Carbon Boundary Tax Proposed by Democrats

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WASHINGTON — Democratic lawmakers are to unveil their plan on Monday to raise up to $16 billion a year by imposing duties on imports from China and other countries that do not significantly reduce the planet-warming pollution they produce.

The tax would be levied regardless of whether Congress passed new laws to reduce emissions created by the United States. It will be designed to be approximately equivalent to the costs incurred by American companies under state and federal environmental regulations.

A border carbon tax would almost certainly provoke America’s trading partners and pose serious diplomatic challenges ahead of the United Nations climate talks in Glasgow in November, experts said.

But Democrats Delaware Senator Chris Coons and California Representative Scott Peters, who plan to announce the plan on Monday, said American companies deserve protection as the Biden administration moves forward with aggressive policies to reduce greenhouse gas emissions from burning fossil fuels.

“We must make sure that US workers and producers are not left behind and that we have tools to assess global progress in climate commitments,” Mr Coons said.

The plan comes in a week European Union proposed its own carbon cap tax for imports from countries with lax pollution controls.

The Democrats’ proposal, which Senate aides said was developed with input from the Treasury Department, the Office of the U.S. Trade Representative, and other parts of the Biden administration, $3.5 trillion budget decision.

The White House did not respond to a request for comment on the law or say whether the administration approved it. But President Biden and administration officials have said they support a carbon cap tax as a tool to advance climate goals.

Democrats hope to pass their budget packages later this year and use it as a way to expand social, education and health programs, as well as fund the transition to the clean energy transition and reduce greenhouse gas emissions. The decision to package the proposals into a budget reconciliation bill would allow Democrats in the sharply divided Congress to pass the measure without a Republican vote.

A handful of Republican lawmakers explored a carbon limit tariff As a way to counter China and protect US industries.

But Senator John Barrasso from Wyoming, the top Republican on the Senate Committee on Energy and Natural Resources, described the $3.5 trillion plan as “a freight train to socialism” and said the Democrats’ border tariff plan would start a trade war.

“They are proposing a border tax because they know that punitive regulations and taxes will drive US companies overseas,” Mr Barrasso said in a statement. Instead, he said, the United States should work to make energy “cleaner and more affordable.”

Mr Barrasso’s province is a major producer of coal, natural gas and crude oil, the burning of which causes carbon emissions that scientists say are triggering climate change.

A border tax is typically designed to equalize the burden of a nation imposing a tax or price on its carbon dioxide emissions. Companies abroad that want to sell iron, steel, aluminum or other commodities to the United States will have to pay a price for every tonne of carbon dioxide they emit in producing their product, eliminating any competitive advantage. The hope is that it will encourage other countries to price carbon and cut emissions.

It is also considered a way to prevent American companies whose manufacturing processes emit heavy amounts of carbon pollution from relocating to countries with laxer environmental rules, a phenomenon known as leaching.

Under the Democratic proposal, a tariff starting in 2024 would apply to about 12 percent of inbound imports into the United States. It will cover products with large carbon footprints such as aluminium, steel, iron and cement, as well as oil, natural gas and coal. As the United States improves its methods of calculating the carbon intensity of different products, the list of goods covered may expand.

That’s estimated to grow to between $5 billion and $16 billion a year, MPs’ deputies said.

Mr Coons said the tariff was intended to act as a “complementary” to the new climate policies Democrats plan to pass in the budget package. A task that requires 80 percent of U.S. electricity come from low or zero carbon energy sources.

“As US innovators develop and scale clean energy technologies, we have a historic opportunity to show that climate policy goes hand in hand with providing economic opportunities,” he said.

Mr Biden has pledged to roughly halve US emissions by 2030 and reach net zero emissions by 2050. But the US does not tax industries for the carbon they produce. Political analysts say Congress is unlikely to enact a carbon tax on domestic producers and utilities in the near future.

Instead, the plan calls on federal agencies to calculate the environmental cost of complying with “any federal, state, regional or local law, regulation, policy or program” designed to reduce emissions.

This may refer to things like the regional cap-and-trade systems adopted by the 13 states; specify renewable fuel or electricity standards that encourage the use of clean energy; even the requirement to comply with federal regulations under the Clean Air Act.

“I’ve never seen a cap adjustment that adjusts for regulatory costs,” said David Weisbach, a professor at the University of Chicago Law School and an expert on carbon limit tariffs. “This will be difficult to do.”

Another complication is the poorest countries If they are to be exempted from paying tariffs, it will be up to US agencies to determine whether their trading partners are enforcing climate change laws that are “at least as ambitious as federal laws and regulations” to cut carbon.

Under the 2015 Paris Agreement, nearly 200 countries involved have agreed to reduce emissions – but in different ways. Some, such as the United States and the European Union, have pledged to reduce emissions across their economies. Others, such as Saudi Arabia, said they would reduce the expected growth of future emissions. China has pledged to peak emissions around “around 2030”. India said it will reduce greenhouse gas intensity per gross domestic product produced.

“There will be differing views on how to do this,” said Michael Mehling, deputy director of the Massachusetts Institute of Technology’s Center for Energy and Environmental Policy Research, who was consulted on the proposal by Mr. Coons’ staff.

But he said: “It’s really good that they’re doing this. I think this conversation should start about the leak. It is impossible for us not to address this issue.”

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