Interview with Fran Kelly, ABC Radio National Breakfast

Fran Kelly: A carbon tax on some major Australian exports has come a significant step closer with the measure almost the centrepiece of an ambitious EU plan to slash greenhouse gas emissions by 55 per cent by 2030. The EU has released its Fit for 55 climate package, which is a suite of draft laws to wean it's 27 members off fossil fuels. Three billion trees would be planted across the EU by 2030 as part of this, and all combustion car engines would be banned by the middle of next decade. And, if approved by the European Parliament, a carbon border adjustment mechanism will be imposed on energy-intensive products imported from countries like Australia which don't have their own carbon pricing system.

Trade Minister Dan Tehan has retaliated, branding the new tax a new form of protectionism. The minister joins us from Tokyo. Dan Tehan, welcome back to Breakfast.

Dan Tehan: Pleasure to be with you, Fran.

Fran Kelly: Minister, you're having a close look to see if this carbon border tax that the EU is proposing contravenes the global trading rules. How would it? What's the breach?

Dan Tehan: Well, the breach is how they impose the carbon tariffs on other countries and whether that is consistent with all the mechanisms that they've put in place within the EU, particularly when it comes to how they deal with free permits. Most heavy industries in the European Union get free permits which it comes to their ETS. Now if they're now putting border tariffs on those products as they come into the EU they're treating differently products within the EU compared to how they're treating products that they're importing from other countries. So, we will be looking very closely at what they're doing. The last thing the world now needs is extra protectionist policies being put in place.

Fran Kelly: Well, the EU says it's not that at all. This border tax is not a tariff; they say it's a mechanism designed to comply with WTO rules, arguing the measure would bring Australian exporters in line with European procedures who already pay a price under Europe's emissions trading scheme. So that would not be protectionism. Under that definition it would not be.

Dan Tehan: Well, that's right, Fran, and that's what the European Union have said. So, what we now have to do is look at the detail and make sure that exactly what they are saying is what they are doing. We will obviously examine all that. But there are some key points that we'll also be looking and talking to the EU about, and one is will it also undermine international cooperation when it comes to dealing with reducing emissions and our concern is that it will also do that. Is it a sub-optimal way of reducing emissions? And we think it is. We think it would be much better to incentivise countries to deal with emissions reduction rather than penalising them. And, also is it focused on revenue-raising? And one of the things that is concerning, there will be – they will raise over $9 billion – sorry, 9 billion euros by 2030 using this mechanism. And, is it designed more as a revenue-raising option for the EU rather than dealing with emissions reduction? So, all these considerations need to be taken into account, and that's what we'll be examining.

Fran Kelly: Okay, well, better to incentivise in terms of penalise, but it's unclear how a government, or the EU, for instance, could incentivise Australian exporters to cut carbon. I mean, the EC President, Ursula von der Leyen, says it's all about a level playing field. She said, “Carbon has to have a price everywhere. It's not fair if exporters from third countries can undercut European efforts to reduce emissions by coming to the single market with cheap but carbon-heavy products.'” She just says they're levelling the playing field.

Dan Tehan: Well, the view in the EU is that their ETS is the way you should go about reducing emissions. That's not the view in the rest of the world necessarily and what we need to be doing is enabling each country to look at what they think is the best mechanism, given their particular circumstances, to reduce emissions. So –

Fran Kelly: Yeah, sure, but what if some countries just don't take the action that the rest of the world or many others think is required? I mean, the UK and the US are also looking at mechanisms. If one country is a laggard do others not have a right to build in some kind of – as I say, level the playing field?

Dan Tehan: Well, that's why we have multilateral environmental negotiations, and that's why the COP in Glasgow will be important in dealing with these issues, because that's where all countries can come together and agree what are the best mechanisms to put in place to ensure that all countries are doing their job in reducing emissions. What we're seeing here is the EU seeking to impose its views and its ways on other countries as to how they should go about it and that ultimately in the end might not lead to the type of international cooperation that we need to reduce emissions. If we're going to successfully deal with climate change, we need all countries on board doing it and the EU unilaterally imposing its views and its ways is not necessarily going to achieve the outcomes that we're all looking for. And that's why we'll be looking to discuss this further with them.

Fran Kelly: If you don't win this fight and this remains in place, I mean, won't our Australian producers be looking at the fact that, you know, if the Coalition hadn't dumped the emissions trading scheme in 2014 we wouldn't be in this position? How do you think the producers, the exporters, will feel if they end up paying a carbon price anyway but to another country? That would be the worst of both words, wouldn't it?

Dan Tehan: Well, not necessarily. There's a long way to go when it comes to this proposal by the European Union and we think that our way of promoting technology and incentivising industries to reduce emissions is a much better way to go about leading, ultimately, to emissions reduction. It's technology that is going to provide the answers to reducing emissions, not taxes. And we've obviously made that case very strongly and we will continue to do that, and we are already embarking on international cooperation based on the Australian approach and the approach that other countries are taking. For instance, I've just been in Singapore where we've been discussing and agreed that we will negotiate a green economy agreement. We'll do with that Singapore and then potentially that could be extended to other countries in the region and what that will do is take a very different approach. It's about ensuring that we reduce tariffs on environmental goods and on environmental services. So, if we can reduce the cost of environmental goods and environmental services then that will enable all countries to be able to have the technology and the know-how to be able to reduce emissions. We also look at technical cooperation.

Fran Kelly: Okay.

Dan Tehan: How we can promote further hydrogen, ammonia, those types of things, and these are discussions that we're having not only within our region but also with countries in Europe and in North America, and we'll continue to have those.

Fran Kelly: But is it going to take Australia to bring something more concrete to the table? Because as I mentioned, the threat will only increase in the UK and the US also adopt carbon border taxes, and there is talk of that. Will the government be forced to commit, for instance, to net zero by 2050? Would that avoid this kind of tariff or border tax?

Dan Tehan: Well, obviously, we've made it clear that our aim is to try and get to net zero by 2050 or some time very near that. We'll continue to make sure that we target that approach. But the big question is, how do you get there and how do you get there without putting a huge cost on your community and on your businesses and industries? We don't want to be doing this in a sub-optimal way and that's our concern with the EU approach. We think there is a much better approach which doesn't penalise or harm your businesses, your industries, jobs, and your communities.

Fran Kelly: Okay.

Dan Tehan: And one of the things which is very clear from the raft of measures that the EU have put in place are that it's going to see a tangible rise in the cost of living in the EU, and this is something which I'm sure we're going to see huge political debate in the EU over in the coming months and years as they seek to finalise their policy.

Fran Kelly: If this goes ahead, Minister, what about the cost of Australia not coming to the table in a way that the EU sees is adequate on our steel and aluminium exporters? They're the first products, I think, that would be included in a border mechanism. Ninety per cent of our aluminium is exported. How much would a new border tax end up costing Australian producers and Australian jobs? I'm sure you've crunched the numbers on this by now.

Dan Tehan: So we're assessing this at the moment. Obviously, the policy came out overnight –

Fran Kelly: We knew it was coming, though, Minister. We've been talking about it for a while.

Dan Tehan: We did, Fran, but you will have seen that there was a leaked version of this which came out a couple of weeks ago, and from the leaked version to now the version that's been released today there's been changes that have been made. So it's gone to the last minute with regards to putting the detail together in the EU. But our assessment at this stage is that what we're more likely to see is indirect costs imposed on Australia as a result of this rather than direct costs. And obviously –

Fran Kelly: What do you mean when you say indirect costs?

Dan Tehan: – we'll continue to do the work.

Fran Kelly: Do you mean indirect costs, for instance, economic impact, for instance, on Australian coke and coal used to make Chinese steel, which is sold into Europe? Would that be an indirect cost passed back down the line to our coal exporters? Is that what you mean?

Dan Tehan: That potentially is the type of thing where we're more likely to see, indirect cost than direct cost, in terms of Australian direct exports of those products into the EU. So we'll continue to assess all that, and obviously the EU will finalise this over the coming months, so we'll continue to watch the detail very closely. But as I've said, what our major concerns are that we think it's protectionist, we think it will undermine international cooperation rather than promote international cooperation. We think it's a sub-optimal way of reducing emissions and we worry that it's focused more about raising revenue than really reducing emissions themselves.

Fran Kelly: Minister, thank you very much for joining us.

Dan Tehan: Pleasure, Fran.

Fran Kelly: Perhaps we'll talk to you again – are you staying there for the Olympics?

Dan Tehan: No. No, I'm here in Japan now. I'll be off to South Korea and then the United States.

Fran Kelly: Okay. Thank you very much for joining us.

Dan Tehan: Cheers. Bye.

Fran Kelly: Dan Tehan, Minister for Trade and Tourism. You're listening to RN Breakfast.