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US Democrats propose carbon emissions border tax

US Democrats have unveiled legislation that would levy a fee on imported carbon-intensive goods, including steel and aluminum, following a move by the EU to implement a similar policy.

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The legislation, announced by Sen. Chris Coons and Rep. Scott Peters July 19, would establish a border carbon adjustment (BCA) on polluting imports.

A BCA is a trade tool that levels the field for domestic manufacturers by imposing a fee on carbon-intensive products when they reach the border, the lawmakers said in a statement.

"This will incentivize investments in cleaner technologies and account for the cost of complying with US laws and regulations on greenhouse gas emissions," according to the statement.

Known as the FAIR Transition and Competition Act of 2021, the legislation would recognize the costs incurred by US companies in producing cleaner products due to emissions-related laws and regulations and account for those costs by levying a fee on imports in carbon-intensive, trade-exposed sectors.

It also would support international climate cooperation and the reframing of trade around climate and direct revenue to the development and commercialization of high-impact emissions reductions technologies and create a new Resilient Communities Grant Program for states to support climate adaptation, transition assistance, and the communities facing the most severe impacts of climate change and historic pollution.

The BCA is expected to be included in the legislative text of the Democrats-only infrastructure bill that would move through the reconciliation process, Axios reported July 20.

Coons and Peters said the US needs to take these steps to remain competitive globally.

"Despite the leadership of many US businesses in reducing harmful greenhouse gas emissions, they will be left at a disadvantage as trading partners consider levying carbon-related tariffs on certain goods," a fact sheet on the legislation states.

The EU unveiled its proposal July 14 to introduce a Carbon Border Adjustment Mechanism, or CBAM, on imports of iron and steel, aluminum, cement, organic basic chemicals, fertilizers and electricity, to avoid the risk of carbon leakage.

The European Commission plans to introduce the mechanism in a transitional phase through the end of 2025, to be fully in place in 2026, it said in a statement. The system will be based on trading in certificates based on actual or direct emissions, it said.

Following the EU announcement, Turkey also put forward a formal green plan as a roadmap to cut emissions, which could help its industries limit the burden of competing with EU industry sectors under the CBAM.