As lawmakers consider legislation to fight climate change and lower energy prices, one idea that has emerged is imposing a carbon border tax.
Advocates say that levying a fee on imports with a large carbon footprint would set an example for the rest of the world while also supporting American manufacturers. Opponents, however, argue that such a tax would be difficult to enact without setting a similar domestic border tax and that it could damage the country’s international work fighting climate change.
The idea was first floated by Democrats in 2021 with support from the Biden administration. Those talks went nowhere, but the idea was picked up again in 2022 when Sen. Joe Manchin (D-W.Va.) and a group of Republican senators debated it as a bipartisan energy solution. The U.S. carbon border tax would specifically target goods such as fossil fuels, cement and steel from countries that have weaker climate policies than the U.S., namely China and India.
A vocal proponent of the legislation, Sen. Bill Cassidy (R-La.), argued that a carbon border tax would not only place added responsibility on international manufacturers to reduce the carbon emissions of their products, but it could also provide an advantage to U.S. manufacturers, which typically produce goods with a smaller carbon footprint.
According to estimates, the U.S. manufacturing economy is almost 50% less carbon intensive than its trading partners, with China being three times as carbon intensive and India four times as intensive as the U.S.
“Right now the current system incentivizes countries like China and India and Vietnam to not pay attention to emissions because you can produce a good cheaper by not paying,” Cassidy told The Hill. “But if we had a border carbon adjustment, it would help our workers, help our industry [and] incentivize them to do it right. “This is about national security,” he added. “Right now, we’re losing jobs, we’re losing industry, and China’s economy’s getting stronger.
A carbon border adjustment reverses that.” Sen. Sheldon Whitehouse (D-R.I.) separately introduced the Clean Competition Act, which would itself create a carbon border tax for the U.S. “American manufacturers doing the right things on climate are often at a disadvantage compared to pollution-friendly foreign competitors,” Whitehouse said in a statement. “Our Clean Competition Act will give American companies a step up in the global marketplace while lowering carbon emissions at home and abroad and steering the planet toward climate safety.”
The European Union introduced a carbon border adjustment mechanism (CBAM) in 2021. When the tax goes into effect in 2023, importers will have to document and report carbon footprints of imported goods such as steel, iron, aluminum and fertilizers. By 2026, importers will need to not only document carbon dioxide emissions, but they will also need to pay a tax on each metric ton of those emissions.
U.S. officials at the time balked at a similar measure, saying it would damage the country’s efforts to persuade other countries to improve their climate policies.
“It’s premature to be discussing whether or not you ought to unilaterally go off and do a CBAM,” U.S. Special Presidential Envoy for Climate John Kerry told TIME at the G20 climate and energy ministers meeting shortly after the EU introduced its CBAM. “Right now, we’re pursuing multilateral efforts. … We’re trying to bring people together; we don’t want to do something that pushes people away.” Kerry added that Biden had tasked him with evaluating the “consequences” of the EU carbon border adjustment and that “by evaluating the European one, we’re going to have a sense of what we might or might not embrace, if we ultimately felt that’s the right thing to do.”
Others who are not yet fully onboard with a U.S. carbon border tax also point out that such a measure would likely require the U.S. to create a domestic carbon tax so as not to run afoul of World Trade Organization rules, which prohibit disfavoring imports. Sen. Kevin Cramer (R-N.D.) told E&E News in August that many Republicans do not support that approach, and therefore the tax would likely not be considered in the climate and energy section of the budget reconciliation bill currently being negotiated.
Democrats did not include the measure in the party-line climate, health care and tax bill that passed in August, but they could continue to discuss it as a potential bipartisan energy measure.
For more background, see the May 2022 issue of Congressional Digest on “Green New Deal.”