In a recent development concerning Australia’s environmental policies, the Albanese government has released a long-awaited report addressing the issue of carbon leakage. The report, led by climate economist Frank Jotzo, examines how Australian companies might relocate industrial activities overseas to bypass stringent climate policies. While the report indicates that carbon leakage isn't an immediate threat at present, it warns that this may change if major industries face increasing pressure to reduce their emissions under the safeguard mechanism.

The report emphasizes the importance of addressing carbon leakage to ensure Australia’s efforts contribute meaningfully to global net-zero targets. If companies relocate their operations to countries with less stringent climate measures, it could undermine Australia's climate goals by simply shifting emissions rather than reducing them. This scenario could be self-defeating and counterproductive, as the aim is to encourage widespread emissions reductions, not just domestically but globally.

To mitigate the risk of carbon leakage, the review advocates for the implementation of a Carbon Border Adjustment Mechanism (CBAM). This proposal would impose fees on imported products, ensuring that foreign industries face similar costs for carbon emissions as Australian companies. Such a mechanism could level the playing field and incentivize emissions reductions, facilitating both domestic climate actions and global emissions reduction efforts, particularly as Australia continues to navigate its political landscape and address environmental challenges amid controversies regarding coal projects and species threatened by climate change.