By GrainGrowers Chair, Rhys Turton
As Chair of GrainGrowers, I was alarmed this week to see media reports suggesting that the Federal Government is considering introducing a Carbon Border Adjustment Mechanism. While what that means will be a mystery to many, a simple explanation is that a CBAM is a large-scale tax on carbon-intensive imports – something that worryingly could have far-reaching consequences for Australian agriculture.
From reading the reports, the consideration of the tax has been prompted by the European Union decision to roll out a carbon border tax from 1 January 2026. Included in the discussions is the fact that the Australian Government is currently conducting a Carbon Leakage Review to explore how we might respond to global carbon pricing trends.
While the Government is in the review stage of considering the next steps, grain growers across Australia need to understand the potential serious implications that would occur if a CBAM is implemented.
CBAM is a policy introduced by the European Union to put a price on the carbon emissions embedded in certain imported goods, ensuring that both domestic EU production and imports from other countries pay an equivalent carbon price for their emissions.
The main objective is to prevent "carbon leakage" which occurs when companies move carbon intensive production to countries with weaker climate policies or when imports replace EU products due to lower foreign carbon costs. By equalising the carbon price on imports and locally produced goods, CBAM is designed to promote climate ambition and also protects local industries from unfair distortions.
When CBAM begins in Europe in 2026, it will apply initially to imports of steel, aluminium, cement, electricity, hydrogen and fertilisers. Importers must purchase and surrender CBAM certificates that correspond to the amount of CO2 emitted during production with pricing pegged to an EU trading exchange.
While this may sound fair in principle, the implications for Australian farmers if it were implemented are anything but fair. The precise point that needs to be made and, most importantly, heard by Government, is that Australia's agricultural landscape is fundamentally different from Europe's and requires a different approach to avoid serious adverse impacts.
Take, for example, the impact on fertiliser, a vital farming input. Since the closure of Gibson Island in 2022, Australia has had no domestic urea production, a nitrogen-based fertiliser critical to grain production. There is not expected to be production again until 2027 if the Perdaman project in Western Australia gets up and running, with an estimated annual production of 1 million tonnes, half of which will be sold domestically.
Until that time, all our urea is imported, primarily from low-cost producers in the Middle East and China. If a CBAM were applied to these imports, farmers could face cost increases of $120–$150 per tonne of urea. With over 2 million tonnes imported annually, this could translate to an additional $300 million in annual costs for our sector.
Unlike the EU, which has a mature Emissions Trading Scheme and significant domestic fertiliser production, Australia has no such buffer. Rather than protect non-existent local manufacturers, a CBAM in Australia would raise costs for farmers and reduce our competitiveness on the global stage.
We are a significant exporter internationally, competing against countries that don't impose carbon pricing on fertilisers. A CBAM would make our inputs more expensive than competitors', squeezing margins and placing even more pressure on production and exports over time. And this is just one example of one imported farm input.
As the Government continues its review, policymakers need to consider the unique structure of Australian agriculture. A CBAM for Australia risks extreme harm and in no way ensures or encourages a transition to lower emissions farming. There are smarter ways to achieve the goals and grain farmers in Australia are well down the path of proactively exploring and achieving decarbonisation. An adjustment tax will not fix carbon abatement. Agroecological farming practices will.
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