Congressional Democrats Target International Emissions with a Carbon Border Adjustment

On July 19, Sen. Chris Coons (D-DE) and Rep. Scott Peters (D-CA) introduced the FAIR Transition and Competition Act, legislation aimed at “[leveling] the field for domestic manufacturers by imposing a fee on carbon-intensive products when they reach the border.” According to the press release accompanying the bill, the legislation will protect domestic jobs and encourage climate innovation by:

  • Recognizing the costs incurred by U.S. companies in producing cleaner products due to emissions-related laws and regulations;

  • Accounting for those costs by levying a fee on imports in carbon-intensive, trade-exposed sectors;

  • Supporting international climate cooperation and the reframing of trade around climate;

  • Directing revenue to the development and commercialization of high-impact emissions reductions technologies; and

  • Creating a new Resilient Communities Grant Program for states to support climate adaptation, transition assistance, and the communities facing the most severe impacts of climate change and historic pollution.

The fee would go into effect on January 1, 2024, and would initially cover carbon-intensive sectors such as aluminum, cement, iron, and steel. To determine the fee, the Secretary of the Treasury – in coordination with the Director of the Office of Budget and Management; the Secretary of Commerce; the Secretary of Energy; the EPA Administrator; the Secretary of Agriculture; the Secretary of Transportation; the United States Trade Representative; and the Secretary of the Interior – would calculate the average environmental cost incurred by domestic firms in each of the respective sectors to comply with relevant laws and regulations. Importers would then be required to pay a fee informed by that environmental cost and the upstream greenhouse gas emissions of the fuel that they use during production. Countries listed on the list of Least Developed Countries would not be subject to these fees. 

Sen. Coons and Rep. Peters estimate that the legislation would generate between $5 billion and $16 billion per year, with that number potentially growing if the fee is assessed on a broader range of products. The revenue collected would be used for administration, with the remaining amount divided evenly between state grants and research, development, and deployment of climate-oriented technologies. 

It is not clear whether the fee would comply with World Trade Organization (WTO) rules. In order to remain WTO-compliant, the U.S. would need to demonstrate that domestic firms are not unfairly advantaged over foreign competitors. Earlier this month, the European Union set its own carbon tariff, and has said that the levy will be compatible with WTO rules. 

These sorts of proposals are not without their critics. In March, the U.S. Special Envoy for Climate Change, John Kerry, said that the EU border could have "serious implications for economies, and for relationships, and trade." And Senate Energy and Natural Resources Committee Ranking Member John Barrasso (R-WY) has indicated that he is opposed to Sen. Coons’ and Rep. Peters’ proposed legislation.

The White House has not yet come out in support of the proposal, though then-candidate Biden did endorse the idea of a carbon tariff during last year’s elections.

Bill text is available here. A one-page summary is available here.

Paul EpplerEppler, Congress, Carbon, trade, Coons, Peters, Kerry, White House