Carbon Price, Border Tax Remain in Play for US Spending Bill

Copyright © 2021 Energy Intelligence Group

As US lawmakers debate a massive spending package including provisions that could overhaul the energy sector, a legislative path remains open for implementing a carbon price and a carbon border tax.

The Senate Finance Committee has yet to publish its version of the potentially $3.5 trillion reconciliation package, which is expected to be passed without Republican support. A committee list of potential items that could be used to fund the spending seen by Energy Intelligence includes a carbon tax with a border adjustment mechanism.

“We believe the [border carbon adjustment] is still in play for reconciliation and we’re hopeful it will be tied to a carbon price,” a spokesperson for Sen. Chris Coons (D-Delaware) said.

Coons, an ally of US President Joe Biden, and Congressman Scott Peters (D-California) proposed carbon border tax legislation earlier this year.

In an interview with the Washington Post on Sunday, White House Deputy National Climate Adviser Ali Zaidi said the Biden administration had “been engaging with legislators on the design elements of a potential carbon border adjustment proposal.”

Hurdles Abound

Implementing a carbon border adjustment without a carbon tax is very difficult.

Many in Washington believe a carbon tax is an easy fit for the reconciliation process requirement that any provision be tied to the nation’s budget.

But politically a carbon tax has been a difficult sell. While large business groups including the American Petroleum Institute (API) and the Business Roundtable support a carbon price, Republican lawmakers have mostly stayed away.

Progressive Democrats have traditionally viewed a carbon tax as regressive because energy costs make up a larger portion of spending in lower income households. To answer that critique, the proposals under consideration in the Senate Finance Committee would be paired with rebates or other payments for households, according to the list of possible revenue streams seen by Energy Intelligence.

But moves from Brussels and Ottowa toward crafting their own carbon border tax could soon force the issue.

“With our major trading partners moving toward pricing carbon, eventually the US will have to have a policy, a carbon border adjustment mechanism,” said Alex Flint, the executive director for the Alliance for Market Solutions, which advocates a carbon tax.

Still, the doesn’t mean proponents can bank on a carbon tax or border adjustment being in the bill.

“Because the topline on reconciliation is uncertain and the politics of various tax expenditures and revenue provisions are unknown, the deal is not yet done," said Flint.

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