Have you ever heard of border carbon adjustment? You might have, if you’re a regular reader of this page, because it’s become kind of a topic here. Perhaps you saw Brooke Cusack’s April 7 commentary in support of border carbon adjustment (BCA), or Jackson Blackwell’s Sept. 19, 2021, endorsement of the Baker-Shultz Carbon Dividends Plan, which includes a BCA. And I sincerely hope you read and remember my April 4, 2021, piece calling for a carbon fee and dividend plan with a BCA.
After reading all that love for border carbon adjustment, you may have been perplexed to see the June 19 commentary by Amy Seitz on behalf of the Alaska Farm Bureau, describing a carbon border adjustment tax (or “BAT,” in her turn of phrase) as “horrific.” Could we even all be talking about the same thing? Well, yes and no.
A border carbon adjustment (variously called BCA, BAT, or CBAM, carbon border adjustment mechanism) is a fee or tariff on certain goods traded between countries, such as fossil fuels themselves, but also energy-intensive commodities like steel, cement, fertilizer, paper, and aluminum. If the U.S. had a domestic price on carbon, as Mr. Blackwell and I called for, where the carbon fee increased the cost of a domestic product, the BCA charge would ensure that an imported product bears the same carbon cost. For example, if a U.S. carbon fee increased the cost of a ton of American-made steel by $25, a ton of steel imported from a country that has no carbon pricing would be charged $25 at the border to make up the difference. (It’s true, as Ms. Seitz pointed out, that making polluters pay will tend to raise consumer prices, but that can be alleviated through a carbon dividend; what would be horrific would be to continue doing nothing to address the climate crisis.)
However, there is another angle to the BCA concept. What if an American industry already has a lower carbon footprint than the same industry in a competing country, regardless of carbon pricing? Shouldn’t the cleaner U.S. industry be rewarded for prior investments that have already reduced their climate impact? For example, American-made steel has about half the carbon footprint as the global average. Could foreign-made steel be charged a BCA to make up that difference? Some lawmakers think so.
While the U.S. has no national carbon price, a BCA based solely on carbon footprint is under bipartisan discussion in Congress.
Why now? The European Union (EU) is poised to launch a BCA over the next three years that will take both carbon pricing and carbon footprints into account. Their BCA will begin with documentation and verification of carbon footprints starting in 2023, and the BCA fees will be imposed starting in 2025 or 2026. A similar move is under discussion by Canada as well. The EU is the largest foreign market available to American exporters, and Canada is our largest national trading partner. These countries account for $1.8 trillion in trade with the U.S. at last count, so we need to pay attention.
But there’s an important twist. The U.S. is a member of the World Trade Organization (WTO) and is therefore subject to certain rules over international trade practices. WTO members agree to refrain from trade policies that unfairly benefit their domestic businesses over those in other countries. A BCA could be subject to WTO challenge if it violates these rules. Since 34 out of 36 developed economies already have a carbon price in place, it would be particularly easy for the U.S. to lose a trade dispute sparked by implementing a BCA that violates WTO treaties. If we pair a BCA with a domestic carbon pricing plan, no such problem arises.
The bottom line is that while a U.S. BCA without carbon pricing is a step in the right direction, it will be far better for our economy and for the climate when we enact a national price on carbon pollution, with a BCA to take care of imports. But given how much American innovation has reduced the carbon footprints of our goods compared to many of our competitors, a stand-alone BCA has considerable merit. Please encourage Sens. Lisa Murkowski and Dan Sullivan to get familiar with this debate, because an American BCA could be a winning bet for our economy.
Tim Hinterberger is a 30-year Anchorage resident and a volunteer with the local chapter of Citizens’ Climate Lobby.
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