Australia's ruling coalition lashed out yesterday at the European Union's proposed carbon border tariff as a new climate plan from Brussels added to growing international pressure on Canberra to do more to tackle climate change.
The new tariff will not affect Australia significantly, as its carbon-intensive exports mainly go to Asia.
But Canberra was quick to condemn the move amid concerns that other nations might follow the EU's example.
Australia's Trade Minister Dan Tehan said the policy was designed to raise revenue rather than reduce emissions and risked breaching global trade rules - a claim the EU strongly rejects.
"We think it is protectionist," Mr Tehan told ABC News.
"We think it would be much better to incentivise countries to a deal with emissions reduction, rather than penalising them."
The EU, which has the world's largest emissions trading system, says its tariffs will ensure its producers face a level playing field against exporters from countries that impose lower costs on carbon pollution, or no costs at all.
Australia is coming under increasing global pressure over its refusal to commit to a net-zero emissions target by 2050 and its lack of ambitious emissions reduction targets.
Some of its closest allies, including the United States, Britain and New Zealand, have signalled that the major global supplier of fossil fuels should do more to curb emissions that are heating up the planet.
The Liberal-National coalition, which abolished Labor's carbon pollution trading scheme in 2014, has insisted Australia is on track to meet its Paris Agreement commitments, though most analysts say it is not.
The global pressure is not just coming from foreign governments but also from private investors, banks and insurers.
And it threatens to inflict heavy costs on the country's economy and businesses.
Norway's massive sovereign wealth fund, the Government Pension Fund Global, last year sold its stake in Australian energy giant AGL Energy because it is a major coal producer.
Wealth and retirement funds in Canada, the US and New Zealand have all warned they will consider climate policies in Australia when assessing investments.
Separately, an investment management firm, Invesco, warned earlier this month that Australia was lagging behind other economies in dealing with climate change and this could lead to reduced investments in the country.
"An inadequate climate change policy could lead to the selling of Australian investments - for example, if required by our clients or if necessary to adhere to stricter policies outside Australia, like EU policies," Mr John Pellegry, an Asian and emerging markets specialist at the firm, told The Australian Financial Review.
Last month, Dutch fund manager Robeco Institutional Asset Management made a similar warning, telling Bloomberg that Australia had a "particularly high-risk profile" when it comes to climate change.
Despite these warnings, Australia's Prime Minister Scott Morrison has been reluctant to adopt tougher climate policies, saying the country can curb emissions through adopting new technology. He is under heavy political pressure from conservative elements in his Liberal party and in the rural-based Nationals, the coalition's junior member, to avoid serious climate action.
The director of climate and environment at the Australasian Centre for Corporate Responsibility, Mr Dan Gocher, told The Straits Times that Australia faced increasing international pressure due to its lack of a net-zero target as well as the failure to introduce pollution-tackling policies in areas such as transport and agriculture.
"Carbon border taxes are a real and present danger to Australia's economy," he said. "The impact of the EU's tariffs will be limited to a handful of companies.
"But if Australia's biggest trading partners start to do it, it will begin to hurt."
He also said Australia faces growing costs unless it changes its current direction on climate policy, including the risk of declining foreign investment.
"Will institutional capital that is looking for green investment invest in Australia?" he said.
"The answer is no. They will go to jurisdictions with more favourable policies."