Sustainable Business

White House withholds support of Democratic carbon border tax

4 minute read

U.S. President Joe Biden delivers remarks on the coronavirus disease (COVID-19) response and vaccination program during a speech in the East Room at the White House in Washington, U.S., August 18, 2021. REUTERS/Elizabeth Frantz

Aug 20 (Reuters) - The White House is withholding support for a Democratic proposal to impose a pollution tax on imports from China and other countries, casting doubt on whether Democrats will be able to deploy what environmentalists consider one of the greatest weapons to tackle global climate change in a massive spending bill this year.

The United States is the closest it has ever been to imposing a carbon border tax - which seeks to level the playing field between U.S. companies which face environmental regulations at home and foreign competitors with less rigorous standards - after Democrats included the proposal in their $3.5 trillion reconciliation package last week that they hope to pass along party lines by mid-September.

U.S. President Joe Biden and top members of his administration have said publicly they support a carbon border tax as a tool to advance climate goals, but the White House has not endorsed the Democratic proposal, spearheaded by longtime Biden ally Senator Chris Coons. The tax, as outlined by lawmakers, would raise billions by levying a tariff on carbon-intensive imports, but leaves specific details up to the Biden administration.

The White House is concerned the Democrats' proposal will raise prices on a host of consumer goods, from cars to appliances, and conflict with Biden's pledge not to tax any American earning less than $400,000 per year, according to two sources familiar with the discussions. The White House is also worried any tax that raises prices could fuel Republican attacks that his policies are driving up inflation, they say.

The White House plans to withhold support as the U.S. Treasury and other administration officials try to coordinate tax policy with trading allies like the European Union, which recently announced its own carbon border tax.

"We believe that carbon border adjustments in relation to carbon-intensive goods represent a potential, useful tool. We do not have a comment on any specific proposals at this time," a White House official said. "We will continue to engage with Congress, our partners around the world, and other stakeholders, including workers and domestic industry, on this issue.”

PROTECT JOBS, CUT EMISSIONS

The idea of a carbon border tax was aimed at helping rich countries retain manufacturing jobs and investment that have gone for decades to lower-regulation countries, and encourage other countries to also price carbon and drive down emissions. The EU's tax, proposed last month to go into effect in 2026, was the world's first.

It is also considered a way to keep American companies whose manufacturing processes emit heavy amounts of carbon pollution from relocating to countries with looser environmental rules, a phenomenon known as leakage. The U.S. economy lost almost a third of its manufacturing jobs from 2000 to 2010, as China emerged as a low-cost manufacturing superpower.

More than a fifth of all greenhouse gas emissions globally come from the industrial sector, notes Collin O’Mara, president of the National Wildlife Federation.

"A key way to reduce that source of pollution is to ensure the foreign polluters reduce emissions to match U.S.-based manufactures, while expanding exports of low-emission American-made products around the world," O'Mara said.

In the U.S. congressional proposal, companies that want to sell concrete, steel, aluminum or other commodities into the United States would be required to pay a tariff if their country imposes fewer carbon-cutting regulations than American companies.

The tax could hit companies like Rio Tinto (RIO.L) and ArcelorMittal (MT.LU) while making such products from U.S. companies like Nucor (NUE.N) and Alcoa (AA.N) more competitive.

The White House's concerns about a carbon border tax hitting less wealthy Americans are valid if foreign companies raise prices in response to protect profits, said David Weisbach, a professor at the University of Chicago Law School and an expert in carbon border tariffs.

“The tariff will raise consumer prices on people that buy, say, automobiles, since it's going to be on steel and aluminum used to make automobiles," he said, adding it would "unquestionably" raise prices for U.S. consumers earning less than $400,000 a year.

Reporting By Jarrett Renshaw; Editing by Heather Timmons and Jonathan Oatis

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