Carbon Border Fee Adjustment

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 any country will get a refund for the carbon fee paid in the U.S.

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 the money will enter their economy instead of ours. In fact, the European Union (EU) has now officially committed to a border adjustment starting in 2026, while Canada and Japan are considering it as well. [4] Together, these countries account for 38 percent of our international trade. [5] We can’t afford to get left in the dust on this issue.

The carbon border fee adjustment in H.R.2307 is also designed to comply with international trade law. [6,7] Any funds collected from other countries in excess of refunds to U.S. companies would go to the Green Climate Fund. [8]

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Read the blog: Carbon Border Adjustment Mechanisms: What are they, and why do they matter?

In a Nutshell: The Energy Innovation Act includes a border adjustment mechanism that prevents energy-intensive U.S. businesses from moving overseas to escape the carbon fee. It will also encourage other countries to put a price on carbon, as many of our biggest trading partners have already done.

Related: Energy Innovation and Carbon Dividend Act, European Union Border Adjustment

  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. “Carbon Border Adjustment Mechanism: Questions and Answers.” European Commission (14 Jul 2021).
  5. “List of the Largest Trading Partners of the United States.” Wikipedia. (27 Nov 2020).
  6. Pauwelyn, J. “Carbon Leakage Measures and Border Tax Adjustments under WTO Law.” In Research Handbook on Environment, Health and the WTO (21 Mar 2012).
  7. “Climate and carbon: aligning prices and policies.” OECD Environment Policy Paper No. 1 (Oct 2013).
  8. “Green Climate Fund.” GCF (accessed 29 Apr 2021).

This page was last updated on 07/14/21 at 23:15 CDT.