In February, 2026, the Australian Department of Climate Change, Energy, the Environment and Water released a final report evaluating carbon leakage risks and recommending potential policy actions. The report identifies sectors that may face future carbon leakage risks:
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High risk: Cement, clinker, and lime
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Moderate–high risk: Hydrogen, ammonia and derivatives, steel, and glass
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Potential future risk: Alumina, aluminum, refined petroleum, pulp, and paper
The report suggests gradually introducing an Australian carbon border adjustment mechanism (CBAM) for these products and outlines policy options to manage leakage risks. These recommendations will be reviewed during the upcoming evaluation of Australia’s Safeguard Mechanism planned for 2026–2027.
A border carbon adjustment applies a carbon price to certain imports equivalent to the carbon cost faced by domestic producers. The European Union pioneered this approach through the Carbon Border Adjustment Mechanism, which entered full operation in 2026. The United Kingdom has also proposed a similar system targeted for implementation in 2027.
Safeguard Mechanism
Australia’s Safeguard Mechanism requires large facilities emitting more than 100,000 tonnes of greenhouse gases annually to keep emissions below a defined baseline. It covers around 220 major emitters, responsible for roughly 30% of Australia’s total emissions, including sectors such as mining, oil and gas, manufacturing, transport, and waste.
The government initiated a carbon leakage review in 2023, followed by public consultations in 2023 and 2024, which informed the final report and its recommendations.
Key Recommendations
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Border carbon adjustments could be an effective tool for products facing high carbon leakage risks.
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Cement and clinker are considered the most suitable for early CBAM implementation due to their high leakage risk.
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Lime, hydrogen, ammonia, steel, and glass may also qualify, though further analysis is needed due to complex supply chains or limited coverage under the Safeguard Mechanism.
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Alumina, aluminum, refined petroleum, pulp, and paper are not currently high-risk but could face future exposure.
The report also recommends designing emissions reporting and verification systems that reduce administrative burdens through simplified reporting, reliable verification, and appropriate default emission values.
While the Safeguard Mechanism currently helps manage carbon leakage risks, the report notes that additional measures—such as a CBAM—may become necessary over time as emission baselines tighten.
