Coons Border Adjustment

Dems have unveiled a border carbon adjustment proposal called the Fair, Affordable, Innovative, and Resilient Transition and Competition Act or the FAIR Transition and Competition Act. What’s in it?

By July 1, 2023, the Treasury Department would determine the average cost to producers of steel, aluminum, cement, iron, and covered fuels of complying with federal or subfederal climate policy in effect at the time.

It recognizes that there is substantial uncertainty on which will be prevailing regime, whether through the existing Clean Air Act, carbon pricing, and (while not explicitly mentioned) sectoral standards. Any and all policies are covered.

The rate will be determined by multiplying that compliance cost by the amount of greenhouse gases produced in the production process. It will be applied on imports starting January 1, 2024.

Products from least developed countries are exempted from the carbon border measure

As are countries that don’t apply a carbon adjustment on US AND are taking decarbonization measures at least as ambitious as the US.

It instructs State and USTR to negotiate new trade/climate international agreements with other countries.

And it explicitly envisions more industries coming on board behind the initial five, as soon as good data is available.

Where will the revenue go? After covering the additional costs incurred by Customs and Border Patrol, 50% will go to tech transfer and demonstration projects meant to further decarbonization

And 50 percent will go to grants for

1. Transition for workers.
2. Subfederal climate projects.

3. Frontline communities.
4. Environmental justice.

5. Relocation costs.
6. Small businesses that are disproportionately impacted by the border adjustment (think users of steel, etc.)

The new US proposal differs from the EU’s CBAM in most respects.

1. It does not tie the adjustment to a specific domestic means of decarbonizing either at home or abroad. That is more flexible and ends-oriented. @Tim_L_Meyer discuss why that’s good 👇

And why it’s likely more WTO compliant here. (Not that this should be the primary or even secondary, tertiary goal. Our world is burning and trade law can be a distraction.) (papers.ssrn.com/sol3/papers.cf…)

It does not create a complicated and weekly fluctuating cost of importation that is different (and likely with some frequency) higher than what domestic producers are paying. See CBAM proposal here.

It does not deny importers access to an emissions trading system than domestic producers benefit from and can economize on.

It does not punish least developed countries and instead exempts them. See contrary EU proposal here.

It does not punish trading partners that are using non-carbon-pricing methods to decarbonize. See contrary EU proposal here.

It does not take current neoliberal international trading rules as immutable and make them the center of how to evaluate the policy, and instead seeks to change the rules. Contrary EU here.

(Note, however, that the Coons/Peters proposal would ensure that the methods used to compute greenhouse gas intensity (though not the overall price) are meant to be consistent with international rules, which could change after the negotiations.)

It does not create a complicated new process and new agency that importers must interface with, and instead leverages the Customs Authority that already exists and expertise at already expert agencies.

It leads with an emphasizes that revenue can and should go to vulnerable communities + environmental justice, instead of just back into the government budget.

From the public communication around the Dems’ proposal, it’s also clear that they’re not shy about describing this as a jobs problem. That is very different than the 291-page EU plan, which goes to great lengths to advance climate as the only consideration.

(Never mind that the preferred option they advance just happens to be the one with the best jobs outcomes for steel and other industries.)

Here’s the link to the EU proposal snapped above. (ec.europa.eu/info/sites/def…) It’s ironic. The EU centered WTO compatibility relative to the US, but the US proposal is likely to be more WTO consistent. And the EU centers high carbon pricing more than the US, but the net result (after the politics happens👇) could be a more stringent (and predictable) US price-like signal. (ft.com/content/883a67…) In short, there’s a reason plans like the Green New Deal and Build Back Better center the interconnection between economic justice, jobs, and climate: because it’s critical to building the coalitions that can move policy over the finish line. END

Here is the link to the Dem proposal: (coons.senate.gov/imo/media/doc/…)

(Adapted from this thread.)