Cassidy's Carbon Border Tax Proposal Narrowed
A discussion draft modifying a carbon border tax bill narrows the product list, removing fossil fuels, chemicals and other goods that were original targets of the Senate bill, which was introduced a year ago (see 2311030006).
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The Foreign Pollution Fee Act, as named by co-sponsors Sens. Bill Cassidy, R-La., and Lindsey Graham, R-S.C., explicitly forbids linking this carbon tax to a domestic carbon fee.
The new list is aluminum, cement, glass, iron, fertilizer and steel -- similar to the products targeted by the EU's Carbon Border Adjustment Mechanism. However, the CBAM is linked to domestic and foreign countries' prices on carbon, not to relative measures of carbon intensity in the EU and in the countries that export to it.
As in the previous bill, a majority of domestic producers may petition to add other categories that would face the border tax.
A news release announcing the discussion draft said, "By promoting partnerships with nations that share our economic and environmental values, this policy builds a coalition against predatory practices by the Chinese Communist Party, supporting emerging markets and allies alike."
The discussion draft authorizes the Office of U.S. Trade Representative to enter into negotiations with low-income and low-middle income countries, to allow them a five-year transition period, and with richer companies, to allow them three-year transition periods as they learn how to measure products' carbon intensity. For the richer countries, and for those that are already in free trade agreements with the U.S., the negotiations are conditioned on reciprocal treatment for covered goods exported by the U.S., and a commitment to decrease pollution intensity of the covered products in their countries.
All partners, in addition to tracking their own production, would be required to impose carbon taxes on countries that aren't subject to these agreements.
Even after the five-year transition period, low-income countries that strike partnerships could be spared the fee for another 10 years if new production of the products is not more than 50% more carbon intensive than the baseline; the next 10 years, the intensity would have to be lower, at no more than 25% worse than the baseline.
Nonmarket countries, such as Vietnam and China, would not be allowed to strike such deals.
Cassidy described these partnerships as "a key driver of economic opportunity for U.S. producers and provides an avenue to displace Chinese production in global markets. International partnerships can be negotiated bilaterally or multilaterally. They can include all or some of the covered products."
Cassidy's office asked stakeholders to provide feedback to Christine_Harbin@cassidy.senate.gov by Jan. 17.
Shuting Pomerleau, who leads environmental policy at the American Action Forum, a conservative think tank, said the reduction in the numbers of products from the previous bill is significant. "This version, they have removed crude oil, natural gas, they have removed a lot of carbon intensive industries like paper, petrochemicals."
"I think they’re walking a tightrope," she said. She noted that the U.S. imports a lot of oil that is then refined in the U.S., for instance.
While the bill could be part of a larger bill extending the Trump tax credits, Pomerleau is skeptical it will make it in, because she's not sure if they can garner much more political support in the Republican Party. Because the bill doesn't specify any tariff rates, you couldn't use whatever revenue it might collect as a pay-for.
"It creates a framework and asks the Treasury to figure it out," she said.
"I do think that the probability is probably still low for this bill," she said.
However, she said, "even if this became law tomorrow, the effects will be really, really small." Mexico and Canada already have similar emissions profiles, and they are the major sources of steel, aluminum and cement imports.
The U.S. did import $3.7 billion worth of glass products from China in 2022, as well as $757 million from Germany. Germany would not be eligible for a partnership, unless the EU changed its approach to the CBAM, since currently, U.S. exports would be subject to the tax, because the U.S. only has regional carbon prices, not national ones. The U.S. imported $1.6 billion worth of pig iron from Brazil in 2022, $362 million worth from Russia and $290 million from India. Russia and India, along with China, are the dirtiest producers, Pomerleau said.