Carbon Border Fee Adjustment Laser Talk

This page was updated on 12/24/18 at 11:05 CST.

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

Answer:  No, because the Energy Innovation and Carbon Dividend Act 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, 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.

The carbon border fee adjustment is also specifically designed to comply with international trade law. [4,5]

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Related: Energy Innovation and Carbon Dividend Act.

1. “Energy-Intensive, Trade-Exposed Industries.” American Council for an Energy-Efficient Economy (accessed 18 Jan 2018).
2. Nicholson, M.W. “Disaggregated Analysis of Competitiveness and Employment Issues in Energy-Intensive Trade-Exposed Industries.” International Trade Administration (Jun 2010).
3. “The Effects of H.R. 2454 on International Competitiveness and Emission Leakage in Energy-Intensive Trade-Exposed Industries.” EPA Interagency Report (Dec 2009).
4. Pauwelyn, J. “Carbon Leakage Measures and Border Tax Adjustments under WTO Law.” In Research Handbook on Environment, Health and the WTO (21 Mar 2012).
5. “Climate and carbon: aligning prices and policies.” OECD Environment Policy Paper No. 1 (Oct 2013).