Lawmakers consider U.S. carbon import fees amid bipartisan energy bill talks

Discussions among U.S. lawmakers over a potential bipartisan energy and climate bill have included a possible levy on carbon-intensive products entering the U.S.

Such a tariff could reduce emissions globally and make domestic manufacturers more competitive with less carbon-efficient foreign companies. Taking into account also comes as the European Union works to implement a planned Carbon Border Adjustment Mechanism.

But talks about adding the proposal to a bipartisan bill are in their early stages and details of implementation have not been worked out.

In late April, U.S. Sen. Joe Manchin, DW.Va., began consulting with Republican and Democratic lawmakers on crafting a possible bipartisan energy and climate bill. The talks began amid an impasse over the broader Build Back Better social spending and climate legislation, which Manchin opposed because of its full cost and objections to some climate-focused support packages. family.

Bipartisan negotiations considered including some climate provisions of the Build Back Better Bill, such as tax incentives for clean energy. Lawmakers could also consider reforms to facilitate the development of natural gas infrastructure as a way to provide more LNG to Europe in return for potential measures to reduce methane emissions, said Sasha Mackler of the Bipartisan Policy Center in a recent interview.

The carbon import fee at stake

One of the attendees at the meeting was U.S. Senator Chris Coons, D-Del., co-chair of the Senate Climate Solutions Caucus. A Coons spokesperson confirmed in early May that a the carbon border adjustment was part of the discussions but did not provide further details.

In July 2021, Coons proposed a bill to impose a “polluter import tax” on certain carbon-intensive products entering the United States. The federal government would calculate the tax by averaging covered business expenditures to comply with any “federal, state, regional tax, or local law, regulation, policy, or program” designed to limit or reduce greenhouse gas emissions. .

The levy would initially apply to goods such as aluminum, cement, iron, steel, natural gas, oil and coal before expanding to other types of imports. Revenue from the charge would support technologies aimed at reducing emissions and help workers and businesses affected by the transition to clean energy.

Climate and trade

Conversations around a bipartisan energy bill – and specifically a carbon import charge – are preliminary. But “a growing number of members on both sides of the aisle are seeing the opportunities that exist at this nexus between climate and trade policy,” said Greg Bertelsen, CEO of the Climate Leadership Council. The council is a bipartisan group advocating for a carbon royalty and dividend policy.

“A massive amount of emissions are traded internationally,” Bertelsen said in an interview. “If we can put market incentives in place at the borders to encourage emission reductions, it will have a significant impact on climate change.”

Since the United States does not have a national carbon price, Bertelsen said the government could establish a benchmark for the carbon intensity of goods covered by the program and assess charges on imports if their carbon density exceeds alternatives. produced nationally. If imports into the United States matched the carbon intensity of more efficiently produced domestic goods, emissions would fall by 600 million metric tons per year, according to Bertelsen.

Partnering with allies would increase these environmental benefits. If the US joined the EU, UK, Canada and Japan and each country’s imports matched their national average emissions intensity, global emissions would decrease by 1.8 billion metric tons per year. year, Bertelsen said.

The US steel industry would be particularly advantaged under such a program. Steel is one of the most carbon-intensive industries, but American producers are among the most efficient in the world.

In 2019, steel production in the United States had the second-lowest average carbon intensity by country, according to an April report by Global Efficiency Intelligence, a Florida-based consulting firm. But the United States is also a big importer of steel, which means much of what the country uses comes from dirtier sources.

“I think steel will probably be the first product area where [a carbon import fee is] going to apply because it’s so widely traded and there’s a lot of data,” Kevin Dempsey, president and CEO of the American Iron and Steel Institute, said in an interview. “American industry has a carbon advantage , and we think it’s important that this be recognized.”

While campaigning for the White House, US President Joe Biden approved carbon adjustment fees or quotas for countries that fail to meet their climate change obligations.

But the administration never developed a strategy to do so. In addition, the United States could face challenges over the tariff before the World Trade Organization, whose rules make it difficult for countries to restrict trade. Consumers of U.S. steel imports may also push back on the proposal due to cost concerns, especially as inflation has rattled supply chains.

Meanwhile, the levy’s ability to target imports from less efficient competitors could draw both Republicans and Democrats to Congress.

“Members of both parties are increasingly recognizing that addressing this trade aspect is a key part of any effective energy and climate policy,” Dempsey said.

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.

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