6 The tariff would be based on the estimated cost U.S. 4 For example, Senator Bill Cassidy (R-LA) has suggested he plans to introduce carbon tariff legislation that a spokesman described as “ensuring imports dirtier than American-made products are disadvantaged.” 5 Senator Chris Coons (D-DE) and Representative Scott Peters (D-CA) introduced the FAIR Transition and Competition Act of 2021 that would levy tariffs on certain carbon-intensive imported goods. would be able to take advantage of its much less carbon-intensive goods and make foreign producers pay for their carbon-intensive exports to the U.S. Proponents believe that by levying tariffs on imported goods from specific countries, the U.S. A carbon tariff simply taxes imports based on their carbon content. The distinction matters: a border adjustment would be implemented in tandem with a domestic carbon tax, levying taxes on imported goods and offering rebates to manufacturers exporting their goods. 3 Although the policy is often called a “border adjustment,” it amounts to a tariff. lawmakers and policy analysts for a standalone “carbon border adjustment” policy. 2Īt the same time, there has been increasing support among U.S. Most recently, lawmakers doubled down on this approach by passing the Inflation Reduction Act, which provides substantial tax breaks and subsidies for the U.S. Instead, the administration’s approach to mitigating climate change relies on tax subsidies and regulations. 1 Despite the bold targets, the administration has not supported an economywide policy in the U.S. The Biden administration has set ambitious climate goals for the United States: reducing domestic emissions by 50 to 52 percent relative to 2005 levels by 2030 and reaching net-zero emissions by 2050. A detailed description of the data modeling methodology is provided in the appendix. FTI researchers led an analysis that vetted and consolidated large amounts of data on carbon emissions and industry output. The author collaborated with researchers at FTI Consulting to estimate industry-level carbon intensity across the U.S. Still, it lags behind wealthy democratic peers, including the EU, the U.K., and Japan.Ī carbon tax would be the most efficient policy for achieving deeper decarbonization and should incorporate a border adjustment to prevent carbon leakage and level the playing field between domestic and foreign producers. is much less carbon-intensive than some of the world’s largest emitters, such as China, India, and Russia. falls in the middle of the pack globally in terms of carbon intensity across fossil fuels and manufacturing industries. is already a global leader in decarbonization. This paper explains the difference between a carbon border adjustment and a carbon tariff and provides a preliminary analysis that casts doubt on the optimistic narrative underlying the movement toward carbon tariffs.īreakthroughs in clean-energy technology and policy have given rise to claims that the U.S. policymakers must have the best available information about how the carbon-intensity performance of the American economy stacks up against the full range of global peers and competitors. Given recent legislative developments in carbon border adjustments and carbon tariffs, U.S. Why lawmakers should focus on implementing a border-adjusted carbon tax, not carbon tariffs Executive Summary
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