Senator Promoting Carbon Border Adjustment Tax

Oct. 30, 2023
By: Pietro N. Bianchi

After returning from a trip to China, Senator Bill Cassidy affirmed to reporters his intention to introduce a bill for a “foreign pollution fee” in the near future. The goal of the bill is to make domestic U.S. manufacturing more competitive by taxing goods from other countries made with carbon intensive manufacturing. China was reportedly mentioned as a specific target of this legislation. While Senator Cassidy is not calling it a carbon tax, the foreign pollution fee would be a carbon border adjustment tax.

It remains unclear how Senator Cassidy’s foreign pollution fee would be implemented, but his endorsement of the PROVE IT Act may indicate the direction he and other senators are leaning towards. The PROVE IT Act, which has bipartisan support, would direct the U.S. Secretary of Energy to conduct a study on the “average product emissions intensity” if enacted into law. PROVE IT would have the government determine the average emissions associated with the production of covered goods in the U.S., G7 countries, U.S. free trade agreement partners, and foreign countries of concern (among other groups). This information would allow the government to compare the average amount of emissions used to produce products in the U.S. with the average amount of emissions used to produce that product in other economic zones.

So, Senator Cassidy’s foreign pollution fee may tax the difference between the average emissions used in creating a product in a foreign country or economic block and the average emissions used to create that product in the U.S. This approach would differ from the EU, which recently took another step toward enacting their own carbon border adjustment tax (read about here). The EU legislation requires importers to report on the emissions of their production. It is unclear how the U.S. will implement a carbon border adjustment and whether the U.S. regulation will harmonize with its European counterpart. However, bipartisan support in the U.S. and initiatives by the European community do indicate that carbon border adjustments will become a normal aspect of business in international trade.

If you have questions about imports, exports, or carbon border adjustments do not hesitate to contact an attorney at Barnes Richardson, & Colburn LLP.