Businesses lobby for carbon tariffs as Labor says Australia is ‘back in the game’ on climate

The Albanese government has left open the possibility that Australia could introduce carbon tariffs as part of a suite of climate policies to help the global shift to net zero emissions by 2050.

The former Morrison government railed against Europe's proposal for a carbon border adjustment scheme, calling it "just a new form of protectionism that will undermine global free trade and impact Australian exporters and jobs".

But Labor's climate change minister, Chris Bowen, says business groups are now lobbying for Australia to adopt its own version.

Australia is poised to join the Coalition of Finance Ministers for Climate Action, which has been exploring proposals for border carbon adjustment schemes and their potential impacts. The group is also sharing views on carbon pricing and phasing out inefficient fossil fuel subsidies.

Carbon tariffs penalise companies and countries trying to evade responsibility for cutting emissions. Penalising imports from countries that don't have serious climate policies helps preserve the relative competitiveness of domestic heavy industry by preventing so-called carbon leakage.

The Business Council of Australia and Ai Group have both used submissions to the government's review of the safeguard mechanism - one of the domestic policies that will aim to drive down industrial emissions - to argue an Australian border adjustment mechanism is worthy of consideration.

The federal treasurer, Jim Chalmers, will attend his first meeting of the Coalition of Finance Ministers for Climate Action during his visit to Washington DC this week. Until now, Australia had been the only advanced economy in the G20 that had opted not to sign up as a member.

Bowen said the issue of border adjustments "has come up in submissions to the safeguard mechanism consultation" and, at this point, nothing was being ruled out. "The government is currently considering submissions and will respond in full over the coming months," he told Guardian Australia.

A border adjustment mechanism proposed by the European Union is expected to be operational by 2026. The prospect of deploying trade measures to drive countries to adopt forms of carbon pricing has helped galvanise global climate action over the past couple of years.

In its submission to the safeguard review, the Ai Group notes "trade-related climate measures are becoming tangible internationally and relevant to Australia". It says a border adjustment mechanism would "level the international playing field for Australian producers of products with a risk of carbon leakage".

The BCA says in its submission the deployment of a border adjustment mechanism "to address trade exposure is worthy of consideration as part of a broader international trade policy discussion in an increasingly decarbonised global context".

Chalmers, ahead of his departure to Washington, said joining the coalition meant Australia was "back in the game for climate action". In a message to other members, the minister said he was "so thrilled to join this coalition of like-minded countries" and Australia was "ready to do its part".

"Australia, with its new government, is back in the game for climate action, because we know that ambitious climate action is a generational and economic imperative," he said.

Chalmers said getting the transition right was "critical to the future of all our economies - for creating new jobs in new industries, leveraging traditional economic strengths, providing certainty for investors, and promoting global stability".

He said recent disruptions in global energy markets highlighted "the urgency of this work". He argued businesses, investors and financial institutions need to mobilise investment towards cleaner energy and manage and disclose climate risks.

"As Australia's treasurer, I have begun the task of developing clear, credible, and globally comparable climate-reporting requirements for large businesses and financial institutions - and a framework for future growth in sustainable finance," Chalmers said.

He said Australia would be "a dependable and diligent nation on climate action". He acknowledged the particular importance of the issue to Pacific island countries, saying the climate crisis poses an existential threat "to our closest neighbours".

Fiji, the Marshall Islands and Tonga are among the 75 members of the Coalition of Finance Ministers for Climate Action, which also includes all G7 countries: Canada, France, Germany, Italy, Japan, the UK and the US.