At a time when respected Australian academics and commentators are pointing to the European Union´s carbon border adjustment mechanism (CBAM) as a model for fixing an Australian carbon price, South Africa has announced it may lodge a formal complaint against the EU at the World Trade Organisation. The EU’s CBAM will impose charges on imports into Europe of carbon-intensive goods such as steel, aluminium, hydrogen, fertilisers and cement. The levy has faced criticism from some developing nations who can´t raise the investment necessary to reduce their CO2 emissions. The South African Trade Minister, Ebrahim Patel, recently described the CBAM as protectionist. “Instead of recognising differential levels of development, the CBAM imposes a one-size-fits-all approach to firms around the world,” he said. The EU is South Africa’s largest trading partner and the current version of CBAM could lead to a 4% reduction of total exports to the EU by 2030, according to the South African Reserve Bank.

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In response, a European Commission spokesperson said: “EU domestic industry pays a carbon price. We need to make sure importers pay an equivalent price, based on the carbon content of their goods, to prevent carbon leakage and help reduce greenhouse gas emissions.” Carbon leakage refers to the risk that, rather than reducing their emissions, European industries will simply move abroad to avoid paying the EU’s domestic carbon price.

Rod Sims, the former chairman of the ACCC and a former economic advisor to the Hawke Government, has recently joined with Ross Garnaut in arguing that a price has to be paid for carbon somewhere along the line: and the sooner we recognise this fact the better rewarded Australia will be. Garnaut is a renowned economist and a director at the Superpower Institute. Both men say the economic imperatives for taxing carbon are clearly evident. Indeed, as an example, the CBAM presents Australia with a unique opportunity. Instead of taking the easy option and simply shipping our enormous wealth of iron ore off to China in its raw form, we ought to use our natural resources and technology to supply the EU with precisely the sort of carbon-reduced product it craves. Likewise to our other customers around the world. And not just iron ore. Sims and Garnaut say Australia has all the skills and ingredients necessary to fully embrace and prosper from the green steel, low-carbon emissions revolution.

Australia is also set to benefit from India´s inexorable rise as a steel producing and steel consuming nation. Since it overtook Japan in 2018 as the world´s second largest crude steel producer, India has consolidated that position. Production of 125 million metric tonnes (Mm/t) in 2022 had increased to 140 Mm/t by 2023. The National Steel Policy (2017) aims to increase crude steel production capacity to 300 Mm/t by 2030. The most recent monthly figures show steel production grew 7.1% year-on-year in March of this year, against a 6.4% increase a month earlier. Australian exporters of iron ore and coking coal have already adjusted their long-term forward estimates to cater for India´s increased appetite. India´s steel demand has been driven by the massive expansion in recent years of infrastructure projects at the behest of Prime Minister, Narendra Modi. His re-election to office this week implies that trend will continue well into the future. According to an interim budget announcement by the current government, spending on infrastructure, which accounts for about 30% of steel demand, is expected to go up to 11% year-on-year in fiscal year 2024-2025. “We would expect the Indian government to continue its policy of supporting the domestic steel industry which is an important component of Narendra Modi’s Make in India program,” Commodity Insights Metals Analytics Lead, Paul Bartholomew, said before the election.

India has also committed to various net-zero emissions goals and will therefore need to increasingly turn to low-carbon electric arc furnaces which use scrap as a raw material to produce steel. India imported a record 12.1 Mm/t of ferrous scrap in 2023, up sharply from 8.3 Mm/t in 2022, according to commerce ministry data. The country is also aiming to secure critical mineral resources such as lithium as part of its broader clean energy plans. Lithium is used to build electric vehicles and energy storage systems. Australia has the second largest reserves of lithium in the world.