Chamber Says Carbon Border Tax Needs to Be Linked to Carbon Tax or Cap and Trade
The U.S. Chamber of Commerce gave advice to Congress in July and August on how to shape legislation that Congress is calling a "polluter import fee," which most call a carbon border adjustment tax. On Sept. 2, it published its reaction to one bill on the table, the Coons-Peters bill, although Senate Finance Committee Chairman Ron Wyden, D-Ore., has not said that the Coons bill will be the starting point for legislation he wishes to advance as part of the "soft infrastructure package" Congress is trying to write this fall (see 2108100031). Just before leaving for the August recess, Wyden said that the Senate was far from a concrete proposal, and that any proposal must get the support of Sen. Joe Manchin, D-W.Va. Manchin represents a state where coal mining is the third-largest industry.
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The Chamber does not think the Coons-Peters bill is workable, because it proposes estimating the tax on imports by calculating the cost to business of U.S. greenhouse gas regulations, whether direct or indirect. Many economists agree that only a carbon border adjustment tax linked to a domestic price on carbon can be made fair (see 2108240054).
"Assigning sectors a 'domestic environmental cost incurred' associated with greenhouse gas policies at the Federal, state, and local levels is a Herculean task, both because of the wide variation in such costs across states and regions but even more so due to the difficulty in ascertaining reasonable estimates for those costs," the Chamber wrote. The group says that a nationwide carbon tax or cap and trade program is needed "to broadly accelerate emissions reductions, and that without it, border carbon adjustments are extremely difficult if not impossible to effectively implement."
While there was a bill introduced earlier in the year that would pair a domestic carbon tax with a carbon border adjustment tax (see 2106070055), the Coons-Peters approach is getting more attention. Rep. Earl Blumenauer, D-Ore., who leads the House Ways and Means Trade Subcommittee, said earlier this year that "Sadly, it's not politically possible" to put a price on carbon at the federal level (see 2103050035).
The Chamber only started supporting either cap and trade or a carbon tax in January, but is now saying they hope to work with Congress to get one passed. The business group said that the European Union did extensive study and consultation before rolling out its proposal, which also has a proposed lead time of 2026. The legislation in Congress proposes collecting the taxes in 2023. "Here in the U.S., the conversation has just begun, so much more time and effort is needed to work through a variety of concerns that could lead to unintended consequences and ineffective policy," the Chamber said.
It noted that language in the Coons-Peters bill says that the State Department can exempt countries from the import tax if that country's regulations or laws are "at least as ambitious" as U.S. federal regulations and laws on greenhouse gases. The Chamber says there needs to be "objective and transparent criteria" on what is equally or more ambitious. Without clear language, the department could choose to exempt close allies, or countries that have strategic importance as resource supplies, even if they do not have the same level of ambition on climate change. Moreover, a vague standard could invite retaliation from trading partners, the Chamber warned. It said China has already threatened to retaliate against European exports over Europe's carbon border adjustment tax.
Also, the Chamber is concerned that U.S. exports will be taxed under the EU carbon border tax, since there is no national cap and trade or carbon tax. It said that's another argument for both negotiating to harmonize the approach across many countries and for passing a law that creates a carbon price.
It quoted a company that said, "A carbon border adjustment mechanism without a carbon price will foment negative trade outcomes without actually addressing the price disparities between low and no carbon technology and traditional technology. For example, we are investing significantly in hydrogen technologies, however, without a carbon price our customers have no reason to switch to an H2 solution. A CBAM will make some of our inputs for that technology even more expensive, without creating any market signal to invest.”
The Chamber says considering carbon border adjustment is business friendly when it is linked with a clear market price for carbon, as it will protect domestic manufacturers from being undercut by competitors that have lower energy costs. But, the Chamber argues, export rebates need to be part of the approach. Sen. Dick Durbin's, D-Ill., bill, which was introduced in March, does cover export rebates and import taxes, as well as a domestic tax. The House equivalent has 10 co-sponsors; the Senate version has no co-sponsors.
Lastly, the Chamber says that although tariffs on imported steel and aluminum may protect domestic producers of those metals, "the competitiveness of many clean energy industries is dependent on affordable steel and aluminum and fabricated products containing high amounts of steel and aluminum. Some Chamber members warned that raising the costs of such goods could negatively impact deployment of clean energy technologies such as electric vehicles or renewables." They quoted a company that noted that wind turbines are steel-intensive, and that raising the cost of steel, especially if tax credits for wind energy are allowed to expire, would hurt the transition to clean energy.