When the European Commission first introduced the idea of a Carbon Border Adjustment Mechanism (CBAM) in July 2021 as part of a broader climate legislation package, it was met with concern from international trade partners. A few other countries, like Japan, Canada, and the U.K., have since shown growing interest in the concept. This includes the U.S. where a growing number of policymakers has warmed up to the idea of carbon border adjustments and is exploring their own approaches.
Congressional initiatives addressing carbon emissions in international trade
In the wake of the EU’s pioneering move to establish a CBAM, Capitol Hill has witnessed a surge in interest surrounding the introduction of a border adjustment on carbon-intensive goods, like steel, aluminum, and cement, entering the United States. Several U.S. policymakers from both chambers and from both sides of the political isle have introduced or are currently in the process of drafting related legislative proposals.
Most recently in the Senate, Republican Senator Bill Cassidy from Louisiana announced in early October 2023 that he was working on a bill that would introduce a “foreign pollution fee” on imported goods with higher emissions intensity than their domestically produced counterparts. A few months earlier, two of his colleagues, Senator Chris Coons, a Democrat, and Senator Kevin Cramer, a Republican, introduced the Prove It Act. The bill would direct the Department of Energy -alongside other government departments and agencies- to study and compare the average emissions intensity of certain goods produced in the U.S. with their international counterparts. In the absence of a national carbon price, Senator Coons said the bill “would provide reliable data that’s needed to quantify the climate benefits of the United States’ investments in cleaner (…) manufacturing practices and to hold nations like China accountable for their emissions-heavy production of goods like steel." The bill garnered substantial bipartisan backing and may witness increased traction in the months ahead.
Back in 2021, just a few days after the European Commission had presented its idea for a CBAM, Senator Coons, together with Representative Scott Peters, a Democrat from California, had introduced the FAIR Transition and Competition Act. The bill sought to implement a border adjustment placed on certain imports. To level the playing field for domestic producers of certain goods, the bill proposes to levy a fee on equivalent imports with higher emissions’ intensity. Thereby matching the costs for U.S. producers derived from complying with regulatory and other policies at different levels of government.
First presented in 2022 but expected to be reintroduced in the current Congress, the Clean Competition Act, crafted by Senator Sheldon Whitehouse, a Democrat from Rhode Island, introduced the idea of an emission performance mechanism applying to both domestic and foreign producers. Rather than focusing on a carbon price, Whitehouse suggested to use the average carbon intensity of covered U.S. industries as a benchmark and to apply a carbon levy to products with higher emissions intensity.
Divergent priorities along party lines
While this diversity of legislative proposals underscores the growing collective interest in addressing carbon emissions associated with imported goods in the U.S., the underlying priorities and objectives vary along party lines. Very generally speaking, for Democrats, the primary driver behind their support for carbon border adjustments is the alignment with their climate agenda. They see such a measure as an effective tool to incentivizing cleaner production practices globally and to preventing carbon leakage. Whereas Republican proponents of a CBAM focus primarily on leveling the playing field for U.S. companies and protecting domestic production from imports from countries with laxer environmental regulations.
Looking Ahead
The differing motivations of Democrats and Republicans set the stage for a complex and multifaceted debate on carbon border adjustments in the U.S. Whereas both sides acknowledge the potential advantage of such a policy, bipartisan support for any future legislation would likely depend on the right political framing.
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