Carbon Border Fee Adjustment Laser Talk

Question:  Won’t this carbon fee hurt American business in the world market?

Answer:  The Energy Innovation and Carbon Dividend Act will not disadvantage U.S. business in the world market, because it has a provision built in to protect trade competitiveness: a ‘Carbon Border Fee Adjustment’ imposed on covered fuels and ‘emissions-intensive trade-exposed’ (EITE) goods [1,2] that cross our border in either direction. These goods include products like steel, aluminum, cement, glass, certain chemicals, and some agricultural products. [3]

Goods that fall under this EITE classification and are imported from a country that does not have a carbon price equivalent to ours will have to pay a surcharge to make up the difference. Conversely, an American-made EITE product exported to such a country will get a refund for the carbon fee associated with its carbon footprint.

This border adjustment prevents the carbon fee from putting American businesses at a competitive disadvantage in global markets.  It will also remove the incentive for them to relocate overseas to avoid the carbon fee. In addition, it will encourage foreign countries to adopt their own carbon fee so they would get the money instead of us.

In fact, both the European Union (EU) and Canada – countries that account for a third of our international trade [4] – are discussing border carbon adjustments of their own. [5,6] We can’t afford to get left in the dust on this issue.

The carbon border fee adjustment in H.R.763 is also designed to comply with international trade law. [7,8]

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Related: Energy Innovation and Carbon Dividend Act.

1. “Legislation: Energy-Intensive, Trade-Exposed Industries.” American Council for an Energy-Efficient Economy (accessed 21 May 2020).
2. Flannery, B., J. Hillman, J.W. Mares, and M. Porterfield. “Framework Proposal for a US Upstream Greenhouse Gas Tax with WTO-Compliant Border Adjustments.” Resources for the Future (Mar 2018).
3. Mares, J.W. and B.P. Flannery. “WTO-Compatible Methodologies to Determine Export Rebates and Import Charges for Products of Energy-Intensive, Trade-Exposed Industries, If There Is an Upstream Tax on Greenhouse Gases.” Working Paper 18-19. Resources for the Future (Oct 2018).
4. “List of the Largest Trading Partners of the United States.” Wikipedia. (27 Nov 2020).
5.  Aylor, B., et al. “How an EU Carbon Border Tax Could Jolt World Trade.” Boston Consulting Group (30 Jun 2020).
6. “A Healthy Environment and a Healthy Economy.” Government of Canada (11 Dec 2020).
7. Pauwelyn, J. “Carbon Leakage Measures and Border Tax Adjustments under WTO Law.” In Research Handbook on Environment, Health and the WTO (21 Mar 2012).
8. “Climate and carbon: aligning prices and policies.” OECD Environment Policy Paper No. 1 (Oct 2013).

This page was last updated on 12/15/20 at 16:15 CST.