Democrats Propose a Border Tax Based on Countries’ Greenhouse Gas Emissions
WASHINGTON — Democratic lawmakers on Monday proposed to raise as much as $16 billion annually by imposing a tax on imports from China and other countries that are not significantly reducing the planet-warming pollution that they produce.
The tax would be levied regardless of whether Congress passed new laws to reduce emissions created by the United States. It would be designed to be approximately equivalent to the costs faced by American companies under state and federal environmental regulations.
Experts said a border carbon tax would almost certainly provoke America’s trading partners and could create serious diplomatic challenges ahead of United Nations climate negotiations set for November in Glasgow.
But Senator Chris Coons of Delaware and Representative Scott Peters of California, both Democrats, said American companies deserved protection as the Biden administration moved forward with aggressive policies to reduce greenhouse gas emissions caused by the burning of fossil fuels.
“We must ensure that U.S. workers and manufacturers aren’t left behind and that we have tools to assess global progress on climate commitments,” Mr. Coons said.
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The plan comes a week after the European Union proposed its own carbon border tax on imports from countries with lax pollution controls.
The proposal from Democrats, which Senate aides said was developed with input from the Department of the Treasury, the Office of the United States Trade Representative and other parts of the Biden administration, is expected to be attached to a $3.5 trillion budget resolution.
The White House did not respond to a request for comment on the legislation or say whether the administration endorsed it. But President Biden and administration officials have said they support a carbon border tax as a tool to advance climate goals.
Democrats hope to pass their budget package this year and use it as a way to expand social, educational and health care programs as well as fund a transition to clean energy and cut greenhouse gas emissions. The decision to package the proposals in a budget reconciliation bill would allow Democrats in the sharply divided Congress to pass the measure without any Republican votes.
A handful of Republican lawmakers have explored a carbon border tariff as a way to counter China and protect U.S. industries.
But Senator John Barrasso of Wyoming, the top Republican on the Senate Committee on Energy and Natural Resources, called the $3.5 trillion blueprint a “freight train to socialism” and said the Democrats’ plan for a border tariff would start a trade war.
“They’re proposing a border tax because they know punishing regulations and taxes will drive U.S. businesses overseas,” Mr. Barrasso said in a statement. He said the United States should instead work on making energy “cleaner and more affordable.”
Mr. Barrasso’s state is a major producer of coal, natural gas and crude oil, the burning of which produces the carbon emissions that scientists say are driving climate change.
A border tax is typically designed to even out the burden for a nation that has imposed a tax or price on carbon dioxide emissions. Companies abroad that want to sell iron, steel, aluminum or other commodities to the United States would be required to pay a price for each ton of carbon dioxide they emit in making their products, which would erase any competitive advantage. The hope is that it will encourage other countries to also price carbon and drive down emissions.
It also is considered a way to prevent American companies whose manufacturing processes emit heavy amounts of carbon pollution from relocating to countries with looser environmental rules, a phenomenon known as leakage.
Under the Democratic proposal, a tariff starting in 2024 would apply to roughly 12 percent of imports coming into the United States. It would cover petroleum, natural gas and coal as well as products that have a large carbon footprint like aluminum, steel, iron and cement. The list of covered goods could expand as the United States improves methods of calculating the carbon intensity of different products.
It is estimated that it will raise between $5 billion and $16 billion annually, aides to the lawmakers said.
A carbon border tax does threaten to make items made with imported products — including medical devices, automobiles and appliances — more expensive for American consumers if foreign companies raise their prices, said David Weisbach, a professor at the University of Chicago Law School and an expert in carbon border tariffs. Senate aides argued that the legislation is designed to avoid causing price hikes across goods by taxing only limited items at first.
Mr. Coons said he intended the tariff to act as a “complement” to the new climate policies that Democrats intend to pass in the budget package, like a mandate to require as much as 80 percent of U.S. electricity to come from low or zero-carbon energy sources.
“We have a historic opportunity to demonstrate that climate policy goes hand-in-hand with providing economic opportunities as U.S. innovators develop and scale clean energy technologies,” he said.
Mr. Biden has pledged to cut U.S. emissions roughly in half by 2030 and reach net-zero emissions by 2050. The United States, however, does not tax industries for the carbon they produce. Political analysts say it is unlikely the Congress will enact a carbon tax for domestic manufacturers and utilities in the near fut
Instead, the plan calls for federal agencies to calculate the environmental cost incurred from complying with “any federal, state, regional or local law, regulation, policy or program” designed to reduce emissions.
That could refer to things like the regional cap-and-trade systems that 13 states have adopted; state renewable fuel or electricity standards that promote clean energy use; or even the burden of complying with federal regulations under the Clean Air Act.
“I’ve never seen a border adjustment that adjusts for regulatory costs,” Mr. Weisbach said. “That’s going to be hard to do.”
Another complication is that while the poorest countries would be exempt from paying the tariff, it would be up to U.S. agencies to determine whether trading partners are enforcing climate change laws “that are at least as ambitious as federal laws and regulations” to cut carbon.
Under the 2015 Paris Agreement the nearly 200 nations involved agreed to cut emissions — but in different ways. Some, like the United States and the European Union, vowed to cut emissions across their economies. Others, like Saudi Arabia, said they would reduce the expected growth of future emissions. China pledged to peak emissions “around” 2030. India said it would reduce the greenhouse gas intensity per unit of gross domestic product produced.
“There will be different views on how you do this,” said Michael Mehling, deputy director of the Center for Energy and Environmental Policy Research at the Massachusetts Institute of Technology, who was consulted on the proposal by Mr. Coons’s staff.
But, he said: “It’s really good that they’re doing this. I think this conversation needs to be started about leakage. There’s no way we cannot deal with this topic.”