EU-Australia Free Trade Agreement: What the Breakthrough Means for CBAM

The Next Free Trade Agreement After MERCOSUR

After eight years of negotiations, Australia and the European Union announced the conclusion of a comprehensive free trade agreement on 24 March. The agreement goes beyond simple tariff reduction. Australia is simultaneously investing in the decarbonisation of its export industries and planning its own border adjustment mechanism. Both developments change the starting position for European importers.

Tariffs, Critical Raw Materials and Strategic Partnership

The agreement provides for tariffs to be eliminated on 98 percent of Australian exports to the EU and on more than 99 percent of EU exports to Australia. For the EU, the secured access to critical raw materials such as lithium and aluminium, which are essential for the energy transition, is central. Australia is positioning itself as a strategic supplier and alternative to China. Alongside this, a security and defence partnership was signed that also covers the safeguarding of supply chains. Both sides are diversifying their trade relations at a time when geopolitical uncertainties and protectionist tendencies are increasing, and are placing their trust in reliable partnerships.

Australia Pursues a Dual Strategy

Australia's dual strategy is noteworthy. On the one hand, the country is securing improved access to the EU single market through the free trade agreement and investing in the decarbonisation of its export industries. On the other hand, Australia is planning its own border adjustment mechanism to protect the domestic market from carbon-intensive imports. The final report of the Carbon Leakage Review, published in February, recommends that the government initially regulate cement and clinker. Additional sectors such as steel, glass, lime and ammonia are under review. Australian carbon prices under the Safeguard Mechanism are rising, and the government wants to prevent products from countries without carbon pricing from flooding the domestic market. The recommendations will be examined as part of the Safeguard Mechanism Review 2026-27. Australia is behaving precisely as the logic of CBAM prescribes. Anyone who wants to retain access to markets with carbon pricing must develop comparable standards themselves. And anyone who introduces these standards also wants to protect their own market.

What This Means for European Importers

For companies importing Australian CBAM goods, the starting position is improving. Australian producers have strong incentives to document their emissions data transparently and to invest in decarbonisation. In the medium term, Australian suppliers are likely to be among the partners where reliable emissions figures and lower CBAM certificate costs are realistic. At the same time, the landscape is becoming more complex. The EU has already implemented CBAM, the United Kingdom follows in 2027, and alongside Australia, Canada, Norway and Taiwan are also examining their own border adjustment mechanisms. For importers, this means a growing number of carbon pricing systems and crediting mechanisms that must be taken into account in supplier selection and contract design.

Outlook

The EU-Australia free trade agreement still needs to be adopted by the European Council and ratified by both sides. Companies with Australian suppliers should monitor this development and examine whether their contracts already contain clauses on emissions documentation. Those that do will likely be able to achieve a higher deduction on their carbon border levy. We expect the precise details on the crediting of carbon prices incurred in third countries in the fourth quarter of this year.

Support

If you would like to know how current developments affect your CBAM obligations or how you can prepare your processes for regulatory changes, please feel free to write to me at helge@kolum.earth.