It's Time for America to Embrace Carbon Border Adjustments
In just a few weeks, the countries of the world will convene upon Glasgow, Scotland for the 26th United Nations Climate Change Conference (COP-26). This gathering—where international agreements on climate change are debated, negotiated, and sometimes, scuttled—presents an opportunity for the U.S. to reassert its role in shaping global climate policy. And if America is truly interested in fostering more international cooperation on climate action, carbon border adjustments should take center stage.
Ever since the Rio climate conference in 1992 that kicked off the UN Framework on Climate Change (thanks to President George H. W. Bush’s leadership), most global climate summits have ended in disappointment. The 1998 Kyoto Protocol negotiated by the Clinton Administration never went to the U.S. Senate for ratification. The much-lauded Paris Climate Agreement championed by the Obama Administration fell short of treaty status and was quickly abandoned by the Trump Administration. Congressional Democrats' current logjam over President Biden's climate agenda is yet another case in point for why durable, bipartisan climate policy is desperately needed.
The carbon border adjustment (CBA) offers the U.S. a real opportunity to embrace a policy mechanism that will not only reduce carbon emissions, but also position some key U.S. industries (like steel) to benefit. CBAs have been promoted by pro-market environmentalists for years, and finally seem to be catching on. In July, the European Union introduced a border adjustable carbon tax, and a CBA has been in and out of the constantly evolving package of infrastructure and climate proposals working their way through the U.S. Congress.
Policymakers who genuinely care about climate change should strongly consider supporting a CBA—or advocating for one at COP-26. The mechanism works like this: a country imposes tariffs on carbon-intensive imports but exempts from the tariff goods that come from countries that have imposed a tax or other fee on carbon dioxide emissions.
A CBA would prevent countries with carbon pricing mechanisms from being unfairly penalized for their climate efforts, while also establishing a clear financial incentive for businesses to minimize carbon emissions. Eventually, these carbon tariffs put pressure on trading partners to follow suit and introduce their own carbon pricing regimes. The competitive advantage for countries that implement carbon pricing is two-fold: not only do their exports remain competitive, but they also generate extra tax revenue at home rather than sending it abroad. The disadvantages to countries that fail to price carbon are similarly magnified, and exponentially so as more countries join the carbon pricing club.
We believe a CBA would directly benefit U.S. industry by rewarding the cleanliness of our products compared to imports from emissions-heavy countries like China and India. For instance, a May 2021 study by the Climate Leadership Council found that the U.S. steel industry has a major carbon advantage over foreign competitors, which on average emit 50-100% more CO2 per ton than their U.S. counterparts. A CBA could therefore make US steel more economically competitive, potentially increasing sales by 7-9%.
The U.S. could lead on global CBA adoption in a few ways. One path forward (albeit a political long ball) is to quickly pass a border adjustable carbon tax through Congress. Such a move would not only keep our exports competitive, but also secure our position as a global clean energy leader. The other option is to put the CBA on the table at COP-26. This would be a baby step, but progress nonetheless.
Winston Churchill once quipped, “You can always count on Americans to do the right thing — after they’ve tried everything else.” American politicians and business leaders have been debating climate policy for decades without concrete results. We now face an opportunity to lead on the world stage. A cleaner, healthier century beckons; bold action now on carbon pricing will ensure it remains an American century.
Former U.S. Rep. Bob Inglis (R-SC4 1993-1999; 2005-2011) leads republicEn.org, a growing group of conservatives focused on free enterprise solutions to climate change.
John Sweeney is a national spokesperson for RepublicEn.org who works in the financial services industry.