The increasing convergence of climate and trade policy gained new momentum this week with legislation to “level the playing field” by imposing fees on imports from China, Russia, and other countries with lax environmental standards.
The “Foreign Pollution Fee Act of 2023,” introduced November 2 by Senator Bill Cassidy (R-LA), would establish a framework for fee assessments on imports of goods whose “pollution intensity” is significantly higher than that of similar goods produced in the United States.
The framework contemplates a variable rate structure based on established differences in pollution intensity of imported goods to domestic goods, with fees assessed on the import value. Exemptions would exist when there is insufficient domestic production of the good, products are sourced from countries with free trade agreements and low pollution intensity differences, or the products are sourced from countries subject to an “international partnership agreement” (a negotiating mechanism offering preferential treatment for countries enacting similar trade policy that discourages market access to high pollution-intensity sources).
Initially, covered products would include industrial materials such as aluminum, cement, glass, iron, steel, petrochemicals, and paper, and energy products such as natural gas, oil, minerals, solar cells and panels, lithium-ion batteries, and wind turbines; however, domestic producers would be able to petition to add products.
The structure would go into effect three years following enactment of the bill, giving time for Treasury to promulgate rules establishing fee rates and mechanisms for measuring emissions and for USTR to negotiate international partnership agreements. Pollution intensity values, rates, and covered products would be reassessed every three years.
Senator Cassidy’s proposal comes alongside an expanding number of global initiatives at the nexus of climate and trade, including the U.S. and EU negotiations on sustainable steel and aluminum trade, the EU’s implementation of a carbon border adjustment mechanism, and the Administration’s international economic framework negotiations focused on the “clean economy.”
Other legislation contemplates using trade tools to address climate change, including a bipartisan bill introduced last summer that would direct the Administration to study the emissions intensity of U.S. and foreign produced goods for purposes of informing U.S. trade policy.
The number of climate-trade initiatives will likely continue to grow, and with it a complex matrix of international rules that, while well intended in relation to the environment, could create significant uncertainty and potentially higher costs for companies.
CLK is monitoring these developments.