Manchin Eyes Tax on Carbon-Intensive Imports in Energy Package

(Bloomberg) -- Senator Joe Manchin and other lawmakers are weighing a border adjustment tax that would slap a levy on imports of carbon-intensive goods from countries with weaker climate policies as they work on a potential bipartisan energy and climate package.

The concept, which also has drawn interest from the Biden administration, would place tariffs on fossil fuels and products such as cement and steel to prod countries that are moving too slowly to cut their greenhouse gas emissions. Manchin said he is promoting a North American zone that includes Canada and Mexico.

“This is not a carbon tax,” Senator Bill Cassidy, a Republican from Louisiana, said after emerging from a closed-door meeting with Manchin and other senators from both parties who are working on the plan. “I've spoken to Republicans who are very interested in this.”

The discussions are still preliminary. Cassidy said the idea would mirror the same kind of products the European Union is targeting, and because the United States is far cleaner than most countries, domestic manufacturers like chemical companies who use natural gas instead of dirtier sources of energy would have a big advantage.

The group of lawmakers, which also includes Republican Senators Lisa Murkowski of Alaska, Kevin Cramer of North Dakota, and Mitt Romney of Utah, also are exploring tweaks to a bedrock environmental law to make national environmental permitting reviews quicker and changes to the federal oil and gas leasing process.

“Everything is on the table,” Manchin, of West Virginia, said after the meeting, adding the package could include 10 years of climate incentives paired with 10 years of domestic fossil measures.

Senator Mark Warner of Virginia, another Democratic member of the group, he's trying to get more information on exactly how a border adjustment would work.

“I've always thought a price on carbon, a market mechanism, is where I think the world's ought to be headed, and it also puts a penalty in place for those countries like China,” Warner said.

The general idea of a border adjustment for carbon also has support among some key Democratic climate hawks, such as Senators Sheldon Whitehouse of Rhode Island and Chris Van Hollen of Maryland.

Earlier: Biden Climate Goals May Not Require $550 Billion, McCarthy Says

A bipartisan energy package, like the infrastructure bill passed last year, could undercut the broader Democratic agenda but give President Joe Biden an election-year victory on an issue voters care about. It also could revive some of the $550 billion in climate and energy spending in the Build Back Better Act, which has been stalled since December after Manchin declared he couldn't support it.

Still the idea has its detractors, especially among those who doubt Democrats will be able to muster support from 10 Republicans to reach the 60 votes needed for passage, while at the same time winning the support of progressive Democrats in the House.

“I don't know how you can be in Congress for any significant period of time and come to the conclusion where there is a significant block of Republicans who are going to take climate change seriously,” Representative Sean Casten, a Democrat from Illinois, said in an interview earlier Monday.

Democrats originally sought a tax on carbon-intensive imports as a means of paying for the massive spending bill, but it wasn't included in the version that passed the House.

Such a plan could dovetail with efforts by other countries -- including the European Union -- which introduced its own border adjustment blueprint, with an import levy on steel, cement and aluminum produced in other countries with less-stringent environmental controls.

Creating a new carbon tariff system would require navigating thorny trade policy and domestic policy considerations, which industries and products would be taxed, how to assess the amount of carbon embedded in imported goods and, potentially, how to judge the policies of countries supplying them.

The goal would be a tax regime that creates a level playing field for U.S. companies, who don't pay an explicit carbon tax but must comply with regulations that impose a de facto price on carbon. U.S. exports to countries with less-stringent climate policies could even receive rebates.