacts of border carbon adjustments. The Review’s work is guided by the following principles. One, the overall goal is to promote economically efficient low and zero emissions industrial production towards net-zero trajectories. A durable market-based system to incentivise investments in low and zero emissions industries is important to this. The Review focuses on carbon leakage solely in terms of shifts in industrial production due to differences in climate change policy between countries, not on other policy objectives. Two, the Review places emphasis on Australia’s opportunity to become a major producer and exporter of clean energy and industrial commodities in a net zero world economy. Policy frameworks that provide market premiums for low emissions products, including for traded goods, can contribute to this goal. Addressing carbon leakage means helping create the preconditions for investment in new low emissions industrial structures in the most suitable locations, rather than shielding existing high emissions processes from change. Three, the Review places importance on the international rules-based trading system and on maintaining open and liberal trade relationships, especially in Australia’s region. Our economic prosperity has been enhanced by open trade, and strong trade relations will be vital to achieve net zero emissions in Australia and globally. The Review seeks to identify ways in which any potential future measures, especially potential border carbon adjustments, respect international trade rules and obligations, facilitate trade that is consistent with climate change policy objectives, and could be collaboratively implemented with Australia’s trade partners. We also seek to identify opportunities to support progress in multilateral and plurilateral forums. We look forward to your reactions and input to the process.

The second round consultation paper from DCCEEW for addressing #carbonleakage in Australia has been released today. As touched on previously, carbon leakage occurs when production shifts from countries with more ambitious emissions reduction policies to those with weaker (or no) such policies. Particularly relevant for emission intensive, trade exposed (EITE) sectors like steel, cement, aluminium etc. As we have seen, the EU and UK have adopted a Carbon Boarder Adjustment Mechanism (#CBAM) as part of their environmental policies to address carbon leakage, and this, as well review of exisiting measures under the Safeguard Mechanism, form part of the policy considerations for Australia also. Consideration given to the environmental concerns caused by production shifts of these emission intensive commodities as well as our regional agreements and open trade obligations. The review is open until 3rd December 2024 https://lnkd.in/g9kZF2AV

The transition to net zero offers incredible opportunities and inevitable challenges. Over the last year I’ve had the opportunity to work closely with Prof Jotzo and a brilliant team at Australia’s Department of Climate Change, Energy, the Environment and Water as we investigated the risk of carbon leakage and how Australia could respond - a challenge and opportunity for Australia’s transition. The second consultation paper of the review is open for consultation until 3 December. It sets out preliminary assessments of leakage risk and policy options to respond. Whilst I could chew your ear off (and I will if you give me a chance) on the details in the paper I’ll point you to a few elements that particularly interest me: 1. Check out the principles set out in the exec summary which highlight the underpinning thinking that supported the review’s assessment. 2. The design considerations in the section on border carbon adjustments (and associated parts in the Appendix) are worth a read. 3. Chapter 6 on multilateral and plurilateral initiatives sets out the review’s thinking on the ongoing role for international cooperation (the review’s TLDR - the role of int’l cooperation is significant and it’s time to get stuck in). Enjoy the read or check out the recorded webinars on the website (below).

Australia's Carbon Leakage Review's latest Consultation Paper suggests implementing an import-based Border Carbon Adjustment (BCA) to address carbon leakage. This would equalise the carbon tax between international and domestic producers, starting with clinker, cement, and lime products. Public submissions are open, with final recommendations expected by year-end. Australia's BCA aims to ensure competitiveness and compliance with international trade principles, differing from the EU/UK models. Impacted parties should engage in the consultation process and prepare for potential regulatory changes by assessing the impact on their operations and supply chains. For a conversation on how to navigate these regulatory changes, send me a message. Read the full Tax Alert: https://pwc.to/4hNieRh #ClimateChange #CarbonTaxLeakageReview #CarbonTax

Not sure this post is quite as dramatic as the title suggests (which is more on a par with a Game of Thrones ⚔️ novel), but please do take a look at our latest piece to keep you up-to-date on the UK Government’s response to the ongoing CBAM consultation. Samay Shah, Oliver Moir, Aaron Wu and I consider the UK CBAM's current trajectory. #Sustainability #CarbonMarkets #CBAM #UKPolicy #ClimateChange #TradeAndEmissions

In navigating the shifting climate policy landscape, this article sheds light on the EU's Carbon Border Adjustment Mechanism (CBAM) set to take full effect by 2026. This legislation is pivotal for industries, particularly metals, in aligning carbon pricing and reducing carbon leakage.

Europe is striving to lead the charge in combating climate change by aiming to become the world's first climate-neutral continent by 2050. One of the pivotal milestones in this endeavor is the commitment made in September 2020 to slash emissions by 55% by 2030 compared to 1990 levels. To translate this goal into actionable steps, the European Commission introduced the "Fit for 55 package" in July 2021, encompassing a series of legislative proposals aimed at accelerating greenhouse gas emissions reduction by 2030. These proposals are intended to realign various sectors such as climate, transport, land use, energy, and taxation policies with the overarching objective of achieving substantial emissions cuts. A key component of the European Union's strategy is the Carbon Border Adjustment Mechanism (CBAM), a groundbreaking tool designed to address the challenge of carbon leakage. Carbon leakage refers to the risk that companies may relocate their production outside the EU to evade stringent environmental regulations, effectively transferring emissions rather than reducing them. CBAM seeks to mitigate this risk by imposing a charge on the embedded carbon content of specific imports, ensuring that foreign goods bear a comparable carbon cost to their EU-produced counterparts. CBAM primarily targets carbon-intensive sectors such as steel, cement, aluminum, fertilizers, and electricity, where emissions are particularly significant. By levying equivalent carbon charges on imports of these goods, CBAM aims to level the playing field for EU producers while incentivizing partner countries to adopt decarbonization measures in their production processes. While CBAM is still in its nascent stages, understanding its implications is vital for sustainability professionals and businesses operating within the EU market. Keeping abreast of evolving regulations and developments surrounding CBAM will be essential for ensuring compliance and effectively managing the transition to a low-carbon economy. References : https://lnkd.in/gXSY5zMw https://lnkd.in/gVdcxZmQ #FullerAcademy #GHGEmissions #EU #Sustainability #Regulations #SustainabilityRegulations

Is your Supply Chain ready for carbon pricing? I know, it’s a big question and though I don’t have THE answer, I would like to share some of my insights and thoughts on this topic. Perhaps others working in this space can share their views. Feel free to DM me for a more in-depth conversation. The European Union’s Green Deal initiative called Carbon Border Adjustment Mechanism (CBAM) is being rolled out. https://lnkd.in/eT-jRxWe. This will create a level playing field for companies producing within the EU and those importing into the EU. At the same time as the free ETS allowances are being phased out for EU producers, the EU increases the pricing on ‘imported embedded carbon’, creating a level playing field while at the same time pricing in a cost for carbon. It seems reasonable to assume that for products for which in the manufacturing process material amounts of carbon are being emitted, the prices will go up. It is important to note that though currently only 'simple' high carbon products such as rolls of steel, steel pipe and nuts and bolts are in scope, more and more 'complex' goods will become in-scope. E.g. pumps & values. Pro-active supply chains can however, work to reduce these cost increases. Supply risk during this transitioning period should also be managed, as well as the mandatory carbon reporting to the EU. Let me start by explaining how carbon reporting and supply chain risk are intertwined. Many suppliers outside of the EU have not (yet) developed carbon tracking processes for their manufacturing & transportation processes. The importer into the EU is responsible and accountable for the declarations but without supplier data this will be impossible. This may result in phasing out of some suppliers. A great opportunity for well-organized non-EU suppliers. As the UK is following the EU closely with its own carbon scheme, this trend will strengthen. Should the USA follow as well, which I personally expect to be driven by a ‘market protection perspective’ then this squeeze on the supplier base will be painful and costly. Secondly, there are many advisory and software firms with solutions to help with the data reporting. However, all they do (so far) is streamline the data solicitation process. While the challenge sits in educating manufacturers and transporters in how to track their carbon data to enable reporting in the first place. Organizations that pro-actively work with manufacturers that can either lock in current prices of raw materials or will have access to the lowest cost green(er) raw materials will be the winners in this transition. The latter is of course the objective of the EU Green Deal. #Greendeal #CBAM #Supplychain #Processdesign #Carbon

A new UN report supports the Pacific Island nations' advocacy for a shipping emissions levy, arguing it is more equitable and economically sound than other measures like a fuel standard. The analysis, published by the IMO, suggests that a well-designed levy could decarbonize the shipping industry while reducing global economic inequality by redistributing revenues to poorer nations. Despite the benefits, the proposal faces opposition from Argentina, Brazil, and China, who worry about the economic impact on trade-dependent economies. The IMO is set to continue this crucial debate at its upcoming talks in London. #ClimateChange #ShippingTax #ShippingLevy https://lnkd.in/dpqS2t2Z