Senate Democrats are proposing a tariff on carbon-intensive imports that critics say could increase the costs of agricultural production and invite retaliation from countries that view the tax as unfairly protectionist.
The “border adjustment” aims to reduce greenhouse gas emissions while increasing revenues from the $ 3.5 trillion package of climate measures and domestic spending priorities that Democrats are developing.
The European Union is proposing its own similar border tax, but the EU tariff would be used to offset what is essentially a national tax on carbon emissions. Senate Democrats are not proposing to tax U.S. emissions, a key difference from the EU plan that experts say could make a U.S. tariff vulnerable to a challenge from the World Trade Organization.
For American farmers, a tariff could also increase the cost of fertilizers, and it would make buildings and equipment more expensive by taxing imported steel and aluminum, said Veronica Nigh, economist at the American Farm Bureau Federation. .
The United States is the second largest importer of anhydrous ammonia, which is derived from natural gas.
Nigh was concerned that the implementation of a U.S. border tax would force a subsequent Congress to justify the tariff by enacting a national carbon tax or imposing greenhouse gas emissions regulations on the United States. .
Without such measures, other countries could argue that “we are treating (their) products much worse than our domestic producers, so this is against WTO rules,” Nigh said.
The Biden administration does not impose any carbon regulations other than a clean electricity standard that would require utilities to cut emissions.
U.S. consumers could also feel the effects of a border tax in the form of higher prices for fuel and other goods, potentially violating President Joe Biden’s pledge not to raise taxes on earning families. less than $ 400,000 per year. Senate Finance Committee chairman Ron Wyden said he would look for ways to protect consumers from the tariff.
Wyden said Agri-Pulse that the tax is intended to “ensure that as we modernize our infrastructure and green our economy, foreign countries do not engage in practices that harm our workers and our manufacturing.”
He wouldn’t say how he would deal with trade issues. “We’re going to look at all the issues, and I can tell you that I’m getting a lot of opinions on what those issues are,” he said.
Details of the $ 3.5 trillion reconciliation bill have not been finalized, but Sen. Chris Coons, D-Del., And Rep. Scott Peters, D-Calif., Released a bill on Monday. border tax which would use the revenues to finance climate resilience. projects, transition assistance and emission reduction technologies.
The products concerned would include “natural gas, petroleum, coal or any other product derived from natural gas, petroleum or coal which is used or can be used in such a way as to emit greenhouse gases into the atmosphere” , according to the text of the bill.
“Despite the leadership of many US companies in reducing harmful greenhouse gas emissions, they will be at a disadvantage as business partners consider imposing carbon-related tariffs on certain products,” according to a summary of the bill.
Brian Flannery, visiting scholar at Resources for the Future, a think tank that focuses on energy and environmental issues, agreed that a U.S. tariff is likely to trigger retaliation from other countries unless it it is not associated with a national carbon tax.
He noted that the European Union had given up on extending its national carbon tax to imported products when China threatened to cancel its purchases of Airbus planes.
“There are ways for these countries to respond in the short term” without going through the WTO, he said.
Sen. Chuck Grassley, R-Iowa, said a border tax could push countries like China and India to cut greenhouse gas emissions, but he also sees potential problems with the WTO with the proposal. And a national carbon tax would meet stiff opposition in Congress from “people especially in agriculture, because we are so energy hungry,” he said.
It’s not yet clear that Democrats can even get the border tariff through the Senate.
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They plan to move the $ 3.5 trillion measure through the budget reconciliation process so they don’t need Republican support to pass it. However, they couldn’t afford to lose a single Democratic vote, and Joe Manchin, DW.Va., has expressed reservations about including proposals that attack fossil fuel use.
“I am concerned about maintaining the energy independence of the United States of America, and with that, you cannot move towards the elimination of fossil (fuels),” Manchin said.
The Fertilizer Institute, which represents the fertilizer industry, said in a statement to Agri-Pulse that the production of its members’ products “is both energy intensive and open to trade.
“Congress should pay special attention to avoiding doing anything that increases the cost of inputs to farmers, including fertilizers, which would exacerbate already rising food prices,” TFI said. “In addition, a less competitive US fertilizer industry has the potential to shift production to less efficient producers around the world, resulting in increased global emissions rather than reductions.
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