Clean Competition Act - 118th Congress (S.3422, H.R.6622)

The Clean Competition Act would impose a fee on certain high-emissions domestic industries and other high-emitting producers and establish a corresponding carbon border measure to incentivize lower emissions on high-polluting products, boosting U.S. competitiveness and tackling global climate change. The domestic fee would start at $55 per ton of carbon and increase annually, while the U.S. carbon intensity baseline would decrease each year. The measure imposed on imports would be based upon the amount of emissions that exceed the U.S. at an economy-wide or industry-wide level, depending on the data available in each country of origin. Covered products initially include a select list of primary goods, expanding to a range of finished products two years later.

Bill explainer

The Clean Competition Act seeks to establish a carbon pricing system most similar to what the European Union has established through its Carbon Border Adjustment Mechanism and Emissions Trading System, a cap-and-trade system that creates a price on domestic emissions. The bill would assess a fee, referred to in the bill text as a carbon intensity charge, on both the domestic and imported emissions of goods produced in the following industries: fossil fuels, refined petroleum products, petrochemicals, fertilizer, hydrogen, adipic acid, cement, iron and steel, aluminum, glass, pulp and paper, and ethanol. Finished goods that contain certain weights or value thresholds of covered primary goods will be covered beginning in 2027.

The bill outlines several methods for calculating carbon intensity. For the domestic charge, covered manufacturers would need to report their emissions, electricity consumption, and production data to the Department of the Treasury (Treasury). The 2025 baseline carbon intensity would then be calculated by dividing total emissions by the weight of the goods produced at that facility in a single calendar year, aggregating and averaging it for each covered industry.

The initial charge would begin in 2025 at $55 per ton of carbon in excess of the industry average, increasing by five percent above the rate of inflation each year. The baseline emissions level, the emissions level at which industry must fall at or under to be exempt from the charge, would then decrease by 2.5 percent annually from 2026 to 2029, and five percent per year thereafter. Domestic producers of covered products would also be eligible to receive export rebates.

The ability to gather emissions data from individual facilities varies from country to country, so the calculation of the carbon intensity of imports would work differently for each covered country. For countries where there is reliable and accurate data, the charge would be based on the carbon intensity of the national industry. Otherwise, Treasury would assess the charge based on the carbon intensity of the entire national economy.

Importers would then pay the charge based on how much the carbon intensity of the product exceeds that of the domestic industry. As with the domestic carbon charge, the baseline emissions level would decrease by 2.5 percent annually until 2030, at which point it would decrease by five percent per year.

The bill also establishes a petition process for entities to request that Treasury determine the carbon intensity of a specific covered primary good or determine the border charge of a good based on a specific facility’s carbon intensity.

Least developed countries (LDCs), as defined under the Foreign Assistance Act of 1961, would be exempt from the tariff, unless the country supplies at least three percent of global exports of a certain covered good. There is also a provision that would allow the Secretary of Energy to waive the tariff for foreign companies who pay a similar carbon charge in their country of origin.

The revenue generated by the charges would be split between two climate-focused initiatives: 75 percent of the revenue would fund decarbonization efforts in the covered industries, with the other 25 percent going toward decarbonization investments in LDCs.