U.S. Senator Sheldon Whitehouse (D-RI) introduced a bill on June 7, 2022, creating a carbon dumping fee for imports, protecting the U.S. economy’s “carbon advantage.”
The Clean Competition Act is a Carbon Border Adjustment Mechanism (CBAM). A CBAM is an environmental trade policy that charges imports from carbon-intensive manufacturers. In 2024, the carbon border adjustment will apply to energy-intensive industries, including fossil fuel products, petrochemicals, fertilizer, hydrogen, adipic acid, cement, iron and steels, aluminum, glass, pulp and paper, and ethanol. In 2026, it will, if passed, include imported finished goods that contain at least 500 pounds of covered energy-intensive goods, and in 2028, lower the threshold to 100 pounds. The levy will start at $55 per ton and increase by five percent above inflation a year.
Seventy-five percent of yearly revenues will fund a grant program for each covered industry. The grants support investment in new, carbon-reducing technologies. The last quarter of the revenues raised will go into a fund the State Department administers, which helps developing countries decarbonize.
Leveraging the carbon advantage of American manufacturers
On average, American manufacturers are less carbon-intensive than manufacturers in other countries. The U.S. economy is nearly 50 percent less carbon-intensive than its trading partners. And the Chinese economy is over three times as carbon-intensive as the U.S., while India is almost four times as carbon-intensive.
Goods manufactured in the U.S. are 40 percent more carbon-efficient than the world average, according to a 2020 report by Climate Leadership Council. The U.S. imports 75 percent of its goods from less carbon-efficient countries. The report recommends the implementation of a CBAM to “allow U.S. industries to leverage their carbon advantage and outcompete foreign production.”
A McKinsey report points out that the U.S. has a “relatively low carbon intensity in some of its major geographies, and major industries (such as agriculture, automotive, oil and gas, and steel) that are lower in carbon intensity than many international competitors.” The report recommends the U.S. leverage its carbon advantage by implementing trade rules that reward companies for achieving low carbon intensity.
The U.S. carbon advantage can put American manufacturers at a disadvantage without a CBAM in place. As Hebah Kassem, Sierra Club Living Economy Program Acting Director, explained, Without a strong carbon border adjustment mechanism, corporations can easily shift their most polluting plants to countries with lower wages and weaker labor and environmental standards.” He added that this would create “a situation wherein U.S. workers lose jobs and the nation spirals further away from meeting its goals for reducing emissions that hurt communities and the climate.”
“American manufacturers doing the right things on climate are often at a disadvantage compared to pollution-friendly foreign competitors,” said Sen. Whitehouse in a statement. “Our Clean Competition Act will give American companies a step up in the global marketplace while lowering carbon emissions at home and abroad and steering the planet toward climate safety. I’m hopeful this proposal has a path forward in Congress, as experts from across the political spectrum have expressed support for a border adjustment mechanism like ours.”