Export Clause and Fee-and-Dividend Laser Talk

Upstream vs. Downstream Fees

There are two ways to put a price on carbon:

  1. An “upstream” fee is levied on the fossil fuel when it is extracted from the ground.
  2. A “downstream” fee is levied when the fossil fuel is emitted into the atmosphere.

Carbon fee-and-dividend is an upstream fee, and one advantage of an upstream fee is that it allows for the pricing of fossil fuels that are extracted in the United States but exported and burned in other countries. A downstream fee could not constitutionally be placed on fossil fuels extracted in the U.S., exported, and then burned in other countries.

Constitutional Background: The Export Clause

The Export Clause of the U.S. Constitution (Art. I, Sec. 9) prohibits the U.S. government from taxing “goods in export transit” (U.S. v. IBM) but, as presently understood by the Supreme Court, the Export Clause does not prohibit the taxation of goods before they enter into export transit (even if they are eventually exported).

An upstream fee on fossil fuels occurs before the fossil fuel enters into export transit. In contrast, a downstream fee could be levied on fossil fuels burned in the U.S., but not on fossil fuels extracted in the U.S. but exported to and burned in other countries. The Export Clause would prohibit this because it would be a tax on goods in export transit.

The United States exported 125 million short tons of coal to other countries in 2012 [1]. Because of fracking, the U.S. could become an exporter of natural gas.

An upstream fee on fossil fuels is more effective than a downstream fee because it prices these exported fossil fuels where a downstream fee does not.

1. “Quarterly Coal Report (4Q 2012)”. March 29, 2013. US Energy Information Administration. Table 7.