Daily on Energy: The big question facing Democrats’ carbon import tax gambit

Sen. Chris Coons of Delaware and Rep. Scott Peters of California introduced legislation to establish a border carbon adjustment on polluting imports, which they said is intended to protect the competitiveness of U.S. industries exposed to domestic climate rules, and to encourage foreign polluters such as China to reduce their emissions more aggressively.

They hope the bill, the FAIR Transition and Competition Act, is attached to Senate Democrats’ $3.5 trillion tax and spending infrastructure proposal, and will serve as a revenue source for the package by raising as much as $16 billion annually.

The import fee would initially cover carbon-heavy products from steel, aluminum and cement, as well as natural gas, petroleum and coal.

Most interesting to me is how the Democrats’ proposal differs from the European Union’s long-anticipated carbon border adjustment revealed last week.

The Democrats’ scheme would not be paired with a corresponding domestic system for trading or pricing carbon emissions. The import tax would be levied regardless of whether Congress passed new laws to reduce emissions, and instead would be designed to match the costs already facing U.S. companies from a hodgepodge of state and federal environmental regulations and policies.

Some economists have expressed skepticism that Democrats could skip over passing a domestic carbon price while levying a fee on imports, which they say raises questions of fairness along with accounting challenges.

If the U.S. set a carbon tax starting at $50 per ton, for example, the U.S. could simply tax imported goods equivalently.

But without such a point of comparison, the thinking goes, it would be difficult to come up with a fair rate to tax imports.

In the absence of a carbon price, the Democrats’ bill calls on the Treasury Department, Office of Management and Budget and the U.S. trade representative, to determine annually what carbon costs producers face under current Clean Air Act regulations.

Alex Flint, executive director of the Alliance for Market Solutions, a conservative group that supports carbon pricing, said he doubted a carbon border fee without a domestic tax would meet World Trade Organization requirements. In a statement, he argued the import fee therefore would not make it through reconciliation, because the projected revenue generated from it could not be guaranteed.

Supporters of the Democrats’ approach, however, said their effort is intended as a starting point at generating discussion and said fears over a potential trade war and WTO fight are premature if the threat of import tariffs prods countries to boost their climate policies.

“You can’t assume it won’t be WTO compatible, because even if critics argue you have to have a price on carbon and you can’t go with the existing regulatory system, if we get a critical mass of countries to adopt the same type of policy it will be assumed under WTO law to be consistent,” George David Banks, an international climate adviser to former President Donald Trump, told me.

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KERRY CALLS ON CHINA TO COMMIT TO EARLIER EMISSIONS PEAK: U.S. climate envoy John Kerry today highlighted ongoing extreme weather events across the world in urging nations to commit to “meaningful absolute reductions” in greenhouse gas emissions by 2030.

“Everything the scientists have told us will happen is happening but bigger and faster than predicted,” Kerry said during a speech in London at the Royal Botanic Gardens, saying worsening droughts, wildfires, and flooding events amount to a “world in chaos.”

Speaking ahead of a critical U.N. climate conference in November, Kerry said: “We can in a little more than 100 days save the next 100 years.”

Kerry called out countries such as China, India, and Australia that are still building new coal plants, a fact he called “alarming.”

Kerry reserved his most specific references to China, the world’s top emitter. He defended the administration’s attempts at cooperating with China on addressing climate change, saying working together is “the only way to break free from the world’s mutual suicide pact.”

But he also urged China to bolster its current commitment of peaking emissions before 2030. He said China should commit to “sector specific near-term actions” that would enable “earlier peaking” and the “possibility of rapid reductions afterwards.”

BUT POST-PANDEMIC CLEAN ENERGY SPENDING IS FALLING WAY SHORT: When global carbon emissions fell by a record amount last year due to the pandemic, the International Energy Agency warned the drop would only be temporary unless countries included major climate measures into their economic recovery plans. That mostly didn’t happen, the IEA said in a new report today, and emissions are now on pace to hit record highs.

“Many governments may have talked about the importance of building back better for a cleaner future, but many of them are yet to put their money where their mouth is,” IEA director Fatih Birol said in a statement.

Governments allocated only 2% of fiscal support — or $380 billion of the $16 trillion worldwide — to clean energy measures as part of their economic response to the pandemic, IEA found.

Implementing these economic recovery measures would result in carbon emissions climbing to record levels in 2023 and continuing to rise thereafter.

G-20 COUNTRIES CAN’T KICK FOSSIL FUELS: The research firm BloombergNEF, in a separate analysis this morning, said all members of the G-20 continue to provide “substantial financial support” for fossil-fuel production and consumption despite many of them making aggressive climate pledges.

G-20 countries gave $3.3 trillion in support to coal, oil, gas and power between 2015 and 2019.

The report also found these governments have fallen short in building back cleaner after the pandemic.

G-20 countries have committed $363 billion to sectors or projects that aim to cut emissions or aid climate adaptation, BloombergNEF found, while over $1.2 trillion has been set aside for “carbon-intensive sectors such as aviation and construction with no green element.”

BIDEN TO NOMINATE CLIMATE HAWK TO TOP TREASURY POST: Biden plans to nominate Graham Steele as assistant Treasury secretary for financial institutions, elevating a vocal proponent of treating climate change as a systemic risk to the financial system.

“He is prepared to rein in Wall Street’s risky, high-carbon investments and deploy regulatory tools to ensure that financial institutions are appropriately weighing climate risks,” Jamal Raad, executive director of the progressive climate group Evergreen Action, said in cheering the appointment of Steele.

Steele, most recently the director of the Corporations and Society Initiative at Stanford Graduate School of Business, was previously Democratic chief counsel on the Senate Banking Committee and aide to Sen. Sherrod Brown of Ohio.

In a paper last year, Steele argued that climate change qualifies as a “systemic risk” to financial institutions under the 2010 Dodd-Frank law. That would empower U.S. regulators to require financial institutions to mitigate climate risk such as an agriculture company facing more frequent flooding in the Midwest or a home insurer in California struggling with worsening wildfires.

In an interview with me in June 2020, Steele said public companies should produce information about their emissions contributions and their exposure to climate change, so that investors and the public would be more informed when making personal and business decisions.

“This is about changing market incentives, not about shutting off the fossil fuel spigots altogether,” Steele told me. “It’s about disclosing to market participants and having public authorities grapple with what the risks are and adjusting their behavior accordingly.”

MANCHIN TO VOTE FOR STONE-MANNING, EASING PATH TO CONFIRMATION: The Senate Energy and Natural Resources Committee scheduled a vote Thursday on Tracy Stone-Manning’s nomination to head the Bureau of Land Management, after centrist Democratic chairman Joe Manchin said he’d approve her.

Manchin’s vote for Stone-Manning ensures the controversial nominee could advance the committee on a deadlocked 10-10 vote, since all panel Republicans have called on Biden to rescind her nomination.

Republican senators have accused Stone-Manning of having a past affiliation with an “ecoterrorist” organization and deceiving the committee regarding a three-decade-old “tree spiking” criminal case.

SENATE DEMOCRATS RALLY FOR CLIMATE CORPS: Senate Majority Leader Chuck Schumer announced today that a climate jobs proposal called the Civilian Climate Corps will be part of the party’s $3.5 trillion reconciliation infrastructure package, the Washington Examiner’s Kerry Picket reports.

“Right now, we have a once-in-a-generation opportunity to confront the climate crisis and create millions of permanent good-paying union jobs,” Schumer, a New York Democrat, told reporters. “It’s a great opportunity to combine those things.”

Schumer praised the Sunrise Movement, the youth climate group that has lobbied for the federal government to establish the CCC. The proposal was later spearheaded by Colorado Rep. Joe Neguse of Colorado and Sen. Ron Wyden of Oregon and pushed forward by a group of over 80 House and Senate Democrats from across the political spectrum.

According to a letter sent today by the members to House Speaker Nancy Pelosi and Schumer, the goals of the program “are to provide employment opportunities; invest in natural climate solutions, clean energy, and resilience; and address environmental justice through locally-led, science-based projects.”

TROUBLE FOR BIPARTISAN INFRASTRUCTURE BILL? Senate Republicans said they do not plan to vote to advance a $1 trillion infrastructure package on Wednesday unless they see the text of the legislation and the two parties can agree on how to pay for the plan, the Washington Examiner’s Susan Ferrechio reports.

Schumer scheduled a key test vote for Wednesday on the infrastructure package authored by a group of bipartisan lawmakers and endorsed by Biden.

Liberal House Democrats, meanwhile, are already declaring the bill as insufficient to address the needs of the nation.

Members of the House Progressive Caucus will hold a press conference with liberal groups today calling on Democrats “to push for Congress to ‘Go Bigger to Meet the Need’ on climate, jobs, and justice.”

The bipartisan measure includes nearly $580 million in new spending on a broad array of traditional infrastructure that includes roads and bridges as well as mass transit, water pipes, airports, ports, electric vehicle chargers, and electric buses.

MORE CYBERSECURITY MANDATES FOR PIPELINES: The Biden administration this morning issued new cybersecurity requirements for pipelines and LNG export facilities in response to the April hack of Colonial Pipeline that halted fuel delivery across the Southeast and led to panic-buying at the pump.

The directive from the Department of Homeland Security requires owners and operators of TSA-designated “critical pipelines” to implement mitigation measures to protect against ransomware attacks and other threats to information technology and operations systems, develop and implement a cybersecurity contingency and recovery plan, and conduct a cybersecurity review.

It follows previous rules announced by DHS in May that said pipeline operators must report cybersecurity attacks or face fines, and designate a Cybersecurity Coordinator to be available around the clock as a point of contact to the government.

Despite these actions, the Biden administration so far has resisted a call from some Democrats, such as FERC Chairman Richard Glick, for Congress to impose broader cybersecurity mandates on pipeline operators.

US STILL LED WORLD IN OIL AND GAS PRODUCTION LAST YEAR: More petroleum and natural gas was produced in the U.S. than in any other country during 2020, despite a record decline in demand caused by the pandemic, the Energy Information Administration noted yesterday.

U.S. production declined last year compared to record levels in 2019, but it was still higher than in Russia and Saudi Arabia, larger producers that agreed to reduce their output as part of a historic OPEC+ agreement intended to raise prices.

The Rundown

Bloomberg China cities warn of new power outages as heat strains grid

Reuters US, Germany to announce deal on Nord Stream 2 pipeline in coming days

Washington Post Biden administration, workers grapple with health threats posed by climate change and heat

Calendar

WEDNESDAY | JULY 21

9:45 a.m. 406 Dirksen. The Senate Environment and Public Works Committee will hold a hearing to examine “the potential cybersecurity threats facing our nation’s infrastructure.”

1 p.m. ConservAmerica will host a webinar examining the pros and cons of carbon pricing.

THURSDAY | JULY 22

9:30 a.m. 366 Dirksen. The Senate Energy and Natural Resources Committee will hold a business meeting to consider the nominations of Tracy Stone-Manning to be director of the Bureau of Land Management, Andrew Light to be DOE’s assistant secretary of energy, Samuel Walsh to be DOE’s general counsel, Shalanda Baker to be director of the Office of Minority Impact at DOE, and Robert Anderson to be Interior’s solicitor.

10 a.m. 406 Dirksen. The Senate Environment and Public Works Committee’s subcommittee on chemical safety, waste management, environmental justice, and regulatory oversight will hold a hearing to examine “current issues that adversely affect environmental justice communities.”

TUESDAY | JULY 27

10 a.m. 366 Dirksen. The Senate Energy and Natural Resources Committee will hold a hearing to examine White House budget request for the Department of the Interior for Fiscal Year 2022.