June 8, 2022

Whitehouse and Colleagues Introduce Clean Competition Act to Boost Domestic Manufacturers and Tackle Climate Change

Carbon border adjustment mechanism proposal would lower emissions across high-polluting sectors at home and abroad

Washington, D.C. – U.S. Senator Sheldon Whitehouse (D-RI) today introduced the Clean Competition Act, legislation aimed at making American companies more competitive in the global marketplace and tackling major sources of planet-warming greenhouse gas emissions by creating a carbon border adjustment mechanism.  The legislation is cosponsored by Senators Chris Coons (D-DE), Brian Schatz (D-HI), and Martin Heinrich (D-NM).

“American manufacturers doing the right things on climate are often at a disadvantage compared to pollution-friendly foreign competitors,” said Senator Whitehouse.  “Our Clean Competition Act will give American companies a step up in the global marketplace while lowering carbon emissions at home and abroad and steering the planet toward climate safety.  I’m hopeful this proposal has a path forward in Congress, as experts from across the political spectrum have expressed support for a border adjustment mechanism like ours.”

“I’ve been a longtime advocate of border carbon adjustments because they will lower carbon emissions around the world while providing a competitive advantage to American companies doing their part to address climate change,” said Senator Coons.  “Aligning our climate and trade policies with our allies will help us reduce both our emissions and our reliance on foreign fuels, and I look forward to working with my colleagues to advance this critical proposal.”

A carbon border adjustment mechanism is an environmental trade policy that includes charges on imports from particularly carbon-intensive manufacturers.

American manufacturers are on average less carbon intensive than most of their foreign competitors.  On average, the U.S. economy is almost 50 percent less carbon intensive than its trading partners.  The Chinese economy is more than three times as carbon intensive as the U.S., and India is almost four times as carbon intensive.

“Holcim US would like to thank Senator Whitehouse and cosponsors for their leadership on the Clean Competition Act.  Holcim US, like other American manufacturers, is working every day to drive innovation that reduces the carbon footprint of our products.  The Clean Competition Act helps ensure that climate-conscious companies like ours can compete on a level playing field, while succeeding in the global economy.  The bill creates a series of market-driven mechanisms that reward decarbonization efforts and help fund future research, development, and deployment efforts necessary to reach a net-zero carbon future.   We hope Congress will work swiftly to adopt policies that help reward American manufacturing and create the clean energy jobs of the future,” said Virgilio Barrera, Director of Government and Public Affairs at Holcim US, the world’s largest cement and building materials company.

“Senator Whitehouse’s Clean Competition Act represents a promising new approach to tackling climate pollution whether in the United States or abroad.  By imposing a fee on imports of carbon intensive goods while simultaneously rewarding cleaner production here at home, the proposal would contribute to a level playing field for U.S. manufacturers — helping to secure America’s carbon advantage and maintain our economic competitiveness.  A strong and well-designed carbon border adjustment has the potential to reduce global greenhouse gas emissions while enhancing economic competitiveness,” said Nat Keohane, President of the Center for Climate and Energy Solutions.  “We commend the senators for their work on this important topic and look forward to continue working with Congress, companies, and other stakeholders to advance ambitious and durable climate policies.”

“This carbon border adjustment mechanism would boost American competitiveness while creating incentives for cleaner manufacturing at home and abroad.  EDF commends Senators Whitehouse, Coons, Schatz, and Heinrich for their commitment to fighting climate change and his efforts to find common sense ways to cut pollution and grow the economy,” said Elizabeth Gore, Senior Vice President, Political Affairs at the Environmental Defense Fund.

“American ingenuity and innovation have a critical role to play in addressing the climate crisis.  Senator Whitehouse’s Clean Competition Act will help drive demand for clean, made-in-America products and leverage a market-based approach to reward manufacturers for cleaner supply chains and processes,” said Shannon Heyck-Williams, senior director of climate and energy policy at the National Wildlife Federation.  “Congress needs to adopt a comprehensive strategy to reduce carbon emissions, and the senators’ bill should be at the forefront of discussions on how to forge a smart, market-based carbon strategy while growing the U.S. clean energy economy and strengthening our competitiveness.”

The Clean Competition Act would impose a carbon border adjustment on energy intensive imports, while incentivizing decarbonization of domestic manufacturing.  Starting in 2024, the adjustment would apply to energy intensive industries, including fossil fuels, refined petroleum products, petrochemicals, fertilizer, hydrogen, adipic acid, cement, iron and steel, aluminum, glass, pulp and paper, and ethanol.  In 2026, it would be expanded to include imported finished goods containing at least 500 pounds of covered energy intensive primary goods.  In 2028, the threshold for coverage would be lowered to 100 pounds.

For imports manufactured in opaque economies, the levy would be calculated based on the ratio of the country of origin’s economy-wide carbon intensity to the U.S. economy-wide carbon intensity.  For imports manufactured in transparent economies with reliable, verifiable data, the levy would be calculated based on the extent to which the country of origin’s relevant industry-specific average carbon intensity exceeds the comparable U.S. industry-specific average carbon intensity; foreign manufacturers in such economies could use their own carbon intensities.  Importers would only pay the levy based on the fraction of emissions that exceeds the comparable U.S. carbon intensity baseline.  During the period from 2025 through 2028, the applicable U.S. carbon intensity baselines would be reduced by 2.5 percentage points each year from the initial average.  Starting in 2029, the baselines would decrease by 5 percentage points per year.  The levy would begin at $55/ton and increase at 5 percent above inflation per year.  Covered imports from least developed countries would be exempt from any charges.

Covered domestic manufacturers include any facilities producing the same energy intensive primary goods covered under the initial phase of the border adjustment that are also required to report GHG emissions under EPA’s Greenhouse Gas Reporting Program (GHGRP).  Such facilities would be required to report GHGRP data to Treasury, as well as their annual electricity consumption and annual production of any covered primary goods by weight.  Treasury would then calculate the average carbon intensity (covering scope one and two emissions) for each energy intensive industry covered under the initial phase of the border adjustment.  These would calculated using six-digit North American Industry Classification System (NAICS) codes.

Starting in 2024, covered facilities whose carbon intensity is calculated to be at or below the applicable industry carbon intensity baseline would pay nothing; covered facilities whose carbon intensity is above the applicable industry carbon intensity baseline would pay the levy only on the fraction of emissions that exceeds the industry average carbon intensity.  As for imports, each industry baseline would start at the industry average and then decline first by 2.5 percentage points a year for four years and then by five percentage points per year.  For NAICS codes that cover a heterogeneous group of goods, produced by differing chemical and/or physical processes requiring substantially differing amounts of energy, a manufacturer may petition Treasury to calculate a good-specific average carbon intensity.  Refunds will be issued for covered goods that are exported.

Seventy-five percent of revenues raised each year would fund a competitive grant program for each of the covered industries that would help invest in the new technologies necessary to reduce their carbon footprints.  The new grant program would be modeled on Diesel Emissions Reduction Act (DERA) and administered by Treasury with support from the Department of Energy and the Environmental Protection Agency.  Twenty-five percent of revenues raised would be deposited in a fund administered by the State Department to help developing countries decarbonize.

Meaghan McCabe, (401) 453-5294

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