Carbon tariffs fail but are perceived and challenged as protectionist tools.

First and most obviously, a carbon tariff would impose significant new costs on American consumers, companies, and workers. For example, recent U.S. tariffs on more than $350 billion worth of imports have been found to cost Americans over $50 billion per year. The PROVE IT Act targets over $600 billion worth of imports, suggesting the cost of carbon tariffs could be even higher than the Trump‐​Biden tariffs. Import taxes hurt Americans by increasing prices, particularly those in the lowest income brackets, and U.S. companies’ competitiveness by raising their production costs or insulating protected firms from market competition. For example, President Trump’s imposition of tariffs on imported steel inflicted significant damage on steel‐​consuming U.S. companies (like nail manufacturers)—the new taxes cost their workers directly through layoffs and the companies became less competitive as they were forced to either share the costs with their customers by raising prices, reduce production, or decrease investment. As a result, the tariffs did little to “level the playing field,” instead the President surrendered home‐​field advantage and gave the edge to foreign competition, who faced no such taxes.

Second, the history of U.S. tariff policy raises serious concerns that a carbon tariff would not be administered in a sound and impartial manner. Instead, these tariffs would simply be a vehicle for rote protectionism. A prime example of such protectionism is the steel tariffs imposed or maintained under the Bush II, Trump, and Biden administrations, which had political motivations far exceeding any economic ones. At the same time, U.S. trade remedies (antidumping and countervailing duties (AD/​CVDs)) law utilizes a process to calculate dumping or subsidization of imports that “injures” domestic industry but can be “remedied” by imposing duties (tariffs). Similar calculations are likely to be used for carbon intensity. However, AD/​CVDs law is notorious for being strongly biased against imports and American consumers. Even worse, in reality, the law is used as a way to deliver protectionist rents to a handful of well‐​connected companies (including, again, steel).

Indeed, some already propose that the CVD law—the remedy for U.S. industry alleged to be injured by unfairly subsidized imports—could be used to impose carbon tariffs and thus avoid the need for new legislation. Doing so, however, would subject carbon tariffs to the same problems—regulatory capture, rent‐​seeking, etc.—that already afflict U.S. trade remedies proceedings, and worse, invite abuse in similar proceedings determining carbon tariffs. For example, one major problem with AD/CVDs law is the discretion they give to the government when data is missing: if the Commerce Department deems information provided by a foreign company during an investigation to be unreliable or insufficient during an AD/CVD investigation, the agency will use various methodologies to fill it in, inevitably resulting in import duties that unreasonably favor the U.S. companies who lobbied for relief. If Commerce followed similar procedures for carbon intensity, similarly biased results are sure to emerge. In other words, the U.S. government could easily make foreign businesses look like they emit more carbon or GHGs than they truly emit, resulting in high tariffs on foreign products in the name of climate change that really serves to protect American businesses from competition.

Thirdly, U.S. carbon tariffs would likely violate the World Trade Organization (WTO) non‐​discrimination rules, which state that WTO members must treat like imported products equally and give imports the same treatment as the same products made domestically. Many legal scholars argue that a border adjustment imposed uniformly on all imports and in concert with an equivalent carbon tax applied to domestically‐​produced goods/producers—similar to the EU’s CBAM—might not violate these WTO rules. However, the PROVE IT Act, if turned into carbon tariffs, would satisfy neither condition: the envisioned report applies to only certain countries, and the United States today has no federal carbon tax. Thus, many of the same trade experts who think the CBAM passes the WTO must think a U.S. carbon tariff would fail.

Finally, it is far from certain that carbon tariffs would provide significant climate benefits. The consensus on the efficacy of carbon taxation, including through a CBAM, to reduce carbon or GHG emissions is mixed. While economic theory supports that taxing an item would reduce emissions production, the likelihood of calculating the “right” price for emissions and appropriately administering it is low. Indeed, the level (country, industry, factory) at which a tax is applied could have the opposite effect by encouraging more carbon‐​intensive production and there are myriad other factors affecting carbon intensity; energy prices and subsidies (making production cheaper), to name a couple. Moreover, carbon and GHG emissions are not limited to the countries that tax them or the imports from countries chosen for a tariff.