Foreign Pollution Fee Act - 118th Congress (S.3198)
The motivation behind the Foreign Pollution Fee Act is to protect cleaner U.S. manufacturing from moving to high carbon-emitting countries, such as China. To do so, the bill would impose a “foreign pollution fee” on a select group of imports, but it specifically states that nothing in the measure constitutes a domestic carbon tax. The fee would vary based on the covered product’s pollution intensity, which is calculated based on a national weighted average and the country of origin to ensure that imports are not dirtier than U.S. products.
Bill explainer
The Foreign Pollution Fee Act seeks to impose a border fee on the emissions of select carbon-intensive imports with the primary goal of protecting cleaner U.S. manufacturing from moving to high carbon-emitting countries like China.
The list of covered products includes aluminum, biofuels, cement, crude oil, glass, hydrogen/ammonia/methanol, iron & steel, lithium-ion batteries, minerals, natural gas, refined petroleum, petrochemicals, plastics, paper/pulp, solar cells & panels, and wind turbines, though the bill waives the fee for products from free trade agreement partners, products within 10 percent of the U.S. baseline pollution intensity, and products identified as having insufficient domestic production. Certain products necessary to meet national security needs would also be exempt. The legislation also prioritizes international partnerships to offer assistance to developing countries in exchange for preferential treatment under the fee. Eligible entities would also be able to petition for the inclusion of additional covered products if 50 percent or more of the domestic manufacturing of such products is represented in the petition.
The bill’s fee would vary based on the covered product’s pollution intensity and country of origin to ensure they are no more than 50 percent more pollution-intense than the U.S. at first, then ramping the threshold down to 25 percent before eventually settling at 10 percent. The fee does not apply to U.S. producers. Foreign producers are not treated individually; pollution intensity is instead calculated based on a national weighted average. The bill specifically states that no provisions create any form of a carbon tax, fee, price, or other measure for products produced domestically.
The bill would establish a National Laboratory Advisory Board on Global Challenges, which is composed of representatives from national laboratories, industry representatives from covered sectors, and federal agency representatives, to calculate carbon intensity and provide recommendations for rulemakings. The Department of the Treasury would be responsible for issuing the rulemakings.
About the sponsors
Sen. Bill Cassidy (R-LA)
Cassidy is the senior senator from Louisiana and has served since 2015. He sits on the following Senate Committees: Energy and Natural Resources, Finance, and Veterans’ Affairs; and he chairs the Senate Health, Education, Labor, & Pensions Committee.
Rationale
Cassidy’s bill was the first Republican-led carbon border measure bill and he is trying to garner support from members of his caucus who are concerned such a measure would serve as a pathway to a domestic carbon tax. To assuage these fears, Cassidy even introduced a resolution on the economic harms of taxing domestic carbon emissions (S.Con.Res.23). He has publicly called for stakeholder input on the bill, which has since gone through several iterations, in order to find a more palatable approach to his caucus and constituencies. The bill has been criticized on the grounds that the failure to establish a corresponding domestic carbon tax violates international trade rules. Cassidy has contended that his measure doesn’t violate trade rules because countries can avoid the fee by raising their environmental standards. He also purports the measure addresses World Trade Organization compliance concerns by "equalizing imports with U.S. production" or not treating imports less favorably than U.S. production.
Frequently asked questions
Does the bill impose a domestic carbon tax?
No. In fact, the bill specifically states that no provisions create any form of a carbon tax, fee, price, or other measure for products produced domestically.
Does the bill provide exceptions or carveouts?
Yes, products from free trade agreement partners, within 10 percent of the U.S. baseline pollution intensity, and for which there is insufficient domestic production would not be subject to the fee. Additionally, certain products necessary to meet national security needs would also be exempt. Further, the legislation also prioritizes international partnerships to offer assistance to developing countries in exchange for preferential treatment under the fee.
What industries would be affected?
The products covered by this bill are aluminum, biofuels, cement, crude oil, glass, hydrogen/ammonia/methanol, iron, & steel, lithium-ion batteries, minerals, natural gas, refined petroleum, petrochemicals, plastics, paper/pulp, solar, cells & panels, and wind turbines. The Secretary of the Treasury would also be able to make additional U.S. Geological Survey-designated critical minerals subject to the fee.
What is the goal of the bill?
The goal of the bill is to impose a fee on the emissions of U.S. imports to support cleaner U.S. producers competing against high carbon-emitting countries, like China.
Which government agency would administer the bill?
The bill would establish a National Laboratory Advisory Board on Global Challenges, composed of representatives from national laboratories, industry representatives from covered sectors, and federal agency representatives, to calculate carbon intensity and provide recommendations for rulemakings. The Department of the Treasury would be responsible for issuing the rulemakings.
