Operating mechanism
Following the European Commission’s introduction of the Carbon Border Adjustment Mechanism (CBAM), the U.S. also proposed a border carbon adjustment (BCA) fee on imports. Under the proposal, multiple departments will be established to calculate the domestic environmental costs (not only the carbon price) of production in covered sectors in complying with laws and regulations limiting or reducing greenhouse gas emissions. Unlike the EU CBAM, the BCA does not have any deduction system and will not deduct carbon fees paid in exporting countries.
Legal source: Forced Arbitration Injustice Repeal (FAIR) Act, which has yet to be passed and has remained uncertain.
Taxpayer
The carbon fee would be applied to imports of carbon-intensive products, such as steel, aluminum, cement, and fossil fuels, or any product with more than 50% of the aforementioned raw materials.
Imports from underdeveloped countries, countries that do not impose carbon tariffs on the United States, and those with carbon emissions reductions equal to or better than the United States are exempted.
Declaration schedule and content
The regulation is expected to come into force in 2024, with no transition period.
Key factors of BCA fees
The BCA fee will be calculated using the following three methods:
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Domestic environmental costs incurred by US businesses
The Department of the Treasury calculates the domestic environmental costs incurred by US companies for each covered industry (e.g., steel, aluminum and cement) and each type of fuel production. US Treasury's decisions are based on the average cost generated by companies in the industry ( e.g., the average cost of producing a certain type of fuel) to comply with US laws limiting greenhouse emissions. On average, US cement producers incur a cost of 5 US dollars per ton of cement produced in compliance with greenhouse gas (GHG) emissions limits.
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GHG emissions
In order to calculate the BCA fee applicable to imported products, US Treasury must determine the amount of GHG emissions of products in carbon dioxide emissions equivalents. For example, the of cement-related production is 0.5 MT CO2-e per ton.
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BCA fee.
It is not specified whether US Treasury must calculate GHG emissions based on an importer's documentation of actual emissions at the facilities that produced the imported good, or based on broader data such as industry averages within the country of origin. If no reliable data is available, the BCA fee will be calculated using benchmark emissions for the sector that produced the product. The benchmark emissions refers to the GHG emissions of the top 1% producers within each industry in the US in the previous calendar year. The BCA fee applicable to imported cement is US$2.50 per ton (US$5.00 x 0.5).
Carbon pricing
While the U.S. has yet to establish a carbon price, the government may refer to the EU CBAM to adopt a pricing that is linked to the carbon trading scheme. As of Nov. 22, 2021, the carbon price of California carbon trading was US$34.64, an increase of 94.72% compared to US$17.79 in January 2021.
Development
The lack of a unified domestic carbon price makes it difficult to implement carbon tax levies. However, as EU CBAM advances, the U.S. must establish a corresponding mechanism to safeguard its corporate interests. Therefore, carbon pricing is an important step, albeit the time for the passage of the bill remaims uncertain.