The climate policy landscape in Australia has been rapidly evolving, with the government grappling with a complex and fast-moving set of challenges and considerations. Over the past year, several new sector-specific strategies, including the Agriculture and Land Sector Plan, have been developed to support the country's legislated emissions reduction targets. Notably, the Agriculture and Land Sector Plan, one of the sector-specific plans, does not mandate emissions reduction targets for the agriculture industry.
The Rise of the EU Carbon Border Adjustment Mechanism (CBAM)
Alongside these domestic policy developments, there has been growing international attention on the EU Carbon Border Adjustment Mechanism (CBAM). As the EU moves forward with implementing this new trade measure, designed to address the risk of carbon leakage, it has sparked heightened interest and discussion within the Australian agriculture sector.
This increased focus on the EU CBAM may be a source of uncertainty for Australian grain growers. After all, should a similar policy be introduced in Australia, there are implications for growers’ operations and export markets. In this context, it is critical to understand the broader dynamics at play, including the ongoing carbon leakage review and policy considerations within Australia.
Australia’s Carbon Leakage Review and Policy Responses
The Australian government is undertaking its own review into the issue of carbon leakage, which is where emissions-intensive industries relocate to regions with less stringent climate policies. Carbon leakage could hinder the achievement of global net zero emissions, including Australia’s mandated emissions reduction target. As part of the Carbon Leakage Review, the Australian government is exploring appropriate policy responses to address this challenge.
The CBAM was the EU’s policy response to this issue. The CBAM is a trade policy tool that imposes a carbon price on imported goods based on their embedded emissions. This aims to level the playing field between domestic producers subject to carbon pricing and foreign competitors from jurisdictions with weaker climate regulations.
The EU CBAM is set to enter full implementation from January 1, 2026. Initially, it will target emissions-intensive imports such as cement, iron and steel, aluminium, electricity, hydrogen, and fertilisers. Importers will be required to report embedded emissions and purchase CBAM certificates to account for the carbon price differential between the EU and exporting country.
In the context of Australia's ongoing Carbon Leakage Review, the government is examining a range of policy options to address this challenge. These include the potential implementation of a CBAM-like mechanism, as well as other policy measures such as the existing Safeguard Mechanism.
The Safeguard Mechanism, which covers around 30% of Australia's annual national emissions, is the primary policy for reducing industrial emissions. While this policy does not directly impact agriculture, it allows captured entities to offset their emissions using land-based carbon credits. This reliance on land-based carbon offsets for national emissions reduction raises concerns for the agricultural industry, as it risks turning the sector into a default emissions offset tool for high-emitting industries, rather than a focus on those industries directly reducing their own emissions. The Safeguard Mechanism is also slated for review in 2026-27.
As part of the Carbon Leakage Review, the government is evaluating the effectiveness of the Safeguard Mechanism in capturing and addressing carbon leakage risks for specific commodities, such as urea. The review will provide recommendations on whether the Safeguard Mechanism is sufficient to prevent or minimise long-term leakage risks, or if additional or alternative policy approaches may be required for particular commodities.
It is important to note that the development of such policies is an iterative and complex process, and more certainty around the government's approach will likely emerge as the review concludes.
GrainGrowers' Perspective and Ongoing Advocacy
GrainGrowers, in conjunction with the National Farmers' Federation (NFF), is closely monitoring these policy developments to ensure that the cost of agricultural inputs do not increase as a result of government policy, that growers can continue to produce high-quality, affordable food and fibre for both domestic and international markets, that growers remain globally competitive, and that regional manufacturing of low-emissions inputs like fertilisers is incentivised and expanded in regional areas.
GrainGrowers’ Climate Change Policy emphasises that action on climate change must not impose undue burdens on grain growers, who are already global leaders in low-emissions grain production. GrainGrowers seeks policies that ensure Australian grain growers are not required to offset the emissions of other sectors, as well as policies that prioritise the development of low/no-emissions technology and alternative inputs at lower costs.
Additionally, GrainGrowers’ Farm Inputs Policy also seeks policies that promote the least cost pathway for agricultural inputs to reach domestic grain growers, either domestically or via importation, while maintaining fit for purpose regulations to safety, quality, biosecurity and other relevant standards.
Key Term Explainer
Agriculture and Land Sector Plan
A framework established by the Australian government to guide the agriculture and land sectors in contributing to the national net-zero emissions target. It does not mandate emissions reduction for the agriculture sector.
Captured Entity
An entity (typically a business or facility) that falls under the scope of the Safeguard Mechanism due to its level of emissions (over 100,000 tonnes CO2-e per annum). These entities are required to manage and report their emissions and may use offsets to comply with reduction obligations.
Carbon Border Adjustment Mechanism (CBAM)
A trade policy tool introduced by the EU to impose a carbon price on imported goods based on their embedded emissions. Its goal is to prevent carbon leakage and ensure fair competition between domestic producers subject to carbon pricing and foreign producers from countries with weaker climate policies.
Carbon Leakage
Occurs when emissions-intensive industries relocate to countries with less stringent climate policies, undermining global efforts to reduce emissions.
Carbon Price
A fee or tax imposed on the emission of greenhouse gases, intended to incentivise reductions in carbon emissions.
CBAM Certificates
Certificates that EU importers must purchase to cover the carbon price difference between thecarbon price in the country of production and the EU. With the CBAM certificates, importers will have to pay the same amount per tonne of CO2 emitted, as if the goods had been made in the EU.
Embedded Emissions
The total greenhouse gas emissions associated with the production of a good, including energy use, raw materials, and manufacturing processes.
Land-Based Carbon Credits
Credits generated from land management practices that sequester carbon, such as reforestation or soil carbon projects. In Australia these are primarily Australian Carbon Credit Units (ACCUs). These can be used by captured entities to offset their emissions under the Safeguard Mechanism.
Safeguard Mechanism
A policy that requires Australia's largest industrial emitters to reduce their greenhouse gas emissions to meet national targets. Facilities that exceed their baseline must manage their emissions by purchasing Australian Carbon Credit Units (ACCUs) or using other approved methods.