Foreign Pollution Fee Act: Design Elements, Options, and Policy Decisions

Milan Elkerbout, Raymond Kopp, Kevin Rennert and Katarina Nehrkorn
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Milan Elkerbout: Resources for the Future
Kevin Rennert: Resources for the Future
Katarina Nehrkorn: Resources for the Future

No 23-09, RFF Issue Briefs from Resources for the Future

Abstract: In our 2023 report, Carbon Border Adjustments: Design Elements, Options, and Policy Decisions, we provided an overview of critical design elements in carbon border adjustment policies. We compared these design elements, such as how fees are set and the product scope, across several border adjustment mechanisms (BAMs) including the European Union’s Carbon Border Adjustment Mechanism (EU CBAM); the Clean Competition Act (CCA) proposal and the Foreign Pollution Fee Act (FPFA) proposal. In April 2025, a revised version of the FPFA was reintroduced in the Senate by Bill Cassidy (R-LA) and Lindsey Graham (R-SC). This issue brief uses the design elements introduced in our original BAM report to describe the policy reflected in the updated bill.The FPFA recognizes in its design and structure that the United States has reduced its greenhouse gas (GHG) emissions substantially over time, and that US manufacturers face costs to comply with environmental regulations that are not faced uniformly by many countries US manufacturers compete with. Though US emissions have decreased, the United States is also a significant importer of GHGs embodied in primary commodities and manufactured products from countries that have not taken comparable actions to reduce their emissions.A primary purpose of the FPFA is to level the playing field for US manufacturers vis-à-vis manufacturers in jurisdictions with higher average carbon intensities in selected sectors and thereby reduce the importation of embodied GHGs. The FPFA seeks to accomplish this goal by imposing a fee on embodied imported GHGs for a set of product categories that are highly traded and also have high GHG intensities. The proposed fees are intended to disincentivize US importation of such products from countries with poor environmental performance, incentivize increased importation from countries with high environmental performance and greater US manufacturing overall, and address concerns about international industrial competitiveness. The primary focus on leveling the playing field for US manufacturers means that the FPFA does not include provisions to require further reductions in greenhouse gases by domestic manufacturers, in contrast to other proposals such as the CCA.BAMs are complicated and technical policy instruments, and the FPFA is no exception. To describe the FPFA in this brief, we discuss it in terms of the seven design elements of BAMs we laid out in our earlier report. We have made every effort to be concise with respect to our descriptions of the policy approach taken in the legislation, but that has required us to abstract from a great deal of detail that exists within the legislative text. This issue brief is intended to provide a roadmap to understanding the approach taken by the FPFA but should not be considered a complete and comprehensive description and review.

Date: 2023-11-06
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