Democratic Carbon Border Tax Bill Introduced
If a bill just introduced becomes law, importers of fossil fuels, refined petroleum products, petrochemicals, fertilizer, hydrogen, adipic acid, cement, iron and steel, aluminum, glass, pulp, paper, lime and gypsum products and ethanol would have to pay a duty at the border based on the carbon intensity of either the industry in the home country, the product, if a specific petition was made, or an economywide carbon intensity measure, if no reliable data is available by industry.
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The duty could begin in 2025 and would start at $55 per ton of carbon dioxide (or CO2 equivalent; methane emissions also would be considered, and methane is 20 times more potent at trapping heat than CO2). Producers that are cleaner than the average wouldn't pay a fee; however, to avoid a fee, in future years, you would have to be cleaner than more than half of producers to avoid the fee, and the price per ton of emissions also would increase over time. Although it says the fees could begin any time after Jan. 1, 2025, the bill's text also says mills, smelters, refineries and plants wouldn't be required to report carbon intensity data until June 30, 2026.
The Clean Competition Act is a bicameral bill introduced by an array of Democrats, led by Sen. Sheldon Whitehouse, D-R.I., in the Senate and Rep. Suzan DelBene, D-Wash., in the House. Unlike the carbon border adjustment bill introduced earlier by Sen. Bill Cassidy, R-La., and two Republican colleagues (see 2311030006), domestic producers in these industries also would have to pay carbon fees based on the carbon intensity of their production processes and the sources of their electricity. If they employed carbon capture technology, that would also be considered in the calculation. Those fees would begin in 2025.
The new bill also expands the scope of the carbon border adjustment tax quickly, including finished goods that contain steel or aluminum "that meet certain weight or value thresholds, such as cars," according to a news release. How leased vs. purchased airplanes would be treated in such an arrangement is not laid out in the bill.
“American manufacturers doing the right thing on climate are often at a disadvantage compared to high-polluting foreign competitors,” Whitehouse said in the release. “Our Clean Competition Act would give domestic companies a step-up in the global marketplace while lowering carbon emissions at home and abroad, and ultimately steering the planet toward climate safety. There is bipartisan momentum for a carbon border adjustment in the Senate -- this is a solution endorsed by industry and experts across the political spectrum.”
DelBene pointed to the closure of an aluminum smelter in her district, which affected 700 union workers. "For too long, American industries producing goods in a less carbon-intensive way have been undercut by foreign competitors with dirtier production processes," she said in the release. "A carbon fee would incentivize industries from around the world to prioritize decarbonization and create a level playing field for American workers in these sectors."
Countries that have their own domestic price on carbon -- such as Canada and member states in the EU -- would have the amount of that fee waived when the U.S. calculated the tax.
Exports from the least developed countries -- such as Bangladesh, Cambodia, Haiti and Ethiopia -- would be excluded from the fee, but those countries are not currently players in most of these industries, except petroleum. However, if any LDC accounted for 3% or more of production of a covered product, importers of those goods would have to pay the duty.
The fee would be based on the weight of a particular good, beginning at $55 per ton, and increase over time. 75% of revenues raised would fund grants to help domestic industries invest in the new technologies necessary to reduce their carbon footprints. The remaining 25% would be used by the State Department to help developing countries decarbonize.
The fees would not be due at the border, but rather by Sept. 30 of the year following the goods' import.
Manufacturers who export goods covered by the carbon fee would be allowed a refund of the charge.
Rep. Don Beyer, D-Va.; Rep. Kathy Castor, D-Fla.; Rep. Ami Bera, D-Calif.; Sen. Brian Schatz, D-Hawaii; and Sen. Martin Heinrich, D-N.M., are co-sponsors.
"Manufacturing accounts for nearly one-quarter of U.S. climate pollution and is a rapidly growing sector globally," said Elizabeth Gore, senior vice president for political affairs at the Environmental Defense Fund. "The Clean Competition Act can create a race to the top among global competitors as part of a larger effort to move toward a low-carbon economy ... ."