New Bill Proposes Carbon Price in Some Industries and Carbon Border Tax

Sen. Sheldon Whitehouse, D-R.I., is proposing a limited carbon tax on firms that are dirtier than average in about a dozen industries, and a carbon border tax on imports in those industries that are also above those benchmarks. The fee would start in 2024, for fossil fuel producers, refiners of petroleum products, petrochemicals manufacturers, fertilizer producers, hydrogen producers, adipic acid processors, cement producers, iron and steelmakers, aluminum producers, glass producers, pulp and paper plants, and ethanol producers. According to a press release from Whitehouse.

Because it would only hit producers that are dirtier than average, the emissions threshold is a realistic goal, he said. "By definition, half of that industry's already meeting it," he said during an event at Resources for the Future about the bill.

In 2026, it would be expanded to include imported finished goods containing at least 500 pounds of goods from these covered sectors. He said in 2028, it would cover finished goods that have 100 pounds of these goods.

The release also said: "For NAICS codes that cover a heterogeneous group of goods, produced by differing chemical and/or physical processes requiring substantially differing amounts of energy, a manufacturer may petition Treasury to calculate a good-specific average carbon intensity."

Whitehouse said that he hopes the bill can be a part of a narrower Build Back Better bill that the administration and congressional Democrats are hoping can still come together. He said if that were to happen, it would need to happen before the August break. He said that Sen. Joe Manchin, D-W.Va., has said positive things about carbon border adjustment taxes in the past, and he is evaluating this bill.

It needs to be part of that bill, because it can be passed with 50 Democratic votes and a tie-breaking vote from the vice president. "It's going to be very hard to get 10 Republicans to join us in the Senate," he said, or really 12, so no one Republican can be pointed to as the reason the bill passed.

For companies that are at least average in carbon intensity, they would pay nothing in 2024; those below average would pay $55 per ton for the amount of emissions that exceed the average.

In 2025, 2026, 2027 and 2028, producers and exporters would have to get 2.5 percentage points a year below the previous year's average in order to avoid the fee. Beginning in 2029, the threshold would drop by 5 percentage points a year. The fee would increase by 5% above inflation per year, as well.

Imports from least developed countries would be exempt from any charges, but LDCs are not a significant source of these goods.

Whitehouse's proposal also includes a refund of the fee for exported goods, which is problematic for World Trade Organization compliance, according to the European Union politicians working on crafting their own carbon border adjustment taxes (see 2203170060).

Last summer, other senators proposed a carbon border adjustment tax that would be pegged to an estimate of what environmental regulation costs U.S. producers, rather than an explicit carbon price (see 2107200028 and 2108240054).

"The whole purpose is to shift to clean technologies, so we'd want to be careful of how far that was allowed to proceed," Whitehouse said, of allowing different segments of a sector to be compared against each other, such as blast furnaces or electric arc furnaces in the steel industry. "With something complicated like this, the devil is in the details," he said.

Whitehouse predicted that if his regime comes to pass, U.S. production would get "a big boost against Chinese manufacturing," because he said that China's production is about three times as carbon-intensive as U.S. production.

"We are almost virtually certain to emerge victorious," he said at the RFF event.

But the panelists who followed his presentation said that, depending how the program is designed, other countries could avoid the tax by creating one, or a handful, of cleaner facilities that would export to the EU or the U.S., while the bulk of their production stayed dirty and those goods were retained at home, or sent to countries that are not implementing these systems.

Anna Fendley, director of the United Steelworkers' regulatory policy, said the union, which represents workers in steel, aluminum, glass, rubber, chemicals, oil refining, paper and cement, has not taken a position on any bill. Still, she said, the top concern she hears from USW members is that if their industry has to spend a lot of money to decarbonize, and in China or another country, the industry does not decarbonize, it puts their plants at a disadvantage.

She agreed with Whitehouse that the devil is in the details, and said she is worried about a rise in imports of finished goods, such as washing machines, if domestic producers of those goods have to pay more for steel because of the new fees.

She also argued that although U.S. steel production is cleaner than many other countries' steelmaking because electric arc furnaces make up a larger proportion of production, "We should absolutely not be looking at closing blast furnaces." She said the blast furnaces support "a tremendously larger number of workers," both on site and because they start with iron ore and coal, not recycled steel, thereby supporting those mining jobs as well.

Georgetown Law professor Jennifer Hillman, who used to be an appellate body member at the WTO, praised Whitehouse's bill as more workable than last year's, because of the equal fees for imports and for domestic production that doesn't meet the carbon emissions standards.

But, she said, deciding how to evaluate data about production is going to be critical, and she said the U.S. and other major economies will need to come to an agreement "right from the get-go on what exactly counts."

Holcim US, the nation's largest cement manufacturer, with more than 7,000 U.S. employees making cement, asphalt, concrete and roofing materials, has endorsed the bill. Government Relations Director Virgilio Barrera said during the panel that how the U.S. policy develops, how the Canadian carbon tax and the EU carbon tax on imports develop will determine where Holcim builds its first net-zero cement plant -- in the EU, Canada or here.