A new report has made the case for Australia to take a leading role in shaping a regional carbon border adjustment mechanism (CBAM) across Asia, with the aim of encouraging low-emissions trade and supporting the transition to cleaner industrial production.
Published by the independent think tank Climate Energy Finance (CEF), the report argues that carbon border tariffs—applied to imports like steel, aluminium and cement—are urgently needed to account for the carbon pollution embedded in internationally traded goods. These sectors currently account for around 15% of global greenhouse gas emissions, yet often escape the cost of their climate impact.
The CEF report comes shortly after Energy Minister Chris Bowen stated on 1 June 2025 that the Albanese Government is considering a carbon tariff on certain imports. Bowen’s comments point to the possibility of extending Australia’s domestic carbon pricing framework through trade policy, in step with moves by the European Union and other economies.
Rather than disrupting trade like some tariffs currently used in geopolitical disputes, CBAMs are designed to reward cleaner production methods and ensure countries that price carbon are not undercut by cheaper, more polluting goods from elsewhere. According to CEF, this could help unlock investment in new green industries in Australia and across the region.
The report recommends that Australia initiate and support the development of an Asian CBAM, potentially involving countries such as China, Japan, South Korea and Singapore. This would build on existing carbon pricing schemes in those nations and mirror the European Union’s approach to border carbon tariffs, which aims to avoid “carbon leakage”—the shifting of emissions to countries with weaker climate rules.
CEF’s proposed framework rests on four main pillars:
- Higher domestic carbon pricing to drive investment into zero-emissions industrial products such as green iron and steel. In Australia, this would build on the Safeguard Mechanism, which places limits on emissions from large industrial facilities.
- A carbon tariff on imports from countries without equivalent pricing, to level the playing field and encourage cleaner production abroad.
- State-backed support for green industries, including market incentives such as tax credits to encourage early investment until international pricing levels out.
- Regional cooperation, aiming to align efforts between key Asian trading partners and scale up clean commodity trade.
The report argues that the path to a regional CBAM would not only benefit the climate but also serve Australia’s economic interests. Australia is already a leading exporter of iron ore, and CEF sees strong potential to grow a domestic green iron sector powered by renewables. A carbon price built into trade could help attract capital to value-added, low-emissions manufacturing in Australia rather than exporting raw materials.
Matt Pollard, the report’s lead author and a Net Zero Transformation Analyst with CEF, said that Australia’s shift away from fossil fuel exports is unavoidable in the long term. He argued that this creates an opportunity to reposition as a key supplier of clean commodities.
“Australia should build on the intention Minister Bowen has now flagged to consider a carbon tariff on some imports in this term of government, and accelerate efforts to advocate for a regional carbon pricing framework – a CBAM – in alignment with key trading partners,” Pollard said.
CEF Director Tim Buckley added, “The lead up to COP31 is also an opportunity for Australia to build on our domestic momentum as we price in industrial carbon emissions via the Safeguard Mechanism and decarbonise our electricity system, creating a path to an Asian CBAM.”
Carbon border tariffs remain a complex and evolving tool, but the CEF report makes the case that a coordinated approach—starting in Asia—could help both the environment and economies across the region. For Australia, this might mean fewer raw exports and more clean industry at home.
