US lawmakers push carbon border tariff similar to EU’s CBAM

Senior Democrats reached an agreement that includes a 'polluter import fee' to help fund their spending package [Michael Reynolds / EPA-EFE]

Democrats in the US Senate are considering a “polluter import fee”, similar to the EU’s recently unveiled carbon border adjustment mechanism (CBAM), to help fund President Joe Biden’s $3.5 trillion recovery package.

A Democratic aide said the deal reached by leading Senate Democrats last week would include a proposal for a “polluter import fee” applicable to carbon-intensive goods entering the US.

Oregon Senator Jeff Merkley said “there is a lot of support” for the idea, according to Bloomberg.

The US import fee would mimic the EU’s recently proposed CBAM, which seeks to put a carbon price on imported goods as a way to equalise costs for European industry and prevent them from leaving Europe for countries where it is cheaper to pollute.

The EU proposal has already stoked fears among emerging countries like China, which raised “grave concerns” about the carbon levy creating new barriers to trade.

But the European Commission, which tabled the proposal last week, says the EU’s carbon border levy also aims to incite Europe’s trading partners to decarbonise.

“CBAM as we call it is not a tax, it’s an environmental measure,” said Paolo Gentiloni, a former Italian Prime Minister who is now the EU’s economy commissioner.

The EU executive also remarks that carbon border tariffs are already in place in some regions around the world, such as California, where an adjustment is applied to certain imports of electricity.

“We are also ready to try to find the balance between our ambition, and the necessity of global cooperation, because you need ambition but also global cooperation to have results from this point of view,” Gentiloni said.

Jytte Guteland, a leading Social and Democrat lawmaker in the European Parliament says working in tandem with the US would make Europe’s carbon border levy more effective.

“This is something that I actually hoped would happen, that we would see initiatives in the big trading nations and regions around the world and that the carbon border adjustment mechanism would influence others who also have a severe impact in global trade and on emissions,” she told EURACTIV.

A coordinated EU-US carbon border measure would raise the pressure on China, the world’s largest polluter, to start reducing its greenhouse gas emissions. And Beijing will be watching closely, said Simone Tagliapietra from the Bruegel economic think tank in Brussels.

Last week, China’s own emissions trading scheme (ETS) came into force, setting up a carbon price of 51.23 yuan – or just under €7 – on the day it launched.

This is well below the EU’s carbon price which is currently above €50 per tonne. But according to Tagliapietra, closer EU-US cooperation on carbon tariffs would act as a powerful incentive for China to make its newly-established ETS work.

Challenges ahead

The Biden Administration has, until now, been sceptical about the EU’s carbon border levy, with US climate envoy John Kerry warning that it should be a “last resort”.

“I do note that it’s extremely complicated to think about the structure of a border tax,” said Jonathon Pershing – a member of Kerry’s team – at a EURACTIV debate in May. “I don’t disagree in principle that it has value, but I think that it’s got enormous complexity.”

US raises concerns over Europe’s planned carbon 'border tax'

Implementing a border levy to price carbon-intensive imports and protect European industries will be “extremely complicated,” warned Jonathan Pershing, a member of the US climate envoy’s team.

But Kerry is now speaking more positively about it. “We’ve talked with France, Netherlands and the EU very closely,” he told the Financial Times, adding: “We’ve agreed to consult – we’ve not said we’re supportive of definitely putting one in place.”

Even so, there is a long way to go before a carbon tariff makes its way into American law. According to Tagliapietra, it would be tricky to put in place because, unlike Europe, the US has avoided carbon pricing for decades.

“The US doesn’t have a carbon market at the federal level, and therefore for the US, it’s more difficult to calculate the amount of the adjustment,” Tagliapietra told EURACTIV.

“There will have to be a calculation about the embedded carbon pricing in environmental regulations, and then starting from that build up the carbon border adjustment, which is very tricky,” he explained.

There are currently attempts in the US House of Representatives and the Senate to introduce carbon pricing, but it is unclear whether these will succeed. Both Democrats and Republicans are split over the idea.

A tariff for climate, not the economy

Other potential differences between the EU and the US carbon tariffs relate to how the revenues are going to be used.

In the US, the plan is rooted in the need to finance President Joe Biden’s huge recovery package, which includes green investments.

But in Brussels, policymakers are wary that using revenues to fund the EU budget would contravene WTO rules, which is a top priority for the European Commission. The EU executive was expected to make an announcement on Tuesday (20 July) on what revenues from the measure would go towards the EU’s “own resources”, but the proposal has now been delayed indefinitely.

According to Tagliapietra, a carbon border adjustment mechanism should not simply be about generating new sources of revenue for the EU budget.

“That is a narrative that is particularly American. Democrats are pushing for this carbon border adjustment mechanism now as a way to finance the infrastructure package, and honestly, I think that narrative is wrong,” he told EURACTIV.

“This should not be a revenue machine. This should be a climate measure to adjust as you do enormous efforts at home and you don’t want others to have a free ride,” he added. 

[Edited by Frédéric Simon]

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