U.S. Senator Chris Coons and House Representative Scott Peters, both Democrats, earlier this week unveiled the “Fair, Affordable, Innovative, and Resilient (FAIR) Transition and Competition Act” (the Act), which, if enacted, would establish a border carbon adjustment (BCA) to be imposed as a fee on imports, starting on January 1, 2024. This follows the recent release of climate and emissions reduction proposals by the European Commission which also include BCAs for imports into the European Union. This bulletin briefly outlines the key provisions of the Act.
Sectors. The Act would apply to industrial facilities that produce the following products:
- Iron; and
- Any product which is composed of over 50 percent of any of the above products.
Determination of domestic environmental cost incurred. The Act would empower the Secretary of the Treasury (the Secretary) to annually determine the domestic environmental cost incurred for each sector or the average cost to produce a covered fuel (natural gas, petroleum, and coal), to comply with federal, state, regional, or local law, regulation, policy or program which, inter alia, is designed to limit or reduce greenhouse gas (GHG) emissions, including cap-and-trade systems, carbon taxes, and fees.
Border carbon adjustment. The Secretary would administer the BCA through regulation and guidance. The Secretary of State and the United Stated Trade Representative would engage with other countries to reduce global GHG emissions and ensure fairness in the application of the emissions-based tariffs. A fee would be applied to any covered good (either a covered fuel or product produced within a sector) to be determined based on the domestic environmental cost incurred multiplied by the production of GHG emissions of the product or the upstream GHG emissions of the covered fuel. The BCA would not apply to (i) countries on the Least Developed Countries list of the OECD and (ii) countries that do not impose a BCA on products from the U.S. and enforce laws and regulations designed to limit or reduce GHG emissions that are at least as ambitious as similar U.S. laws and regulations.
Allocation of BCA revenue. Revenue from the BCA (estimated at $16b annually) will be used, in part, to support high-impact research, development, demonstration, technology transfer, commercialization, and export of technologies that reduce or eliminate GHG emissions.
Resilient Communities Grant Program. The Act would create a Resilient Communities Grant to be distributed to States to:
- provide transition job training with an emphasis on fossil fuel-related industries;
- assist municipalities and counties with developing and implementing climate vulnerability assessments and adaptation plans, which may include projects such as climate-smart infrastructure, agriculture climate solutions, and natural climate solutions to build climate resilience and support carbon sequestration;
- assist frontline communities experiencing severe threats from climate change;
- alleviate historical burdens on communities of colour, low-income communities, Tribal and Indigenous communities, fossil fuel-dependent communities, and other vulnerable populations;
- provide relocation assistance as a result of climate change or energy transition threats; and
- assist small businesses that are disproportionately impacted by the BCA.