The Australian government has hit out at the European Union's proposal to tax energy-intensive imports from countries without a carbon price.
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It means Australian exporters would pay more to sell into the EU compared with producers from countries that have more ambitious climate policies.
Trade Minister Dan Tehan has claimed the tax is protectionism and could contravene global trading rules.
"If they're now putting border tariffs on those products as they come into the EU, they're treating differently products within the EU compared to how they're treating products that they're importing from other countries," he told ABC radio on Thursday.
"We will be looking very closely at what they're doing. The last thing the world now needs is extra protectionist policies being put in place."
EU importers would buy certificates for the carbon price that would have been paid were the goods produced under the union's emissions trading scheme.
Once a non-EU producer can show they have already paid a price for the carbon used in the good's production, the EU importer can fully deduct the cost.
Also under proposed changes is a ban on the sale of new petrol and diesel cars by 2035 to speed up the switch to electric vehicles.
The carbon border tax would target materials such as iron, steel, aluminium, fertilisers and electricity starting from 2023 as part of a broader plan to cut emissions 55 per cent by 2030.
The EU sees it as an incentive for trading partners to up their game on climate. The Australian government, widely considered a global laggard on climate action, has construed it as a punishment.
"We think it would be much better to incentivise countries to deal with emissions reduction rather than penalising them," Mr Tehan said.
The Australia Institute think tank says the proposal will affect the nation's direct exports, such as iron, as well as its sales of materials like alumina to non-EU countries that then sell into it.
"It is now clear that the taxes on Australian high-polluting goods are coming, and the revenue will be collected by and invested into our trade competitors," the institute's climate and energy director Richie Merzian said.
"Rather than blindly claiming this is a protectionist measure, the Australian government could instead choose to engage constructively in the interests of Australian exporters."
Australian Associated Press
