Democratic negotiators have proposed funding part of their $3.5 trillion reconciliation bill with an import fee or tariff on carbon-intensive products. Few details are available on the proposal, but it comes on the heels of a climate policy package proposed by the European Commission on July 14, which also includes a carbon border adjustment mechanism (CBAM) that would require importers to surrender "CBAM certificates" reflecting the carbon price of the embedded emissions in covered products are imported into the EU.
Sen. Chris Coons, D-Del., and Rep. Scott Peters, D-Calif., recently introduced legislation (S. 2378
) that could be used as a starting point for negotiating a U.S. CBAM regime.
The bill from Coons and Peters would establish a border carbon adjustment in the Internal Revenue Code that would impose a fee on imports of certain products beginning in 2024. The fee would be based upon the domestic environmental cost (as determined by Treasury) of specific products, and would initially cover goods including aluminum, cement, iron, steel, natural gas, petroleum and coal. Treasury could expand the list of covered goods if it determines it has sufficient data on the carbon footprint and it deems in the best interest of the United States.
The proposal would give Treasury an enormous amount of discretion in both the size and implantation of the fee, and there are still many hurdles to enactment. While the ultimate outcome of the legislation remains uncertain, businesses should examine the carbon adjustment proposals in the United States and the EU to determine potential exposure.
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