Democrats seek to tackle climate change with import tax

Democrats are eyeing a tax on imports from countries that don’t have strong policies aimed at combating climate change, seeking to include such a tax in a wide-ranging spending package that could pass without Republican votes.

A senior Democratic aide said that the $3.5 trillion budget deal key Senate Democrats reached Tuesday would propose “polluter import fees” but did not include any further specifics.

Carbon border taxes are increasingly getting interest from policymakers across the globe, with the European Union (EU) proposing a similar idea this week.

But Democratic lawmakers still have to determine how exactly they want to design an import tax proposal, and they have a long way to go before such a policy is a reality in the United States.

Democrats are seeking to pass a large spending bill later this year without any Republican votes, and climate-related provisions are expected to be a key part of it.

The budget deal would allow a number of climate-related provisions to be included in a spending bill, including the import tax, a clean energy standard and clean energy tax incentives. The goal of the provisions is to meet President Biden’s objective of 80 percent clean electricity and a 50 percent reduction in carbon emissions by 2030.

Democrats said that they are interested in an import tax in an effort to ensure that other countries don’t undercut U.S. efforts to combat climate change.

“At a time when we are focused on modernizing infrastructure so as to reduce carbon, we want to make sure that foreign countries aren’t undermining our workers and manufacturers,” Senate Finance Committee Chairman Ron Wyden (D-Ore.) told reporters Thursday.

Democrats’ budget deal comes the same week that such a tax was included in a raft of ambitious emission reduction proposals by the European Union. The European Commission’s proposed carbon border tax would apply to importation of products such as carbon-intensive cement, electricity and steel. The proposal calls for the tax to take effect in 2026.

Columbia University professor and Nobel laureate Joseph Stiglitz said that Europe and the U.S. both exploring the idea simultaneously marks a major milestone toward the imposition of such a tax.

“With Europe and the United States both agreeing to do it, I think there’s a good chance that it’ll happen,” he said. “And obviously there are technical issues, but I think as long as it’s done in a reasonable way, those can be addressed.”

But there are many questions facing congressional Democrats as they plan to draft legislative text on a carbon border tax.

Many tax and climate policy experts questioned lawmakers pursuing a tax on imports without strong climate policies when the U.S. doesn’t have a federal carbon price.

“I think it’s great that this is being discussed. I think it could be very effective, especially considering that the EU and the United States are the No. 1 and No. 1 largest economies in the world,” said Danny Richter, vice president of government affairs for Citizens Climate Lobby.

“However, I don’t think the United States can do this unless we also have a domestic carbon price. … I think it’s fantastic, but I think it’s the beginning of a productive discussion,” he added.

Nat Keohane, president of the Center for Climate and Energy Solutions, said that a border carbon measure needs to be paired with domestic policies that are designed to achieve Biden’s emission reduction goals.

“It needs to come along with those other provisions that come with the reductions we need,” he said. 

Democrats have not proposed a carbon pricing system in their budget deal. The White House has declined to either endorse or rule out a carbon pricing system. In June, Sen. Sheldon Whitehouse (D-R.I.) said there “may be a very big fight in the Senate on this issue when we get to where the Senate has a role.”

Other questions lawmakers face include which goods from which countries would be subject to the tax and what the rate would be.

“The main question is what’s going to be the criteria for its imposition,” said Thornton Matheson, a senior fellow at the Urban-Brookings Tax Policy Center.

Experts also said that it’s unclear whether Democrats’ proposed tax on imports would be paired with a rebate on exports and how such a rebate might work.

Democrats could face criticisms that their proposal would violate Biden’s pledge to not raise taxes on families making under $400,000 per year, depending on the design of the tax.

Wyden said he’s committed to ensuring that a polluter import tax doesn’t violate Biden’s promise.

“I will make sure as chairman of the Senate Finance Committee that no carbon policy hits working people and working families,” he said.