Carbon border taxes turns case, it raises the barriers to trade, halting technological innovation on climate change AND ensuring that the carbon tax needs to be more expensive to be effective.

Technological innovation — backed by a carbon tax to make it competitive — is the essential requirement for transition to net-zero carbon emissions by 2050. And trade, by stimulating competition, is a catalyst of innovation. 

Three areas of technological transformation stand out. Australia and its Asia Pacific neighbours have a stake in each of them.

The first is solar photovoltaic technology that uses solar panels to convert sunlight into electricity. Over the past decade, solar photovoltaic has become a pillar of the low-carbon sustainable energy system with installed capacity increasing 100-fold and costs declining by 77 per cent. Some 40 per cent of the decline in the cost of solar photovoltaic modules since 2001 is attributable to trade.

With the highest solar radiation per square meter of any continent, Australia is particularly well placed to profit from solar photovoltaic technology, as testified by the proposed Darwin–Singapore undersea renewables-generated electricity cable. Malaysia, Vietnam, Thailand and the Philippines rank among the top 10 global exporters of selected solar photovoltaic goods.

The second area of trade-augmented innovation is the export of low-carbon hydrogen, important in hard-to-electrify sectors like steel production and facing a potential six-fold increase in demand by 2050.

Australia is at the forefront in using renewable energy to produce zero-emissions ammonia — a low-cost carrier for hydrogen — and no less than six Japanese corporations have hydrogen development projects in Australia.

The third area of innovation is CRISPR (clustered regularly interspaced short palindromic repeats). This gene-editing helps countries decarbonise their food systems by making export crops that are resistant to disease or bad weather, reducing the need for increased farmland via deforestation — the source of 10 per cent of global carbon emissions.

For example, CRISPR-based genome editing of oil palm to eradicate Basal Stem Rot will significantly reduce plant loss and subsequent compensatory deforestation in Indonesia and Malaysia — the leading exporters of palm oil. A switch to trade in gene-edited palm oil promises major environmental benefits.

Beyond trade’s multiplier role in spreading the benefits of specific technologies, it also has a more general function in stimulating the economic growth necessary to fund the energy transformation.

Yet despite trade’s role in the climate transition, the transition itself threatens trade. As countries’ environmental commitment varies, pressure mounts for tariff restrictions on imports of carbon-intensive products, like steel, from perceived environmental free riders.

The difficulty of identifying carbon intensity and free riding fuels the view that such penalties are simply disguised protectionism. The resulting tensions — augmented by the climate transition’s emotive power and by broader protectionist tendencies, including as countries favour their own climate technologies — pose a major threat to the trading system.