New Zealand may consider a carbon border adjustment mechanism (CBAM) aligned with Australia if Canberra introduces one, according to Climate Change Minister Simon Watts. Australia is reviewing its safeguard mechanism, potentially including cement and clinker imports.
The potential introduction of aligned CBAMs between Australia and New Zealand could impact trade flows and emissions costs for key commodities, influencing domestic manufacturing viability and potentially creating a regional approach to carbon leakage.
New Zealand is considering the possibility of implementing a carbon border adjustment mechanism (CBAM) that would align with Australia's policies, should Australia decide to introduce such a scheme. Climate Change Minister Simon Watts indicated that any such move by New Zealand would likely be in conjunction with Australia.
Australia's government is set to review its safeguard mechanism, which may include the introduction of a CBAM. Initially, this mechanism could target imports of cement and clinker, with potential future expansion to products like hydrogen, steel, ammonia, urea, and ammonium phosphate. This consideration stems from a February review on carbon leakage, which found that these commodities face risks of emissions being relocated overseas.
Watts stated that New Zealand has been "actively monitoring" these developments and remains "open-minded," suggesting that a decision might come "later next year" as they observe Australia's progress. He was responding to a question about whether a CBAM would be a preferable approach compared to direct government support for industries, referencing a recent grant of up to NZ$60 million ($35.2 million) to Golden Bay Cement (GBC) for its Whangarei plant. Fletcher Building, the operator, had considered closing the GBC clinker facility in favor of an import-only model due to emissions costs.
The New Zealand Emissions Trading Scheme (ETS) saw its spot unit prices collapse in November following the government's announcement to decouple unit volumes and price controls from its Paris Agreement commitments. While prices fell to the NZ$30s/t CO2e earlier in the year, they have since recovered, closing at NZ$55.70/t CO2e on August 5.
Beyond Australia, other countries like Canada and the US are also exploring similar border measures, according to a report by the Climate Change Commission (CCC) in April. The CCC noted that while New Zealand exporters currently have limited direct exposure to planned CBAMs, this situation could change as these mechanisms become more widespread across countries, sectors, and products.