In reconciliation, Democrats eye border tax for carbon

Budget will include ‘methane reduction and polluter import fees,’ summary says

By Joseph Morton and Paul M. Krawzak – Jul 15, 2021

"Our major hurdle is how to make it operate properly," said Sen. Brian Schatz, D-Hawaii. (Bill Clark/CQ Roll Call file photo)

“Our major hurdle is how to make it operate properly,” said Sen. Brian Schatz, D-Hawaii. (Bill Clark/CQ Roll Call file photo)

Senate Democrats are taking initial steps toward a major policy shift of enacting fees on imported goods from countries with weaker limits on carbon emissions than the U.S.

A summary released Wednesday of the coming budget resolution said it will include “methane reduction and polluter import fees.” Such import fees could help pay for some of the trillions of dollars worth of spending expected in the Democratic budget reconciliation package, which could be forced through without Republican support.

But it also represents a long-discussed policy approach to reducing global greenhouse gas emissions.

Sen. Brian Schatz, D-Hawaii, said the most important elements of the resolution are its topline number and robust climate provisions, which the summary indicates also include a clean energy standard and clean energy tax incentives.

But the biggest — and arguably most challenging — climate policy change could be the imposition of emissions-based import fees commonly referred to as a carbon-based border adjustment tax. The summary had no details on how it would be implemented, and lawmakers said they still have to flesh those out.

“The principle here is at least a methane fee, some kind of border adjustment, although there are serious technical challenges there,” Schatz said. “Our major hurdle is how to make it operate properly.”

That’s something of an understatement in light of the complexity involved in the fees. Various countries and the European Union are looking to impose their own border adjustment fees but have stumbled at times over the details.

The fees can run afoul of international trade rules, particularly if they aren’t paired with domestic carbon taxes. That could bring penalties from the World Trade Organization.

President Joe Biden’s presidential campaign floated the idea, which also has received support from Democratic lawmakers looking to reduce U.S. emissions while guarding against potential job losses that could come if other countries with more lax regulations undercut American manufacturers.

Such an approach also would respond to Republicans who have repeatedly highlighted other countries’ contributions to climate change in criticizing Democratic proposals to reduce domestic emissions.

They argue that aggressive U.S. emissions reductions constitute a form of economic unilateral disarmament that will prove meaningless in the fight against climate change if actors such as China continue building new coal-fired power plants.

Sen. Joe Manchin III, D-W.Va., echoed some of those same points Wednesday as he expressed concern that the budget resolution will unduly target U.S. oil and gas production.

“I’m finding out there’s a lot of language in places they’re eliminating fossil,” Manchin told reporters. “It’s very, very disturbing.”

Fossil emissions

Manchin said there are thousands of coal-fired power plants around the world and many more being built even as America looks to transition away from coal. In his view, the key is developing innovative new technologies to handle emissions produced from fossil fuels.

“I’m going to do everything I can to make sure the United States of America remains energy independent,” Manchin said. “That’s our strength.”

Asked whether the addition of a border adjustment tax could help address some of his concerns, Manchin said that’s one of the issues being discussed.

Sen. Mark Warner, D-Va., a member of the Budget Committee, said, “If some country doesn’t have any constraints on carbon, is producing a product in an extremely dirty manner, and in your … country you’re putting in some more carbon restrictions — well that gives that foreign business an unfair advantage.”

Added Warner: “Not only for the sake of the climate but also for the sake of business competitiveness, we need to look at that initiative as well.”

A similar border adjustment fee mechanism was included in legislation the House passed in 2009 to implement a “cap and trade” system to limit greenhouse gas emissions, which the Senate never took up. 

And a broader border adjustment tax that would have hit a broad swath of imported goods failed to gain traction during the 2017 Republican tax overhaul discussions, amid concerns from retailers, energy companies and others that would be hit with higher costs.

The competing visions of progressives and centrists on climate could determine whether Democrats are able to push a budget reconciliation package over the line with many of the central elements of Biden’s agenda.

Schatz predicted that lawmakers focused on tackling climate change will find a way to work with Manchin on the issue.

“Joe and I have an ongoing dialog, and I have a high degree of confidence — I’m not certain, but I have a high degree of confidence that we’re going to be able to find common ground,” Schatz said.

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