US Democrats Propose Carbon Border Tax to Boost Manufacturing

Democratic lawmakers in the United States have reintroduced the Clean Competition Act (CCA), a bill proposing a US carbon border adjustment mechanism to boost domestic manufacturing competitiveness while reducing greenhouse gas emissions from energy-intensive industries. The legislation was reintroduced by Sen. Sheldon Whitehouse, ranking member of the Senate Committee on Environment and Public Works, and Rep. Suzan DelBene.

The CCA would impose a carbon intensity charge on imported and domestically produced goods from high-emission sectors, including steel, aluminum, cement, iron, fertilizers, hydrogen, fossil fuels, refined petroleum products, petrochemicals, glass, pulp and paper, ethanol, and adipic acid. Coverage would expand to more complex downstream goods starting in 2028.

Whitehouse said the bill addresses competitive pressures on US manufacturers. “American manufacturers are already among the cleanest in the world, yet they face unfair competition from countries that do nothing to curb their pollution,” he said. He warned that as other jurisdictions implement carbon border adjustments — noting the EU’s mechanism starting January, with the UK and Australia considering similar policies — US exporters could face fees abroad without reciprocal protections at home.

Supporters cite emissions data as central to the bill. On average, US manufacturers are over 50% less carbon-intensive than global peers, while Chinese producers are more than three times as carbon-intensive and Indian producers more than four times, according to figures cited by the bill’s sponsors.

DelBene said the proposal addresses both climate and industrial policy. “For too long, American industries producing goods in a less carbon-intensive way have been undercut by foreign competitors with dirtier production processes,” she said, referencing the closure of the Intalco aluminum smelter in Washington, which eliminated over 700 union jobs amid global overcapacity.

The bill establishes a domestic industrial performance standard, initially set at the average carbon intensity of each covered US industry. Companies exceeding the benchmark, foreign or domestic, would pay a charge on emissions above the standard. The levy would start at US$60 per metric ton of CO₂ equivalent, rising annually by 6% above inflation. From 2027 to 2030, the benchmark would decline 2.5 percentage points per year, accelerating to 5 percentage points annually from 2031.

Direct air capture would receive credits up to the bottom 25th percentile of an industry’s carbon intensity. Least-developed countries would generally be exempt unless they hold a significant US market share. Exported goods would be eligible for refunds.

Revenue from the charge would be reinvested in industrial decarbonization: 75% domestically via the Department of Energy for grants, rebates, loans, and contracts for difference, and 25% through the State Department as foreign assistance. The bill pre-appropriates US$100 billion to catalyze emissions reductions, with additional funding available once that amount is recouped.

The legislation also authorizes the president to negotiate “carbon clubs” with other countries, offering reduced border charges and priority access to foreign assistance funds in exchange for stronger decarbonization commitments. Proponents say this could expand markets for low-carbon goods and reduce emissions leakage.

While it is uncertain if the CCA, now introduced for the third time, will pass, it reflects a growing trend among developed nations to keep domestic industries competitive and prevent carbon leakage. Whitehouse noted that the EU’s Carbon Border Adjustment Mechanism, effective January 2026, will have significant implications for Mexico.

Miguel Chavarría of South Pole says Mexico should coordinate federal and state-level carbon pricing to prepare for both the EU CBAM and a potential US carbon border adjustment. “If not, Mexican exports could face higher costs due to additional carbon charges. The greater risk is that CBAM could extend to complex products, such as auto parts, affecting Mexican industry,” he says.

Even if the CCA does not pass soon, Chavarría emphasizes that Mexican companies should prepare. “US sustainability requirements may be less advanced than the EU’s, but expectations for emissions reductions are rising. This is an opportunity to accelerate decarbonization and avoid costly, last-minute investments if carbon border adjustments are introduced in the United States or by other major trade partners.”