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Environmental Edge
August 13, 2021

Congress Considers a Carbon Polluter Import Fee with Broad Implications

Environmental Edge: Climate Change & Regulatory Insights

On August 11, the Senate passed a FY 2022 budget resolution which could pave the way to enact a Carbon Polluter Import Fee with implications for trade relations and domestic sourcing. The FY 2022 resolution includes reconciliation instructions for 12 Senate Committees to draft and report out parts of the broader $3.5 trillion infrastructure package Senate Democrats hope to pass this fall. While the budget resolution does not directly address the previously proposed Carbon Polluter Import Fee, an accompanying memorandum from the committee notes the fee as a potential offset within the Finance Committee’s jurisdiction. (The budget resolution directs the Finance Committee to report changes in “laws within its jurisdiction” to reduce the deficit by at least $1 billion between FY 2022 and FY 2031.) The resolution and memorandum do not provide details on how the fee would be implemented.

To be clear, this revenue proposal has been discussed at the policy level, but little implementing language has been developed and vetted, and it raises a number of important policy questions that must be addressed. Fundamental questions like whether this fee could be implemented without first determining the price of carbon in the United States is unclear. And it may be difficult to calculate a Carbon Polluter Import Fee without a carbon market. It is also unclear how carbon costs foreign producers face under climate-relevant regulations in their home countries would be taken into account.

One of the few examples of reducing this policy to legislative text was introduced by Sen. Chris Coons (D-DE) and Rep. Scott Peters (D-CA) in July. Notably, neither are members of the tax writing committees. The FAIR Transition and Competition Act (S. 2378) would:

  • impose an import fee on carbon-intensive imports, including steel, aluminum, cement, and fossil fuels; and
  • direct the Treasury Department, in consultation with the Office of Management and Budget and the Office of the United States Trade Representative to determine what carbon costs producers face under current climate-relevant regulations annually, which would be used to calculate an implicit carbon price to impose on imports.

The House could pass the FY 2022 Budget Resolution as early as the week of August 23. Committees of jurisdiction, including the Finance Committee, will have until September 15, 2021 to draft their reconciliation bill. Thereafter, each reconciliation bill will be marked up by the committee of jurisdiction. The Budget Committee is tasked with putting the reconciliation package together for consideration later this fall. We will monitor these details as the tax writing committees flesh out these details over the next month.

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.