Carbon Border Adjustment Tax Discussed by CRS
Emissions-intensive, trade-exposed goods such as cement, paper, glass, steel and chemicals are likely to be those facing carbon border adjustment taxes, according to a recent Congressional Research Service report about both the possibility of the taxes going into effect in Canada and the EU and what Congress would need to consider if it wanted to pass its own version.
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"Establishing a [carbon border adjustment tax] would likely present substantial implementation challenges," the report said, such as calculating the economic impact of U.S. climate policy on domestic production and the same for producers outside the U.S.
"To alleviate some of these challenges, policymakers could limit the program to a select number of industries and apply a simplified set of default values and assumptions for categories of goods," the report said.
The report said that lawmakers could protect domestic industry from carbon leakage without writing such a tax regime. For instance, a cap and trade system could offer emission allowances, which it says has been done in the EU and in California.