A BAT is administratively infeasible
Pomerleau 21, a climate policy analyst at the Niskanen Center. Her areas of research include policy development for carbon taxes. She has previously worked in public policy at the Cato Institute and the American Council on Renewable Energy. Most recently, she has worked as a business strategy consultant. Shuting has an MPP in environmental and energy policy from Georgetown University’s McCourt School of Public Policy (Shuting, “Administrative Costs of a Carbon Tax,” https://www.niskanencenter.org/wp-content/uploads/2021/02/Jan28-Administrative-Costs-of-Carbon-Tax.pdf)//BB
A border adjustment works by levying a tax on imports and giving a rebate on exports. Under a carbon tax, an ideal border adjustment would cover all goods based on their carbon content. However, it may not be administratively feasible to border-adjust all goods. Existing carbon tax proposals typically only make certain products eligible for border adjustment. For example, primary products such as aluminum tend to be eligible for border adjustments, but not consumer goods, such as cars.40 Border-adjusting primary goods but not consumer goods might incentivize companies to shift their production overseas to avoid taxes. A simple example below explains how this could happen. Assume there were a domestic carbon tax in the United States with border adjustments that only covered primary goods (e.g., steel), but not consumer goods (e.g., cars). A manufacturer could export steel overseas to get an export rebate, make a car using the steel in a country with no carbon prices, and then import the car back into the United States without paying any import tax for the car. In this scenario, the manufacturer takes advantage of the narrowly-based border adjustment mechanism to avoid paying the carbon tax for both the steel and the car, even though the car is sold for domestic consumption in the United States. Border-adjusting imported and exported goods is not easy, as the regulator needs to determine the carbon emissions associated with imported and exported goods, which are not readily observable.41 One way to design a carbon tax’s border adjustment is to develop an administrative structure similar to that of a VAT. A VAT is “paid in stages by producers along the production process. Each producer’s VAT liability is equal to their sales times the VAT rate minus any VAT previously paid on the inputs to production.”42 Much as under the administrative structure of a VAT, a border adjustment under a carbon tax would require a mechanism for businesses to track the carbon emissions added at each stage of the production process so it could ultimately be rebated at the border.