Experts: Carbon Border Adjustment in US Stymied by Lack of Will to Pass Carbon Price
The title of the panel, "All Carrots and No Sticks: U.S. Climate Policy & Border Adjustment Mechanisms," revealed the main problem for a trade-rule compliant, administrable carbon border adjustment mechanism -- there is no national price on carbon in the U.S., and passing legislation to create one seems out of reach. Rep. Earl Blumenauer, D-Ore., who participated in a panel hosted by the Center for Strategic and International Studies and the American Leadership Institute, said it's quite likely that in 10 years, all the major economic players, including China, could be ready to harmonize a price on carbon so that their manufacturers are on a level playing field. "I’m convinced this will happen over the course of the next decade but we don’t have time to wait for the next decade," he said.
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So Blumenauer said the U.S. will continue to talk with Europeans about their plan for a carbon border adjustment mechanism (CBAM), and he said he's "very interested" in passing a CBAM in the U.S. in 2022. "I think there is a new sense of urgency" on climate change, he said. CSIS Trade Scholar Bill Reinsch said that in order to be consistent with World Trade Organization rules, domestic producers must face the same costs on carbon as importers. He doesn't see any interest from the Biden administration in creating a national carbon price.
So, he said, there could be three reactions to Europe's CBAM, which would begin to collect taxes in 2025. The first would be "mutual recriminations" as the European Union and its trading partners sue each other. The second would be that Europe's ambition would spur other players, like Canada, the U.S. and Japan, to create a similar mechanism, and the common agreement on how to measure carbon content in products might be achieved at a multilateral institution. Reinsch said he thinks the Organization for Economic Cooperation and Development would be the best forum.
"The third scenario is essentially the big yawn. We figure out it’s probably not going to have that big an impact on us. The studies so far suggest it’s not going to have that big an impact on us. Public opinion doesn’t change here, and we continue to fumble around looking for a policy."
Blumenauer said that setting a national carbon price is important, and he said it can pass if the American public recognizes that a significant portion of the revenue would go back to them. He said the failed cap and trade legislation got labeled as cap and tax. But, he acknowledged, "I couldn’t even get our Ways and Means Committee to support our carbon tax proposals" in past efforts.