Border Tax Adjustment Laser Talk

CCL’s policy includes a border adjustment on goods imported from or exported to countries without an equivalent price on carbon. This adjustment would both discourage businesses from relocating to where they can emit more CO₂ and encourage other nations to adopt an equivalent price on carbon. Together, the tax on imports and refund on exports are called the “border adjustment” (green boxes in the Figure 1 below).

The border adjustment would be as fair and accurate as possible for similar goods based on their carbon emissions. The refund to exports would come from the tax imposed on imports (Figure 2). The fee (blue boxes in Figure 1 below) on fossil fuels is a separate pot than the border adjustment pot. Fossil fuel imports to the United States are assessed the fee (not part of the border adjustment), and fossil fuels exported from the US get no refund.

An illustration of how CCL’s border adjustment works. Boxes in blue are subject to the fee, boxes in green are subject to the border adjustment. Carbon intensive produced domestically that stay in the United States are not touched; it is assumed they will bear the burden of higher fossil fuel costs because of the upstream assessment point for our fee.

Figure 2: Revenues from the fee and the net of the border adjustment (p. 33 of the main report) go into two separate pots. The fact that the border adjustment is positive indicates a predicted “carbon trade surplus”, where more carbon intensive goods are imported than exported. Therefore, at least 20 years out, the border adjustment should be self-funding, with more revenue collected on carbon-intensive imports than spent on rebates for carbon-intensive exports.