5 mins read
Published Mar 4, 2026
Australia’s Carbon Leakage Review Signals a Possible Carbon Border Adjustment Mechanism
Carbon border adjustments are becoming part of the global climate policy toolkit. The European Union has already introduced its Carbon Border Adjustment Mechanism, and the United Kingdom plans to implement its own system in 2027. Australia is now evaluating a similar approach.
In early 2026, the Department of Climate Change, Energy, the Environment and Water released its Carbon Leakage Review. The report concludes that a carbon border adjustment is a credible policy option for Australia. While no legislation has been introduced, the findings indicate a clear shift in policy thinking.
The proposed approach would begin with a limited scope. Rather than applying a broad mechanism across many sectors, the review recommends starting with a small number of emissions intensive imports and expanding only if necessary.
Launching CBAM: Cement & Clinker First
The Review recommends cement (and its input, clinker) as the first industries to face the new border charge. In plain terms, this means imported cement products could eventually carry a carbon price comparable to what local cement plants pay.
According to the report, other sectors “subject to further assessment” include:
Lime.
Hydrogen & ammonia (and their derivatives).
Steel & iron.
Glass.
Scope 1 (Direct) Emissions Only – For Now
Australia’s proposal would focus on Scope 1 emissions. (Scope 1 means on‑site combustion; Scope 2 means purchased electricity emissions.) The Review explicitly aligns CBAM with the Safeguard Mechanism, charging only on Scope 1 emissions above Australia’s baselines. In other words, energy use (Scope 2) is left out for now.
This matches the UK’s approach: the UK will delay including indirect electricity emissions in its CBAM until at least 2029. By contrast, the EU’s CBAM already captures both Scope 1 and Scope 2 for the covered sectors.
Companies already preparing for the EU CBAM would need a different data process for Australia. Under the Australian plan, you would only report on-site emissions from production processes. For example, clean energy use inside a cement plant wouldn’t reduce its CBAM charge, at least initially – a renewable‑heavy plant still pays on remaining Scope 1 emissions.
Australia’s CBAM intentionally mirrors domestic rules. The Safeguard Mechanism (Australia’s carbon pricing for big factories) sets annual emissions baselines for large facilities. Any CBAM charge would apply only when imported goods’ emissions exceed those baselines and the foreign carbon price is lower than Australia’s benchmark.
Put simply, if an overseas producer already paid a carbon price at home, that amount is subtracted from the CBAM levy. This mirror‑policy design ensures imports face the same net carbon cost as local production, satisfying WTO non‑discrimination rules.
In sum: Australian CBAM = Safeguard rules + Scope 1 + credit for any carbon price paid abroad.
Designing for Trade Law and Industry
The Carbon Leakage Review outlines several principles intended to ensure the mechanism aligns with both domestic policy and international trade rules.
Alignment with domestic policy
Imports would face carbon costs calculated in a manner consistent with Australia’s Safeguard Mechanism. Emissions above relevant baselines would form the basis for any adjustment.
Recognition of overseas carbon pricing
If a carbon price has already been applied in the country of origin, this cost may be recognised when calculating any adjustment in Australia. This approach aims to prevent double charging and maintain consistency with international practices.
Administrative practicality
The review emphasises the need for a system that businesses can implement without excessive administrative complexity. Reporting, verification and record-keeping processes are expected to follow established frameworks where possible.
These principles indicate that any future mechanism would likely integrate with systems that companies already use. Under Australia’s current framework, large facilities report emissions through the National Greenhouse and Energy Reporting scheme and the Safeguard Mechanism. A similar structure could support the reporting required for imports.
For example, reporting would likely focus on Scope 1 emissions, meaning direct emissions from the production process itself. In sectors such as cement production, this includes emissions released during the chemical transformation of limestone as well as fuel combustion in kilns.
The review also notes that practical design features could help reduce administrative complexity. These may include default emissions values and standardised reporting approaches, both of which are commonly discussed in international carbon border policy design.
The objective is a system that maintains environmental integrity while remaining workable for industry.
What Happens Next
No implementation date has been announced. The government has indicated that the recommendations will be considered as part of the upcoming Safeguard Mechanism review scheduled for 2026 to 2027.
During this process, industry stakeholders and trading partners are expected to be consulted on the detailed design. This step is important because any border adjustment must be consistent with international trade obligations while also functioning within Australia’s existing climate policy architecture.
Australia’s approach therefore appears deliberate rather than rapid. The focus is on ensuring legal robustness, operational clarity and industry engagement before any final policy decision.
Preparing for Possible Implementation
Even though a mechanism has not yet been introduced, the review provides useful signals for companies operating in affected sectors.
One practical step is to ensure that Scope 1 emissions are clearly understood and documented. These are the direct emissions generated by industrial processes and on-site fuel use.
For example, cement production releases carbon dioxide both from fuel combustion and from the chemical process that converts limestone into clinker. Understanding the scale of these emissions is essential for compliance with many climate policies, including potential border adjustment mechanisms.
Accurate facility-level data therefore becomes increasingly important. This includes measurement systems, monitoring plans and internal verification processes.
Electricity use, commonly referred to as Scope 2 emissions, is not currently expected to be included in the initial design. The review notes that other policies already address emissions from electricity generation. As a result, the initial focus remains on direct production emissions.
For companies already reporting under Australia’s existing frameworks, this may feel familiar. Many organisations covered by the Safeguard Mechanism already track emissions using the National Greenhouse and Energy Reporting system. A border adjustment mechanism would likely rely on similar data structures.
Implications for Sustainability Leaders
Although the policy remains under consideration, the direction is becoming clearer.
Australia is assessing a carbon border adjustment mechanism that would apply carbon costs to selected imported products in a manner aligned with domestic climate policy. Initial coverage discussed in the review centers on cement and clinker, with other emissions-intensive materials potentially considered in the future.
The mechanism would focus on direct production emissions and recognise carbon prices already paid in other jurisdictions. Administrative processes are expected to follow existing reporting structures where possible.
For sustainability and supply chain teams, preparation mainly involves data readiness.
Key priorities include:
• Ensuring Scope 1 emissions are accurately measured and documented
• Understanding how production processes contribute to emissions intensity
• Monitoring developments in the Safeguard Mechanism review
• Engaging in consultations where relevant
These steps support both regulatory preparedness and broader operational transparency.
Companies involved in cement, industrial materials, hydrogen or other emissions intensive sectors may want to start reviewing how production emissions are measured and documented. If your team is evaluating how to structure reliable sustainability data or traceability across operations, our team is available to continue the discussion.
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