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Crawford professor to lead Australia’s Carbon Leakage Review

05 September 2023

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Frank Jotzo is Director of the Centre for Climate and Energy Policy at Crawford School. He teaches the graduate course EMDV8081 Domestic Climate Change Policy and Economics.

Australia’s Minister for Climate Change and Energy, The Hon Chris Bowen MP, announced today that Professor Frank Jotzo has been appointed to lead the Australian Government’s Carbon Leakage Review.

A leading expert in the economics of climate change, Frank Jotzo is Head of Energy at The Australian National University (ANU) Institute for Climate, Energy & Disaster Solutions (ICEDS) and a Professor at the ANU Crawford School of Public Policy.
In a recent address, Minister Bowen said, “Carbon leakage undermines national and international climate action and has long been a key consideration in the development of climate policy across the world. “While some in the industry think a CBAM or other policy response can be implemented quickly, experience with the EU makes clear a range of complex policy issues need to be examined carefully,” said Minister Bowen.

The review will assess carbon leakage risks for Australian industrial activities and examine a range of policy options to address them. It will include assessing the feasibility of a Carbon Border Adjustment Mechanism (CBAM), which would seek to protect Australian producers from being undercut by competitors from countries with weaker emissions restrictions and encourage other countries to implement their own climate policies.

“During the policy development of the Safeguard Mechanism, it became clear that there is a genuine need to better understand the issues and options available to Australia,” Frank Jotzo said. “This is a very complex policy issue. The review will investigate deeply, consult extensively and make recommendations on the basis of thorough analysis.”
Frank Jotzo has held lead author roles with the Intergovernmental Panel on Climate Change (IPCC) and is also the Director of the ANU Zero-Carbon Energy for Asia-Pacific initiative. His research and leadership span decarbonisation strategies and economics of energy transition, policy instruments for climate change and environment, trade and investment, and international dimensions including development.

FAQ

What is carbon leakage?

Whether and to what extent the production of goods and commodities is covered by policy to reduce greenhouse gas emissions differs between jurisdictions. This creates the potential for production to shift from countries with stronger policies to those with weaker or no policies. Where such shifts in production occur solely because of different policy settings, they are termed ‘carbon leakage’. Shifts in production between countries and geographies can also occur when countries have the same level of policy stringency because of differences in emissions intensity or cost structures.

What is CBAM?

Carbon leakage can stand in the way of ambitious national emissions reduction policy, and so it is common practice to design carbon policies to minimise the risk of carbon leakage. There are a variety of approaches to doing this, with different effects. One way of addressing the risk of carbon leakage is to make an adjustment for differential policy treatment of traded goods at the border.

For example, by charging a tariff on imports based on the emissions incurred in the production of that good and on the difference in the carbon price between the producing and importing country. Similar adjustments can apply to exports. This is called the Carbon Border Adjustment Mechanism (CBAM), sometimes also referred to as Border Carbon Adjustment or BCA. Consideration of a CBAM includes complex issues around opportunities for more efficient climate policies, economic effects, compatibility with trade rules and policy, interests of trading partners and their incentives to implement or strengthen their own climate policies, and more. The EU is about to phase in its Carbon Border Adjustment Mechanism (CBAM) on selected goods and materials.

Department of Climate Change, Energy, the Environment and Water’s announcement.

The Hon Chris Bowen MP, Minister for Climate Change and Energy’s press release.

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