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Senators Introduce Carbon Border Fee Legislation

Senators Bill Cassidy (R-LA) and Lindsey Graham (R-SC) recently introduced legislation that would impose a fee on certain imports, including energy products, into the U.S. based on the pollution intensity of production as compared to domestic production.

The bill is S. 3198, the Foreign Pollution Fee Act of 2023.

Details on Foreign Pollution Fee Act of 2023

The Foreign Pollution Fee Act of 2023 would amend chapter 38 of the Internal Revenue Code to add “Subchapter E – Foreign Pollution Fee,” which would impose a fee, as a percentage of the value of the imported good, on sixteen categories of goods based on the disparity between the pollution intensity of its production compared to U.S. production.

The foreign pollution fee, which would go into effect 36 months after the bill is enacted, would utilize three tiers of pollution intensity:

  • Goods with pollution intensity 10-50 percent higher than U.S. counterparts would have tariffs set at five-point increments,
  • Goods with pollution intensity 50-200 percent higher would have 10-point increments, and,
  • Goods with pollution intensity greater than 200 percent would be at every 20-point increment.

The bill includes flexibility for the Secretary of Treasury to delay tariffs, for up to one year, for low-income countries and includes incentives to encourage friendly nations to cooperate on pollution reduction to waive or reduce the tariff on their goods.

The bill would not impose fees on U.S. producers, with the legislation stating that “Nothing in this Act, or any amendments made by this Act, shall be construed to authorize the creation of any carbon tax, fee, pricing, or other mechanism” for covered products produced and sold domestically or exported from the U.S.

Fees would be calculated by the national laboratories, starting with products with a pollution intensity of 10 percent or greater, and based on national average pollution intensities.

The fee can be waived or reduced based on new or existing free trade agreements, national security needs, or if Treasury determines there is not sufficient domestic production of a product, the variable charge would be zero.

The bill includes several covered products including, among others, iron and steel, lithium ion batteries, natural gas, solar cells and panels and wind turbines.

Pollution intensity values, fee rates, and covered products would be reassessed every three years, however, domestic manufacturers can also petition to add new products to the covered products list.

Other Congressional Activity

There is additional, and bipartisan, interest in Congress on the issue of a carbon border adjustment mechanism, like the foreign pollution fee proposed in S.3198. In June, a bipartisan group of senators, including Cassidy and Graham, introduced S. 1863, the Providing Reliable Objective Verifiable Emissions Intensity and Transparency (PROVE IT) Act of 2023, that would require the Department of Energy to report to Congress on the carbon intensity of several U.S. products, including aluminum, iron, steel, biofuels, glass, hydrogen, solar cells and panels, uranium, and wind turbines, among others, compared to certain foreign counties. While the PROVE IT Act would not impose a new fee or tariff, it could provide more data that could be used to create one in the future.

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