Senators Chris Coons (D-Del.) and Kevin Cramer (R-N.D.) introduced the PROVE IT Act earlier this week, commissioning the Department of Energy (DOE) to study the carbon intensity of specific products for the U.S. and a selective list of other countries. This bill gained bipartisan support and was co-sponsored by Senators Angus King (I-Maine), Lisa Murkowski (R-Alaska), Martin Heinrich (D-N.M.), Lindsey Graham (R-S.C.), Sheldon Whitehouse (D-R.I.), Bill Cassidy (R-La.), and John Hickenlooper (D-Colo.).

If the PROVE IT Act becomes law, it will be a meaningful step toward collecting product-level emissions data. Getting better at measuring, reporting, and validating product-level emissions is critical for implementing a border adjustment under a carbon tax. 

However, the requested study might have different implications depending on what lawmakers will use the emissions data for. If lawmakers use the study’s results to enact unilateral carbon tariffs without a domestic U.S. carbon tax, there will be significant challenges. If the emissions data is used to inform a well-designed border-adjusted carbon tax, then the U.S. would be on the right track to reaching its net-zero goals. 

What is in the legislation?

Here’s a quick summary of the 17-page legislation:

  • Covered products: 22 categories of U.S. Harmonized Tariff Schedule products are listed, including carbon-intensive primary goods such as aluminum and iron, fossil fuels such as crude oil and natural gas, critical minerals such as copper and cobalt, Uranium products, refined petroleum products, and clean technology products such as solar panels and wind turbines. 
  • Definition of product emissions intensity: Product emissions intensity is defined as the total greenhouse gas (GHG) emissions associated with the entire extraction or manufacturing process of a certain product. This refers to cumulative emissions–meaning, that upstream input’s associated emissions would be incorporated into a downstream covered product. GHG emissions include carbon dioxide, methane, nitrous oxide, and other types of GHG as defined in the Energy Independence and Security Act of 2007
  • Agencies: the bill directs DOE to work with the Department of Commerce, Environmental Protection Agency, U.S. Trade Representative, Department of Homeland Security, and Department of State to work on the study.
  • List of countries: the study would include the U.S., member countries of the G7, countries that have a free trade agreement with the U.S., or a foreign country of concern (as designated by the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021), or holds a significant market share of the covered products. 
  • Timeline: the study will be completed within two years since the law passes and is updated every five years. 

What is the goal of the legislation?

The legislative language does not specify it, but the one-page summary of the bill states that the goal is to support the claim that America “is among the cleanest in  the world” with “high-quality, verifiable data” and to “bolster transparency around global emissions intensity data to hold countries with dirtier production accountable.”

According to the Washington Post, this bill will pave the way for U.S. lawmakers to levy carbon tariffs on carbon-intensive imports from countries such as China and Russia. However, it seems that Republican lawmakers who support such a carbon tariff policy would not be interested in a domestic carbon pricing component.  

There has been momentum in the U.S. behind the idea of using a carbon import tax to punish dirty foreign producers for their emissions and boost U.S. manufacturers’ competitiveness since they are cleaner. The bipartisan talks started early last year. The PROVE IT Act is likely a first step towards levying carbon tariffs on imports without an accompanying domestic carbon price. 

What is the implication of the legislation?

It will be problematic if lawmakers use the emissions study to implement stand-alone carbon import tariffs without a domestic carbon price. It would risk violating the World Trade Organization’s non-discriminatory rules, causing retaliations from the U.S.’s trading partners, increasing costs for U.S. consumers, and creating an onerous administrative burden. Without a domestic U.S. carbon price, it would be difficult to determine and justify the magnitude of tariffs levied on carbon-intensive imports. 

Additionally, the world’s biggest polluters only export a small percentage of their total emissions. Most of their production-related emissions are for domestic consumption. Using a punitive policy to address emissions in trade would have a very limited impact on these big polluters’ emissions trajectory. But it would lead to unintended consequences, as discussed above. 

Lawmakers should consider using the emissions study to inform the design and implementation of a border adjustment and a domestic carbon tax. A carbon border adjustment consists of import taxes and export rebates paired with the domestic carbon tax at the same rate. A border-adjusted carbon tax would directly price the externalities of fossil fuel consumption, encourage the market to shift to clean energy sources, and level the playing field between U.S. and foreign producers in the U.S. market and foreign markets. 

If passed, it remains to be seen whether the PROVE IT Act will have any implications on U.S. companies’ compliance with the EU Carbon Border Adjustment Mechanism that will be implemented starting this October. It is also unclear how the PROVE IT Act will be implemented alongside the 2021 EU-US trade deal on steel and aluminum, which is expected to be a tariff-based policy based on differences in products’ carbon intensity.

The PROVE IT Act is a heartening development in and of itself for U.S. climate actions. If it becomes law, it will lay the foundation for regulators and the private sector to develop product-level emissions data. U.S. lawmakers should use the data to inform an effective climate policy like a border-adjusted carbon tax instead of protectionist policies such as carbon tariffs.