The EU’s carbon border adjustment mechanism (CBAM) has been touted as a key policy for cutting emissions from heavy industries, such as steel and cement production.
By taxing carbon-intensive imports, the EU says it will help its domestic companies take ambitious climate action while still remaining competitive with firms in nations where environmental laws are less strict.
There is evidence that the CBAM is also driving other governments to launch tougher carbon-pricing policies of their own, to avoid paying border taxes to the EU.
It has also helped to shift climate and trade up the international climate agenda, potentially contributing to a broader increase in ambition.
However, at a time of growing protectionism and economic rivalry between major powers, the new levy has proved controversial.
Many developing countries have branded CBAMs as “unfair” policies that will leave them worse off financially, saying they will make it harder for them to decarbonise their economies.
Analysis also suggests that the EU’s CBAM, in isolation, will have a limited impact on global emissions.
In this Q&A, Carbon Brief explains how the CBAM works and the impact on climate policies it is already having in the EU and around the world, as nations such as the UK and the US consider implementing CBAMs and related policies of their own.
- What is a carbon border adjustment mechanism?
- Why was the CBAM introduced in the EU?
- How will the EU’s CBAM work?
- How is the mechanism expected to cut emissions?
- What are the reactions from developing countries?
- Are other countries introducing their own mechanisms?
What is a carbon border adjustment mechanism?
A carbon border adjustment mechanism (CBAM) is a tax applied to certain imported goods, based on the amount of carbon dioxide (CO2) emissions released during their production.
It targets industries that are typically emissions-intensive and relatively easy to trade internationally, such as steel, aluminium and cement.
CBAMs work on the basis that climate laws and standards in some nations – usually those in the global north – are tighter than those found elsewhere.
This means that the producer of a particular emissions-intensive product might have to pay a domestic carbon price, for example, whereas an overseas competitor might not.
Under a CBAM, a nation that applies a carbon price to its domestic steel industry would apply an equivalent charge at the border, to steel imported from overseas.
This is meant to “level the playing field” between producers in different countries. Those that make goods at a lower cost, but without a domestic carbon price of their own, would have to pay an equivalent fee when exporting to the country imposing a CBAM. This would allow domestic industries in the importing country to compete, while still curbing their own emissions.
CBAMs have been proposed as a response to fears of “carbon leakage”.
If nations lose carbon-intensive businesses because they close down or choose to do business elsewhere, this could harm the economies of nations trying to implement carbon pricing. At the same time, it could increase global emissions, if domestic manufacturing is simply replaced by more carbon-intensive imports.
This issue has risen to prominence in recent years, as the EU has become the first actor to introduce a CBAM.
CBAMs have been discussed ever since the early days of international climate action in the 1990s. There was recognition at that time of the risks of carbon leakage, as developed countries were being tasked with cutting their emissions under the Kyoto Protocol.
In particular, the EU launching its emissions trading system (ETS) in 2005 prompted what one study describes as “heated discussion” of the role that border taxes could play in preventing high-emitting industries moving away from EU member states to other countries.
(Despite these concerns, there has to date been essentially no evidence of carbon leakage. However, researchers have noted that this could be because high-emitting industries are yet to face strict carbon pricing: those in the EU generally receive free emissions allowances.)
The EU frames its CBAM as not only a means of placing a “fair price” on emissions bound up in imported goods, but also a way to “encourage cleaner industrial production” in the nations it imports goods from.
However, critics say variously that it is more to do with economic protectionism, or that it will harm trade, or that it will exacerbate existing inequalities between nations.
Why was the CBAM introduced in the EU?
The EU CBAM was brought in as part of the European Green Deal, the EU’s strategy to reach net-zero emissions by 2050.
A CBAM has been under consideration in the EU for years. The European Commission informally proposed a border adjustment in 2007, following the launch of the ETS. In the years that followed, France suggested such a scheme on two more separate occasions.
In her 2019 manifesto to become European Commission president, Ursula von der Leyen raised the issue again, saying she would “introduce a carbon border tax to avoid carbon leakage” to “ensure our companies can compete on a level playing field”.
In recent years, there has been much concern around how the EU can avert “deindustrialisation” and maintain its competitive edge against other major powers, such as the US and China. The CBAM is one of the measures launched under Von der Leyen’s leadership in an effort to tackle these threats, whether perceived or real.
The idea came to fruition in 2021, when it was presented by the commission as part of its “Fit for 55” package to drive the EU’s transition to net-zero. Following negotiations with EU member state governments and members of the European Parliament, the CBAM became law in May 2023.
One reason the CBAM was finally adopted in the EU was because of a perceived need to avoid carbon leakage, while also ramping up overall emissions reductions. Emissions from heavy industry in the EU have not fallen considerably since 1990, despite being covered by the EU ETS for two decades.
This is partly because these sectors, many of which are considered “exposed” to international trade – and, therefore, carbon leakage – are handed free allowances in the EU ETS. These allowances enable businesses to continue emitting greenhouse gases at no extra cost – or even to profit from selling free allowances, if their own production falls.
Companies in these sectors are, therefore, able to compete with foreign imports from countries that do not have carbon-pricing systems. However, the free allowances also mean those companies have less of a financial incentive to decarbonise.
The CBAM is explicitly described as a replacement for the free allowances given to companies making steel, cement and other trade-exposed goods. It will be phased in as those allowances are phased out, a process that will be complete in 2034.
The CBAM has been framed as an “enabling policy” that boosts the political acceptability of higher carbon prices within the EU and, in doing so, drives industrial decarbonisation.
However, it has also been described as a policy to encourage global emissions cuts. After Von der Leyen took over as commission president, a communication concerning the European Green Deal said the CBAM would be introduced “should differences in levels of ambition worldwide persist, as the EU increases its climate ambition”.
Finally, another reason for the measure is that the European Commission estimates it will raise €1.5bn in revenue in 2028 – and this will increase as the mechanism expands. Of this total, 75% will go to the EU budget and the rest to member states.
How will the EU’s CBAM work?
The EU CBAM is being rolled out gradually. Between October 2023 and the end of 2025, any company that imports goods covered by the CBAM into the EU will have to declare them in quarterly reports.
The products covered by the CBAM include those deemed “at most significant risk of carbon leakage” by the EU, initially including cement, iron, steel, aluminium, fertilisers and hydrogen, as well as electricity transmitted from other countries.
This list is expected to expand, following further assessments by the EU, to cover sectors such as ceramics and paper.
Reporting will cover all of the emissions generated when those products are made. This includes “direct” emissions, such as the carbon dioxide (CO2) released during cement production, and “indirect” emissions, such as those from the fossil-fuel generated electricity used to power cement factories.
The full compliance phase of the CBAM will begin from the start of 2026. From this point, companies bringing CBAM-covered goods into the EU will have to purchase enough CBAM certificates to cover their associated emissions. The cost of these certificates will be the same as the EU ETS market price.
If companies can demonstrate that they have paid a carbon price for goods in their country of origin, they will be able to deduct a corresponding amount from their certificate purchases to avoid taxing the products twice.
Initially, exporters in relevant sectors will only have to buy certificates equivalent to 2.5% of the emissions associated with producing their goods. This obligation will rise to 100% by 2034, in line with the removal of free allowances for EU industries.
The EU says that, when “fully phased in”, the CBAM will apply to more than half of the emissions covered by the ETS overall.
How is the mechanism expected to cut emissions?
The CBAM will add a carbon cost to EU imports that could encourage emissions cuts both domestically and internationally.
The mechanism is supposed to drive industrial decarbonisation by facilitating the removal of free EU ETS allowances for industries such as steel and cement.
Maintaining domestic industries in the EU is also intended to avoid an increase in global emissions due to carbon leakage.
Yet various calculations of the overall impact of the EU CBAM on global emissions have produced fairly modest results.
An initial 2021 assessment by the European Commission estimated that its proposed CBAM design would reduce emissions from affected EU industries by 1% by 2030. It calculated that global emissions from these industries would be cut by 0.4% over the same timescale.
More recent analysis, conducted by the Asian Development Bank (ADB), considers the impact of the CBAM at a carbon price of €100 per tonne of CO2 – a level that was reached for the first time last year before falling again.
It concludes that the CBAM would reduce global emissions by less than 0.2%, relative to the ETS on its own. This would be accompanied by a 0.4% drop in global exports to the EU.
Ian Mitchell, a senior policy fellow and co-director of the Europe programme at the Center for Global Development (CGD), tells Carbon Brief:
“It’s not so surprising that CBAM has a modest impact on global emissions. As a unilateral measure, most of the trade in carbon it affects will be diverted to other jurisdictions without similar charges.”
However, he adds that CBAM is still “extremely important and valuable”, because it establishes the principle of carbon pricing and a “level playing field” globally.
Another key way that the CBAM could drive emissions cuts is by encouraging other nations to implement their own climate measures, including carbon pricing.
A recent report by the NGO Resources for the Future says the hope is that CBAMs will “lead to a virtuous cycle, where more and more countries adopt carbon pricing”. It explains that CBAMs can allow governments to overcome domestic political constraints to carbon pricing:
“The external pressure of a CBAM can provide both impetus and a scapegoat, akin to pushing an open door, as policymakers can point out that exporting firms would have to pay these fees when they export regardless of domestic policy action.”
The EU CBAM has already sparked a wave of responses from other countries. These have ranged from threats of retaliatory measures (see: What are the reactions from developing countries?) to plans for domestic CBAMs of their own (see: Are other countries introducing their own mechanisms?).
Yet there is some debate about how much the EU’s policy is spurring on climate action.
Analysis by CGD at the end of 2023 concluded that the “vast majority of lower income countries are a long way from implementing any carbon price”. At that time, no low-income countries were considering carbon pricing and only 11% of lower-middle income countries had one “scheduled or under consideration”, the group concluded.
Others assessments have been more optimistic. One early report from thinktank Clingendael linked new climate policies from nations including Turkey and Russia to the looming threat of CBAM.
A more recent report for the International Emissions Trading Association (IETA), which speaks for companies involved in global carbon markets, tracks responses from countries trading with the EU.
Julia Michalak, EU policy head at IETA, tells Carbon Brief that, ultimately, the CBAM is “not in itself a global mitigation policy tool”. However, she points to evidence of impacts, including Turkey, India and Brazil advancing work on their own ETSs, as well as China moving to expand its ETS to include cement, steel and aluminium – mirroring the EU CBAM.
Critical experts from global-south institutions have argued that sharing emissions-cutting technologies and scaling up climate finance would be more effective measures to decarbonise industries in developing countries.
(The EU CBAM text includes language about supporting “efforts towards the decarbonisation and transformation of…manufacturing industries” in developing countries.)
There has been discussion around using CBAM revenues to support industrial decarbonisation in other countries, although there has so far been no formal agreement to do this.
A report by the Centre for Science and Environment (CSE) argues that CBAM revenues could be a new form of climate finance for developing countries. The thinktank suggests that this could function in a similar way to the EU’s modernisation fund, which is financed with ETS revenue and supports clean energy in low-income EU states.
What are the reactions from developing countries?
Some of the most vocal opponents of the EU’s CBAM are among those expected to be most exposed to its impacts.
The map below is colour-coded according to nations’ relative exposure, according to the World Bank, based on the carbon intensity of their industries and how much they rely on exporting CBAM-covered products to the EU.
Nations shaded green could gain export competitiveness to the EU, while those shaded red could lose competitiveness.
Many of the most exposed nations have vocally opposed what they describe as “unilateral” trade measures, both at UN climate negotiations and at the World Trade Organization (WTO), where they have questioned their compatibility with international trade rules.
Some of them have argued that the costs of compliance will leave less money for dealing with poverty and meeting their Paris Agreement targets.
Observers have cited the principle of “common but differentiated responsibilities”, arguing that the EU is penalising developing countries despite its historic – and current – high levels of emissions, relative to much of the global south. Avantika Goswami, climate change programme lead at CSE, tells Carbon Brief:
“You are imposing these external standards onto developing countries whilst not specifically earmarking funding that would enable this decarbonisation effort.”
China is one of the developing countries affected by the CBAM that has criticised the EU’s new policy.
China’s steel and aluminium sector would see the biggest impacts, according to an analysis from the Center for Eco-Finance Studies at Renmin University. It estimated a 4-6% ($200m-400m) increase in export costs for the steel industry, for example.
(The analysis does not appear to account for potential price rises in EU steel markets, which could allow producers to recoup higher costs at the expense of consumers within the bloc.)
Li Chenggang, China’s ambassador to WTO, said at a meeting last June:
“We fully understand the EU’s environmental goals and appreciate its efforts…However, it is regrettable that the [CBAM] measures…fail to follow the basic principles of the UNFCCC and the Paris Agreement [the principle of “common but differentiated responsibilities”], as well as WTO rules. In fact, this measure may cause discrimination and market access restrictions on imported products, especially those from developing members.”
A report by the China office of consultancy PwC says about $35bn of trade between China and the EU could eventually be affected by the CBAM.
African countries have raised similar concerns. According to Akinwumi Adesina, president of African Development Bank, the continent could lose up to $25bn per year as a “direct result of CBAM”.
However, the $25bn figure cited by Adesina comes from a modelling scenario that does not correspond to the EU’s actual approach, says Tennant Reed, director of climate change and energy at the Australian Industry Group, in a post on LinkedIn.
In his post, Reed points to a series of issues with the underlying modelling in this and other studies of the impact of the EU’s CBAM on developing countries’ economies. He tells Carbon Brief:
“CBAM analysis can easily go awry if it: considers higher supply costs for covered products but not higher selling prices; assumes manufacturers and nations have static emissions intensities; or fails to represent the actual structure of policy. A genuinely non-discriminatory border adjustment should not disadvantage developing country exporters at all. Instead it can create a firmer commercial basis for clean industrial investment everywhere and a chance for developing countries that price carbon to effectively raise tax revenue from Europe.”
In July 2024, India’s economic affairs secretary Ajay Seth commented that the EU’s CBAM was “unfair and detrimental to domestic market costs”.
There have even been reports of India planning “retaliatory” trade measures and the Indian government has indicated its concerns will feed into discussions around India’s prospective free-trade agreement with the EU.
In addition, Simon Göss, managing director of the Berlin-based consulting firm carboneer, tells Carbon Brief that, for smaller companies, “hir[ing] [data] experts and set[ting] up monitoring systems…might make the end product more expensive”. He adds:
“In the short-term – until the end of 2024 – monitoring and reporting real emissions for producers of CBAM-goods in non-EU countries represents a huge challenge for smaller companies in technologically less advanced countries.”
Despite their criticisms, some developing country analyses have pointed to positive steps that their industries can take in response to the EU’s CBAM.
Beijing-based thinktank iGDP, for example, says, “looking at the long-term trend, China’s steel industry striv[ing] to reduce emissions is more economical than to pay the CBAM adjustment fee”.
Similarly, Renmin University says in a CBAM analysis that China’s steel industry should accelerate its shift to lower emissions and the country’s own carbon market “should be improved”.
Are other countries introducing their own mechanisms?
Other nations are expected to implement CBAMs and related measures of their own in response to the EU’s new policy.
Progress on this has been fairly slow, but there are signs that some nations in the global north are considering this approach in order to protect trade with the EU and support their own industrial decarbonisation.
Perhaps the most advanced CBAM outside of the EU is the UK’s effort. The UK government announced at the end of 2023 that it would implement the mechanism by 2027.
Unlike the EU’s CBAM, the UK’s version, in its initial stage, will include ceramics and glass. It will also not include the electricity the UK imports from its European neighbours via interconnectors. Some observers have called for greater harmonisation with the EU, suggesting that this would reduce the economic risk to the UK.
The Canadian government also announced plans to establish its own CBAM in the 2021 budget and launched a consultation to this effect.
Australia has also been considering a CBAM, with the government launching a review in 2023 to assess its potential to prevent carbon leakage – especially targeting steel and cement.
As for the US, there has been much debate around how it could implement a CBAM, despite lacking a domestic carbon-pricing system. (Carbon pricing has long proved controversial in the US. In fact an early form of CBAM was blocked in 2010 by Senate Republicans in the infamous Waxman-Markey bill, along with a national carbon pricing scheme.)
US leaders were initially hostile to the EU’s CBAM, even though the nation does not export large amounts of CBAM-covered products to the bloc. However, in the context of industrial rivalry with China, US lawmakers have proposed various CBAM-like policies in recent years, with a view to avoiding carbon leakage and ensuring global competitiveness.
These include the Clean Competition Act, backed by Democrats, and the Foreign Pollution Fee Act, backed by Republicans, both of which involve adding a carbon-intensity fee to imports.
Analysis by NGO Resources for the Future describes these proposals as a “significant sign of bipartisan interest in climate and trade policy”. Moreover, it says these actions can be attributed to the EU’s leadership in this area:
“Just as it is hard to imagine the EU coming up with as extensive a green industrial policy as it has without the [Inflation Reduction Act], it is equally hard to imagine the US devising specific climate and trade proposals without the impetus of CBAM.”
Ellie Belton, a senior policy advisor on trade and climate at the thinktank E3G, tells Carbon Brief that, while the EU CBAM “may well have kickstarted a new wave of climate ambition globally”, there is a need for “better diplomacy” to avoid disrupting multilateral progress:
“There is also an emerging risk of divergent CBAM schemes creating a patchwork of disjointed regulations worldwide, which would disproportionately impact developing countries and exacerbate the inequity in climate outcomes.”
Reflecting concerns about the impact such a “patchwork” could have on businesses, the International Chamber of Commerce has released a set of “global principles” to guide countries in introducing their own CBAMs.
Among other things, they include compliance with WTO rules and the principles of the Paris Agreement, as well as exemptions for least developed countries and small island states.
The post Q&A: Can ‘carbon border adjustment mechanisms’ help tackle climate change? appeared first on Carbon Brief.
Q&A: Can ‘carbon border adjustment mechanisms’ help tackle climate change?
In 2026, the dangers of fossil fuel dependence have been laid bare like never before. The illegal invasion of Iran has brought pain and destruction to millions across the Middle East and triggered a global energy crisis impacting us all. Communities in the Pacific have been hit especially hard by rising fuel prices, and Australians have seen their cost-of-living woes deepen.
Such moments of crisis and upheaval can lead to positive transformation. But only when leaders act with courage and foresight.
There is no clearer statement of a government’s plans and priorities for the nation than its budget — how it plans to raise money, and what services, communities, and industries it will invest in.
As we count down the days to the 2026-27 Federal Budget, will the Albanese Government deliver a budget for our times? One that starts breaking the shackles of fossil fuels, accelerates the shift to clean energy, protects nature, and sees us work together with other countries towards a safer future for all? Or one that doubles down on coal and gas, locks in more climate chaos, and keeps us beholden to the whims of tyrants and billionaires.
Here’s what we think the moment demands, and what we’ll be looking out for when Treasurer Jim Chalmers steps up to the dispatch box on 12 May.
1. Stop fuelling the fire
2. Make big polluters pay
3. Support everyone to be part of the solution
4. Build the industries of the future
5. Build community resilience
6. Be a better neighbour
7. Protect nature
1. Stop fuelling the fire
In mid-April, Pacific governments and civil society met to redouble their efforts towards a Fossil Fuel Free Pacific. Moving beyond coal, oil and gas is fundamental to limiting warming to 1.5°C — a survival line for vulnerable communities and ecosystems. And as our Head of Pacific, Shiva Gounden, explained, it is “also a path of liberation that frees us from expensive, extractive and polluting fossil fuel imports and uplifts our communities”.
Pacific countries are at the forefront of growing global momentum towards a just transition away from fossil fuels, and it is way past time for Australia to get with the program. It is no longer a question of whether fossil fuel extraction will end, but whether that end will be appropriately managed and see communities supported through the transition, or whether it will be chaotic and disruptive.
So will this budget support the transition away from fossil fuels, or will it continue to prop up coal and gas?
When it comes to sensible moves the government can make right now, one stands out as a genuine low hanging fruit. Mining companies get a full rebate of the excise (or tax) that the rest of us pay on diesel fuel. This lowers their operating costs and acts as a large, ongoing subsidy on fossil fuel production — to the tune of $11 billion a year!
Greenpeace has long called for coal and gas companies to be removed from this outdated scheme, and for the billions in savings to be used to support the clean energy transition and to assist communities with adapting to the impacts of climate change. Will we see the government finally make this long overdue change, or will it once again cave to the fossil fuel lobby?
2. Make big polluters pay
While our communities continue to suffer the escalating costs of climate-fuelled disasters, our Government continues to support a massive expansion of Australia’s export gas industry. Gas is a dangerous fossil fuel, with every tonne of Australian gas adding to the global heating that endangers us all.
Moreover, companies like Santos and Woodside pay very little tax for the privilege of digging up and selling Australians’ natural endowment of fossil gas. Remarkably, the Government currently raises more tax from beer than from the Petroleum Resource Rent Tax (PRRT) — the main tax on gas profits.
Momentum has been building to replace or supplement the PRRT with a 25% tax on gas exports. This could raise up to $17 billion a year — funds that, like savings from removing the diesel tax rebate for coal and gas companies, could be spent on supporting the clean energy transition and assisting communities with adapting to worsening fires, floods, heatwaves and other impacts of climate change.
As politicians arrive in Canberra for budget week, they will be confronted by billboards calling for a fair tax on gas exports. The push now has the support of dozens of organisations and a growing number of politicians. Let’s hope the Treasurer seizes this rare window for reform.
3. Support everyone to be part of the solution
As the price of petrol and diesel rises, electric vehicles (EVs) are helping people cut fuel use and save money. However, while EV sales have jumped since the invasion of Iran sent fuel prices rising, they still only make up a fraction of total new car sales. This budget should help more Australians switch to electric vehicles and, even more importantly, enable more Australians to get around by bike, on foot, and on public transport. This means maintaining the EV discount, investing in public and active transport, and removing tax breaks for fuel-hungry utes and vans.
Millions of Australians already enjoy the cost-saving benefits of rooftop solar, batteries, and getting off gas. This budget should enable more households, and in particular those on lower incomes, to access these benefits. This means maintaining the Cheaper Home Batteries Program, and building on the Household Energy Upgrades Fund.
4. Build the industries of the future
If we’re to transition away from fossil fuels, we need to be building the clean industries of the future.
No state is more pivotal to Australia’s energy and industrial transformation than Western Australia. The state has unrivaled potential for renewable energy development and for replacing fossil fuel exports with clean exports like green iron. Such industries offer Western Australia the promise of a vibrant economic future, and for Australia to play an outsized positive role in the world’s efforts to reduce emissions.
However, realising this potential will require focussed support from the Federal Government. Among other measures, Greenpeace has recommended establishing the Australasian Green Iron Corporation as a joint venture between the Australian and Western Australian governments, a key trading partner, a major iron ore miner and steel makers. This would unite these central players around the complex task of building a large-scale green iron industry, and unleash Western Australia’s potential as a green industrial powerhouse.
5. Build community resilience
Believe it or not, our Government continues to spend far more on subsidising fossil fuel production — and on clearing up after climate-fuelled disasters — than it does on helping communities and industries reduce disaster costs through practical, proven methods for building their resilience.
Last year, the Government estimated that the cost of recovery from disasters like the devastating 2022 east coast floods on 2019-20 fires will rise to $13.5 billion. For contrast, the Government’s Disaster Ready Fund – the main national source of funding for disaster resilience – invests just $200 million a year in grants to support disaster preparedness and resilience building. This is despite the Government’s own National Emergency Management Agency (NEMA) estimating that for every dollar spent on disaster risk reduction, there is a $9.60 return on investment.
By redirecting funds currently spent on subsidising fossil fuel production, the Government can both stop incentivising climate destruction in the first place, and ensure that Australian communities and industries are better protected from worsening climate extremes.
No communities have more to lose from climate damage, or carry more knowledge of practical solutions, than Aboriginal and Torres Strait Islander peoples. The budget should include a dedicated First Nations climate adaptation fund, ensuring First Nations communities can develop solutions on their own terms, and access the support they need with adapting to extreme heat, coastal erosion and other escalating challenges.
6. Be a better neighbour
The global response to climate change depends on the adequate flow of support from developed economies like Australia to lower income nations with shifting to clean energy, adapting to the impacts of climate change, and addressing loss and damage.
Such support is vital to building trust and cooperation, reducing global emissions, and supporting regional and global security by enabling countries to transition away from fossil fuels and build greater resilience.
Despite its central leadership role in this year’s global climate negotiations, our Government is yet to announce its contribution to international climate finance for 2025-2030. Greenpeace recommends a commitment of $11 billion for this five year period, which is aligned with the global goal under the Paris Agreement to triple international climate finance from current levels.
This new commitment should include additional funding to address loss and damage from climate change and a substantial contribution to the Pacific Resilience Facility, ensuring support is accessible to countries and communities that need it most. It should also see Australia get firmly behind the vision of a Fossil Fuel Free Pacific.
7. Protect nature
There is no safe planet without protection of the ecosystems and biodiversity that sustain us and regulate our climate.
Last year the Parliament passed important and long overdue reforms to our national environment laws to ensure better protection for our forests and other critical ecosystems. However, the Government will need to provide sufficient funding to ensure the effective implementation of these reforms.
Greenpeace has recommended $500 million over four years to establish the National Environment Agency — the body responsible for enforcing and monitoring the new laws — and a further $50 million to Environment Information Australia for providing critical information and tools.
Further resourcing will also be required to fulfil the crucial goal of fully protecting 30% of Australian land and seas by 2030. This should include $1 billion towards ending deforestation by enabling farmers and loggers to retool away from destructive practices, $2 billion a year for restoring degraded lands, $5 billion for purchasing and creating new protected areas, and $200 million for expanding domestic and international marine protected areas.
Conclusion
This is not the first time that conflict overseas has triggered an energy crisis, or that a budget has been preceded by a summer of extreme weather disasters, highlighting the urgent need to phase out fossil fuels. What’s different in 2026 is the availability of solutions. Renewable energy is now cheaper and more accessible than ever before. Global momentum is firmly behind the transition away from fossil fuels. The Albanese Government, with its overwhelming majority, has the chance to set our nation up for the future, or keep us stranded in the past. Let’s hope it makes some smart choices.
The 2026 budget test: Will Australia break free from fossil fuels?
Anne Jellema is Executive Director of 350.org.
The war on Iran and Lebanon is a deeply unjust and devastating conflict, killing civilians at home, destroying lives, and at the same time sending shockwaves through the global economy. We, at 350.org, have calculated, drawing on price forecasts from the International Monetary Fund (IMF) and Goldman Sachs, just how much that volatility is costing us.
Even under the IMF’s baseline scenario – a de facto “best case” scenario with a near-term end to the war and related supply chain disruptions – oil and gas price spikes are projected to cost households and businesses globally more than $600 billion by the end of the year. Under the IMF’s “adverse scenario”, with prolonged conflict and sustained price pressures, we estimate those additional costs could exceed $1 trillion, even after accounting for reduced demand.
Which is why we urgently need a power shift. Governments are under growing pressure to respond to rising fuel and food costs and deepening energy poverty. And it’s becoming clearer to both voters and elected officials that fossil dependence is not only expensive and risky, but unnecessary.
People who can are voting with their wallets: sales of solar panels and electric vehicles are increasing sharply in many countries. But the working people who have nothing to spare, ironically, are the ones stuck with using oil and gas that is either exorbitantly expensive or simply impossible to get.
Drain on households and economies
In India, street food vendors can’t get cooking gas and in the Philippines, fishermen can’t afford to take their boats to sea. A quarter of British people say that rising energy tariffs will leave them completely unable to pay their bills. This is the moment for a global push to bring abundant and affordable clean energy to all.
In April, we released Out of Pocket, our new research report on how fossil fuels are draining households and economies. We were surprised by the scale of what we found. For decades, governments have reassured people that energy price spikes are unfortunate but unavoidable – the result of distant conflicts, market forces or geopolitical shocks beyond anyone’s control. But the numbers tell a different story.
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Santa Marta: Ministers grapple with practicalities of fossil fuel phase-out
Around 60 governments that want to make progress on transitioning away from coal, oil and gas are meeting in Colombia to work out how they can do it an equitable way -
Why the transition beyond fossil fuels depends on cities and collective action
Cities will help identify concrete pathways for an equitable shift to clean energy at the Santa Marta conference, with C40 members aiming to halve their fossil fuel use by 2030
What we are living through today is not an energy crisis. It is a fossil fuel crisis. In just the first 50 days of the Middle East conflict, soaring oil and gas prices have siphoned an estimated $158 billion–$166 billion from households and businesses worldwide. That is money extracted directly from people’s pockets and transferred, almost instantly, into fossil fuel company balance sheets. And this figure only captures the immediate impact of price spikes, not the permanent economic drain of fossil dependence. Fossil fuels don’t just cost us once, they cost us over and over again.
First, through our bills. Every time there is a war, an embargo or a supply disruption, fossil fuel prices surge. For ordinary people, this means higher costs for energy, transport and food. Many Global South countries have little or no fiscal space to buffer the shock; instead, workers and families pay the price.
Second, through our taxes. Governments around the world continue to pour vast sums of public money into fossil fuel subsidies. These are often justified as a way to protect the most vulnerable at the petrol pump or in their homes. But in reality, the benefits are overwhelmingly captured by wealthier households and corporations. The poorest 20% receive just a fraction of this support, while public finances are drained.
Third, through climate impacts. New research across more than 24,000 global locations gives a granular account of the true costs of extreme heat, sea level rise and falling agricultural yields. Using this data to update IMF modelling of the social cost of carbon, we found that fossil fuel impacts on health and livelihoods amount to over $9 trillion a year. This is the biggest subsidy of all, because these massive and mounting costs are not charged to Big Oil – they are paid for by governments and households, with the poorest shouldering the lion’s share.
Massive transfer of wealth to fossil fuel industry
Adding up direct subsidies, tax breaks and the unpaid bill for climate damages, the total transfer of wealth from the public to the fossil fuel industry amounts to $12 trillion even in a “normal” year without a global oil shock. That’s more than 50% higher than the IMF has previously estimated, and equivalent to a staggering $23 million a minute.
The fossil fuel industry has become extraordinarily adept at profiting from instability. When conflict drives up prices, companies do not lose, they gain. In the current crisis, oil producers and commodity traders are on track to secure tens of billions of dollars in additional windfall profits, even as households face rising bills and governments struggle to manage the fallout.
Fossil fuel crisis offers chance to speed up energy transition, ministers say
This growing disconnect is impossible to ignore. Investors are advised to buy into fossil fuel firms precisely because of their ability to generate profits in times of crisis. Meanwhile, ordinary people are told to tighten their belts.
In 2026, unlike during the oil shocks of the 1970s, clean energy is no longer a distant alternative. Now, even more than when gas prices spiked due to Russia’s invasion of Ukraine in 2022, renewables are often the cheapest option available. Solar and wind can be deployed quickly, at scale, and without the volatility that defines fossil fuel markets.
How to transition from dirty to clean energy
The solutions are clear. Governments must implement permanent windfall taxes on fossil fuel companies to ensure that extraordinary profits generated during crises are redirected to support households. These revenues can be used to reduce energy bills, invest in public services, and accelerate the rollout of clean energy.
Second, we must shift subsidies away from fossil fuels and towards renewable solutions, particularly those that can be deployed quickly and equitably, such as rooftop and community solar. This is not just about cutting emissions. It is about building a more stable, fair and resilient energy system.
Finally, we need binding plans to phase out fossil fuels altogether, replacing them with homegrown renewable energy that can shield economies from future shocks. Because what the current crisis has made clear is this: as long as we remain dependent on fossil fuels, we remain vulnerable – to conflict, to price volatility and to the escalating impacts of climate change.
The true price of fossil fuels is no longer hidden. It is visible in rising bills, strained public finances and communities pushed to the brink. And it is being paid, every day, by ordinary people around the world.
It’s time for the great power shift.
Full details on the methodology used for this report are available here.
The Great Power Shift is a new campaign by 350.org global campaign to pressure governments to bring down energy bills for good by ending fossil fuel dependence and investing in clean, affordable energy for all
The post What fossil fuels really cost us in a world at war appeared first on Climate Home News.
Computer models that use artificial intelligence (AI) cannot forecast record-breaking weather as well as traditional climate models, according to a new study.
It is well established that AI climate models have surpassed traditional, physics-based climate models for some aspects of weather forecasting.
However, new research published in Science Advances finds that AI models still “underperform” in forecasting record-breaking extreme weather events.
The authors tested how well both AI and traditional weather models could simulate thousands of record-breaking hot, cold and windy events that were recorded in 2018 and 2020.
They find that AI models underestimate both the frequency and intensity of record-breaking events.
A study author tells Carbon Brief that the analysis is a “warning shot” against replacing traditional models with AI models for weather forecasting “too quickly”.
AI weather forecasts
Extreme weather events, such as floods, heatwaves and storms, drive hundreds of billions of dollars in damages every year through the destruction of cropland, impacts on infrastructure and the loss of human life.
Many governments have developed early warning systems to prepare the general public and mobilise disaster response teams for imminent extreme weather events. These systems have been shown to minimise damages and save lives.
For decades, scientists have used numerical weather prediction models to simulate the weather days, or weeks, in advance.
These models rely on a series of complex equations that reproduce processes in the atmosphere and ocean. The equations are rooted in fundamental laws of physics, based on decades of research by climate scientists. As a result, these models are referred to as “physics-based” models.
However, AI-based climate models are gaining popularity as an alternative for weather forecasting.
Instead of using physics, these models use a statistical approach. Scientists present AI models with a large batch of historical weather data, known as training data, which teaches the model to recognise patterns and make predictions.
To produce a new forecast, the AI model draws on this bank of knowledge and follows the patterns that it knows.
There are many advantages to AI weather forecasts. For example, they use less computing power than physics-based models, because they do not have to run thousands of mathematical equations.
Furthermore, many AI models have been found to perform better than traditional physics-based models at weather forecasts.
However, these models also have drawbacks.
Study author Prof Sebastian Engelke, a professor at the research institute for statistics and information science at the University of Geneva, tells Carbon Brief that AI models “depend strongly on the training data” and are “relatively constrained to the range of this dataset”.
In other words, AI models struggle to simulate brand new weather patterns, instead tending forecast events of a similar strength to those seen before. As a result, it is unclear whether AI models can simulate unprecedented, record-breaking extreme events that, by definition, have never been seen before.
Record-breaking extremes
Extreme weather events are becoming more intense and frequent as the climate warms. Record-shattering extremes – those that break existing records by large margins – are also becoming more regular.
For example, during a 2021 heatwave in north-western US and Canada, local temperature records were broken by up to 5C. According to one study, the heatwave would have been “impossible” without human-caused climate change.
The new study explores how accurately AI and physics-based models can forecast such record-breaking extremes.
First, the authors identified every heat, cold and wind event in 2018 and 2020 that broke a record previously set between 1979 and 2017. (They chose these years due to data availability.) The authors use ERA5 reanalysis data to identify these records.
This produced a large sample size of record-breaking events. For the year 2020, the authors identified around 160,000 heat, 33,000 cold and 53,000 wind records, spread across different seasons and world regions.
For their traditional, physics-based model, the authors selected the High RESolution forecast model from the Integrated Forecasting System of the European Centre for Medium-Range Weather Forecasts. This is “widely considered as the leading physics-based numerical weather prediction model”, according to the paper.
They also selected three “leading” AI weather models – the GraphCast model from Google Deepmind, Pangu-Weather developed by Huawei Cloud and the Fuxi model, developed by a team from Shanghai.
The authors then assessed how accurately each model could forecast the extremes observed in the year 2020.
Dr Zhongwei Zhang is the lead author on the study and a researcher at Karlsruhe Institute of Technology. He tells Carbon Brief that many AI weather forecast models were built for “general weather conditions”, as they use all historical weather data to train the models. Meanwhile, forecasting extremes is considered a “secondary task” by the models.
The authors explored a range of different “lead times” – in other words, how far into the future the model is forecasting. For example, a lead time of two days could mean the model uses the weather conditions at midnight on 1 January to simulate weather conditions at midnight on 3 January.
The plot below shows how accurately the models forecasted all extreme events (left) and heat extremes (right) under different lead times. This is measured using “root mean square error” – a metric of how accurate a model is, where a lower value indicates lower error and higher accuracy.
The chart on the left shows how two of the AI models (blue and green) performed better than the physics-based model (black) when forecasting all weather across the year 2020.
However, the chart on the right illustrates how the physics-based model (black) performed better than all three AI models (blue, red and green) when it came to forecasting heat extremes.
The authors note that the performance gap between AI and physics-based models is widest for lower lead times, indicating that AI models have greater difficulty making predictions in the near future.
They find similar results for cold and wind records.
In addition, the authors find that AI models generally “underpredict” temperature during heat records and “overpredict” during cold records.
The study finds that the larger the margin that the record is broken by, the less well the AI model predicts the intensity of the event.
‘Warning shot’
Study author Prof Erich Fischer is a climate scientist at ETH Zurich and a Carbon Brief contributing editor. He tells Carbon Brief that the result is “not unexpected”.
He adds that the analysis is a “warning shot” against replacing traditional models with AI models for weather forecasting “too quickly”.
The analysis, he continues, is a “warning shot” against replacing traditional models with AI models for weather forecasting “too quickly”.
AI models are likely to continue to improve, but scientists should “not yet” fully replace traditional forecasting models with AI ones, according to Fischer.
He explains that accurate forecasts are “most needed” in the runup to potential record-breaking extremes, because they are the trigger for early warning systems that help minimise damages caused by extreme weather.
Leonardo Olivetti is a PhD student at Uppsala University, who has published work on AI weather forecasting and was not involved in the study.
He tells Carbon Brief that “many other studies” have identified issues with using AI models for “extremes”, but this paper is novel for its specific focus on extremes.
Olivetti notes that AI models are already used alongside physics-based models at “some of the major weather forecasting centres around the world”. However, the study results suggest “caution against relying too heavily on these [AI] models”, he says.
Prof Martin Schultz, a professor in computational earth system science at the University of Cologne who was not involved in the study, tells Carbon Brief that the results of the analysis are “very interesting, but not too surprising”.
He adds that the study “justifies the continued use of classical numerical weather models in operational forecasts, in spite of their tremendous computational costs”.
Advances in forecasting
The field of AI weather forecasting is evolving rapidly.
Olivetti notes that the three AI models tested in the study are an “older generation” of AI models. In the last two years, newer “probabilistic” forecast models have emerged that “claim to better capture extremes”, he explains.
The three AI models used in the analysis are “deterministic”, meaning that they only simulate one possible future outcome.
In contrast, study author Engelke tells Carbon Brief that probabilistic models “create several possible future states of the weather” and are therefore more likely to capture record-breaking extremes.
Engelke says it is “important” to evaluate the newer generation of models for their ability to forecast weather extremes.
He adds that this paper has set out a “protocol” for testing the ability of AI models to predict unprecedented extreme events, which he hopes other researchers will go on to use.
The study says that another “promising direction” for future research is to develop models that combine aspects of traditional, physics-based weather forecasts with AI models.
Engelke says this approach would be “best of both worlds”, as it would combine the ability of physics-based models to simulate record-breaking weather with the computational efficiency of AI models.
Dr Kyle Hilburn, a research scientist at Colorado State University, notes that the study does not address extreme rainfall, which he says “presents challenges for both modelling and observing”. This, he says, is an “important” area for future research.
The post Traditional models still ‘outperform AI’ for extreme weather forecasts appeared first on Carbon Brief.
Traditional models still ‘outperform AI’ for extreme weather forecasts
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