How the U.S. Is Preparing for Europe’s Carbon Tariffs

How the U.S. Is Preparing for Europe's Carbon Tariffs thumbnail

CLIMATEWIRE | The world’s first carbon border fee was always expected to roil nations that export their emissions through polluting goods. It could be expanded beyond what was originally proposed.

Last year, the European Union brought carbon border adjustments to the forefront of attention. The proposal gained momentum among legislators, who wanted to expand its scope. It also raised concerns among other countries considering similar measures. The U.S. industry and lawmakers are closely monitoring the situation across the Atlantic to see how it could impact American trade and manufacturing.

“There is a real possibility that Canada, E.U. and other countries could join forces. The U.K., Canada, and E.U. are all bound together by a common carbon adjustment. And if we haven’t joined up with them, we’re just sort of deliberate losers,” Sen. Sheldon Whitehouse (D-R.I.) said in an interview after introducing a bill last week that would create a U.S. carbon border fee (Climatewire, June 8).

Europe’s proposal would place a carbon price on imports that are made with more CO2 than if they were produced inside the 27-nation bloc. E.U. Officials claim it will help European companies who invest money to reduce their pollution and drive down emissions in countries that have access to the European market.

Europe is moving forward aggressively. Its latest amendment to include more sectors under the tariff would affect $16.9 billion in exported U.S. goods. This is a significant increase from the initial E.U. plan that called for the imposition of a carbon fee on US exports worth $2.8 billion. By 2030 all sectors covered by the E.U.’s emissions trading system would be included.

The newest plan calls for lower tariffs for goods from countries with an “explicit carbon price”, which the U.S. doesn’t have.

These measures and the speed with which the E.U. is moving to implement them — are raising concerns on both sides of the political aisle.

Concerns are being raised on Capitol Hill by both sides of the political spectrum about these measures and the speed at which the E.U. is moving to pass its proposal.

Sen. Kevin Cramer (R.N.D.), a rare Republican supporter of carbon border fees, stated last month that he wants to be in concert and not play catch-up with Europe.

“I do have concerns,” he said at a climate and trade event. “It could very possibly become very problematic if they go too far ahead without a reconciled resolution .”

Mohammed Chahim is a Dutch lawmaker that’s leading negotiations on the carbon border adjustment in Europe’s Parliament. He said that he’s seen a change of heart from the U.S. leaders since last year. At that time, a group of 19 senators wrote a letter to President Joe Biden urging him to oppose the E.U.’s “unilateral implementation” of a carbon border adjustment, which they viewed as unfair to the United States.

“Now they email me [asking] how can you align our proposals?” Chahim said to reporters during a briefing on the proposal.

He sees areas for compromise, such as in the way carbon is calculated in goods. The E.U. The U.S. and E.U. could be aligned on this metric to make border adjustment easier to implement.

” There will be some issues between us but the benefit from both country and continent will be greater than the administrative burden or tariff that must be paid,” Chahim stated.

From Beltway to boardroom

Industry is also paying close attention.

The American Petroleum Institute has endorsed carbon pricing and is drafting a carbon tax proposal that includes support for a carbon border fee (Climatewire, April 22).

Sources familiar with these discussions say they are watching what happens in Europe to be ready. Industry sources indicated that even though fossil fuels were not initially covered by the border fee, they might be in the future.

” We believe it’s natural for border adjustments to be extended over time, to many more products,” one source stated.

The European market will be increasingly important for the U.S. gas industry as the E.U. becomes more powerful. Russia to offset its supplies in retaliation against the war in Ukraine. Since these methods will likely be used for future imports, carbon-heavy industries are closely monitoring how Europe will calculate carbon emissions embedded in goods crossing its borders.

BASF SE is a multinational chemical company headquartered in Germany. It told E&E News it was monitoring all policymaking that could have an impact on its business operations.

Holcim U.S., a building materials company, is a net importer of cement — one sector subject to Europe’s proposed border tax. According to Virgilio Barera, director of government at Holcim U.S , the company is focusing on whether the tariff could increase domestic competition if countries try and circumvent the tariff by redirecting carbon-heavy products towards the United States.

The specifics of Europe’s actions have been less considered by U.S. lawmakers.

” The way Congress is negotiating has more to do domestic politics, with the desire to find bipartisan areas for collaboration on climate and the general context around concern about trade, especially with countries like China,” stated Nat Keohane of the Center for Climate and Energy Solutions (a non-profit that advocates for U.S. climate policy).

But its importance as a potential point for bipartisan climate action should not be overlooked, he said.

Like the Kigali Amendment, which targets superpollutants known as hydrofluorocarbons, there is political logic to framing carbon border fees as something that can increase U.S. competitiveness, since many goods that would be covered by the tariffs are less carbon-intensive than those made in other countries (Climatewire, May 5).

But Republicans and Democrats are not in agreement on the measure.

A different approach

The bill introduced by Whitehouse and three other Democrats last week would impose a levy starting at $55 a ton on a wide range of carbon-intensive imports, similar to what’s envisioned in Europe. It would also provide a rebate for exports. This would make it more of an adjustment rather than a tariff. He hopes the measure will be supported by Republicans who support carbon border fees.

Republicans have embraced the policy as a competitiveness measure to benefit U.S. companies over global competitors, mainly China or Russia. They are also staunchly opposed pricing carbon. Experts say that imposing a fee on imported goods while not subjecting domestic producers and importers to a carbon tax is not a border adjustment. It could also be accused of protectionism at The World Trade Organization.

These differences show how the U.S.A. and E.U. Raymond Kopp, a senior fellow with Resources for the Future, stated that the two countries are taking different paths.

” When you consider the interests that right-leaning Senators have had on this topic, it is actually using the border measures for U.S. Industry, without really too much emphasis ‘let’s reduce the emissions from U.S. industries, let’s leverage what’s viewed as a competitive carbon advantage’,” he said.

” This is clearly not what the E.U. is doing. The E.U. Kopp said that the E.U. is taking real steps to reduce its emissions, and then trying to put in place measures to protect its domestic industries.”

The Republican plan may not reduce emissions. The Niskanen Center recently found that the largest polluters in the world don’t export large amounts of their emissions. This makes punitive measures like tariffs less effective in reducing emissions than domestic policies.

Emissions can be found in many goods that are traded internationally. However, border-adjusted taxes may lower greenhouse gases.

A carbon border tax is, in principle, trade neutral. Shuting Pomerleau (Niskanen Center research manager for climate policy) said that the tax is not designed to encourage or discourage trade. It would encourage cleaner imports and fewer filthy imports, but it would not affect the total volume. Pomerleau stated that it is only changing the goods’ composition.

Smoothing sailing? Nope

The E.U. has its challenges with the carbon border fee. The E.U. has challenges to the carbon border fee. This fee is opposed by conservative political groups and industry. It will increase costs for energy-intensive companies and is an untested experiment. They also expressed concerns similar to those raised in the U.S. that tariffs could be circumvented through so-called resource shifting — when countries export their cleanest products into Europe and send their polluting goods to other places.

Parliamentarians reached an agreement Tuesday that would maintain the ambition of the border fee after negotiations ran aground in European Parliament last week over a disagreement about reform to the E.U.’s emission trading system. Next week will see the final vote.

However, observers claim that the border fee is still a pillar in European climate policy and will be implemented even if passage speeds slow down.

” The big question they’re debating is how quickly they want to implement it and how fast they want industry to pay for it,” Domien vangenechten, a policy advisor at E3G in Brussels, said. “It’s less about ambition and more about who is bearing the cost domestically.”

The latest amendments would increase the number of sectors covered by the tariff to include organic chemicals, hydrogen and polymers, with more to come by 2030.

Adding those sectors would increase the value of trade impacted by the fee from $2.8 billion — the value of U.S. exports for steel, iron, aluminum, cement and fertilizer — to nearly $16.9 billion, according to the Climate Leadership Council, a center-right organization that advocates for a carbon fee. That would be equivalent to around 16 percent of U.S. exports to the E.U. in 2020.

Tracking the potential impact on American exports could be an important point in negotiations between the U.S.A. and E.U., stated Catrina Roke, senior vice president of policy and research at Climate Leadership Council.

In the case of steel products, the U.S. could have a slight competitive advantage because it emits less than the E.U. Oliver Sartor is a senior adviser on industry for Agora Energiewende, which is a German clean-energy think tank.

” According to Sartor, this is a signal to America that its energy-intensive sector must decarbonize if the country wants to remain competitive and maintain access to these markets in the future.

Reprinted from E&E News with permission from

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