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CARBON TARIFFS: Senate Democrats are proposing to impose tariffs on carbon-intensive imports to help pay for their $3.5 trillion tax and spending infrastructure proposal, in a surprising move that opens up a web of complex questions.
Their push came on the same day that the European Union unveiled its own long-anticipated carbon border adjustment as a way to prevent domestic industries from moving overseas to escape the bloc’s aggressive new plans to raise the price of using fossil fuels.
But unlike the Europeans, Democrats released no details about their tax proposal yesterday, calling it simply a “polluter import fee.”
The framework does not explain what would be taxed at what rate or how much revenue it would expect to generate, the New York Times reports.
Sen. Chuck Schumer, the majority leader, said he included the tariff because “it prevents other countries from polluting.” Proponents of the policy positioned the plan as a way to work with the EU to combat pollution from China, which has the most carbon-intensive economy.
“The United States and the EU have to think in terms of the leadership that we can provide and the message that we have to send to China and other countries that would take advantage of the high standards that we are going to enact,” Sen. Ed Markey of Massachusetts told the Times.
The challenge for Democrats: Their climate policies are mostly theoretical at this point until Congress approves legislation, and Democrats are not proposing a domestic carbon price plan that most experts say the U.S. would need to impose its own tax on other countries’ exports.
The EU, by contrast, has had an emissions trading scheme since 2005, giving it ample reason to act now.
One problem with doing a border carbon adjustment without a carbon tax relates to accounting. 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, it would be difficult to come up with a fair rate to tax imports.
Paul Bledsoe, a strategic advisor at the Progressive Policy Institute, told me that Democrats could justify carbon tariffs if the party passes a mishmash of clean energy tax subsidies and regulations as part of its infrastructure plans.
“This notion you need a carbon tax to impose a broder tariffs is untrue on its face,” said Bledsoe, a former climate change adviser in the Clinton administration. “I find that to be an absurd excuse. There are complexities, sure. But you can come up with a number to compare carbon intensity of products.”
Shuting Pomerleau, a Niskanen Center climate policy analyst, is more skeptical about Democrats’ import tariff effort if lawmakers won’t try to pass a carbon tax.
“From the administrative perspective, it would be a daunting task,” Pomerleau told me.
Pomerleau noted the top climate policy priority of President Joe Biden and Democrats — a clean electricity standard — only applies to the power sector (which accounts for less than 30% of U.S. emissions) and is not economy-wide like a carbon price.
“I would imagine a scenario in which trading partners would say that is only one sector specific standard,” Pomerleau said.
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BIDEN’S CES OFFICIALLY HAS ITS MOMENT: Senate Democrats’ framework agreement for a $3.5 trillion party-line budget reconciliation infrastructure bill calls for implementing a clean electricity standard requiring utilities to generate 80% clean electricity by 2030.
A Senate Democratic aide told reporters that party leaders agreed to other climate policies as part of the agreement, including clean energy and EV tax credits, a climate bank, clean energy procurement, building electrification, and funding to create a Civilian Climate Corps.
The budget blueprint does not include specific clean energy policy details but directs individual committees to write legislation as part of a reconciliation package that fits within the spending limit.
“There are many more days ahead,” Sen. Tina Smith of Minnesota, a Democrat leading the push for a clean electricity standard, said yesterday afternoon on a press call. “We now have to fill in the details of how a clean electricity standard would work into a broader framework and how that gets 50 votes.”
Democrats CES’ strategy: An 80% carbon-free target by 2030 would fit the 10-year budgetary window of reconciliation and keep pace with Biden’s campaign promise of 100% carbon-free power by 2035.
But it remains unclear whether a clean electricity standard as typically defined could fit the “Byrd rule” that prohibits “extraneous matters” unrelated to the budget to be considered in reconciliation.
Democrats, however, are aiming to be creative in how they design a clean electricity standard, crafting it as a straightforward investment program, as I recently reported.
Smith confirmed the contours of that plan and said she is “confident” it would comply with reconciliation rules.
Democrats would likely propose setting up annual targets for each utility to hit in terms of growing its share of clean energy. If utilities hit these targets, they would get financial support from the federal government. If they do not, they would face penalties.
“This clean electricity standard is about investing in clean energy,” Smith said. “It is a budget-based plan. It clearly fits within a budget bill.”
BUT ABOUT THOSE 50 VOTES…MANCHIN SPEAKS OUT: Manchin is already warning he will oppose policies that are overly prescriptive on curbing fossil fuel use.
The coal-state Democrat has met with party leaders about provisions in a reconciliation bill that could harm fossil fuels, he told reporters yesterday.
“I said, you move our country away from fossil and there might be another country that will step to the plate and do the research and development that will fix the emissions that are coming from fossil now,” Manchin said.
“I’m talking about anybody moving in a direction where they think they can walk away and just and not have any fossil in play, that’s just wrong,” Manchin added. “It won’t happen. It can happen, and it doesn’t do a darn thing but makes the world worse.”
A plan to win over Manchin: On a press call yesterday, I asked Sen. Smith how Democrats would look to assuage Manchin’s concerns, and she cited “regional flexibility” being written into the clean electricity standard.
Utilities would be assigned different targets based on their starting level for zero-carbon power, enabling utilities in carbon-intensive states to have more time to wean off fossil fuels.
If they hit their targets, utilities would get money from the federal government that they could use for a variety of purposes, such as paying for the transition to clean power, reducing customer power bills, or providing benefits to workers at fossil fuel plants.
“It’s a regional strategy as opposed to a national strategy,” Smith told me. “It makes it very practical.”
Smith also said that natural gas power plants equipped with carbon capture should be credited under a clean electricity standard, and pledged to push for “strong” tax credits to encourage expansion of the technology, which is not in widespread commercial use.
“It’s important we are flexible on being technology-neutral on what clean electricity is,” Smith said.
MEANWHILE…MANCHIN’S ENERGY BILL GETS COMMITTEE APPROVAL: The Senate Energy and Natural Resources Committee approved Manchin’s sprawling energy infrastructure legislation yesterday on a bipartisan 13-7 vote after adopting 48 amendments to the bill.
Manchin, the committee’s chairman, said the legislation will serve as the legislative text for portions of the broader bipartisan infrastructure bill that still needs to be finalized.
“Today’s vote is another critical step toward finalizing our bipartisan infrastructure package, and an important reminder that we can find sensible solutions to difficult problems when we put partisanship aside and work together,” Manchin said in a statement.
What’s in it: Manchin’s bill would authorize $100 billion on electric grid resilience, transmission, water infrastructure, and more. It provides funding for pipelines to transport captured carbon dioxide, and to support the creation of hydrogen infrastructure hubs.
It would fully fund more than a dozen clean energy demonstration projects originally authorized under the Energy Act of 2020 approved at the end of last year, including for energy storage, advanced nuclear reactors, carbon capture, direct air capture, and renewables.
It also creates a $5 billion program to combat methane emissions by employing oil workers to plug leaking “orphan” oil and gas wells, and establishes a credit program providing subsidies to help financially struggling nuclear plants stay alive. Both of these ideas are key Biden priorities that have bipartisan support.
SENATE TO BEGIN VOTING ON INFRASTRUCTURE: The Senate will begin voting next week on its massive infrastructure and social spending packages, the Washington Examiner’s Susan Ferrechio reports.
Schumer announced on the floor this morning he’ll take the first procedural step Monday on both the narrow bipartisan infrastructure bill and the Democratic budget resolution, which sets up a vote Wednesday on whether the Senate can begin debating on either measure.
BIDEN PITCHES DEMOCRATS: Senate Democrats say Biden made “a compelling case” for them to accept a two-part package that would pay for infrastructure as well as a broad range of social spending and climate change programs, Susan reports.
Biden met privately in the Capitol with Senate Democrats yesterday, pressing that party lawmakers should accept both the bipartisan and Democratic-only bills, arguing it is the best opportunity they’ll have to try to push into law an overall spending package that would be worth nearly $4.5 trillion over the next decade.
PELOSI ENDORSES SENATE’S BUDGET PACKAGE: House Speaker Nancy Pelosi endorsed a $3.5 trillion Senate spending proposal, urging fellow Democrats to support the plan, Susan also reported yesterday.
Pelosi’s endorsement is critical and will bolster the chances that her slim majority can pass the measure. She will have to overcome complaints from the progressive wing, who are already calculating that the price tag may have to go up, and Democratic centrists who have signaled they won’t support trillions of dollars in new spending.
CLIMATE ON AGENDA FOR MERKEL MEETING, BUT HOW ‘BOUT NS2? Addressing climate change is atop the agenda for Biden and German Chancellor Angela Merkel when the two leaders meet at the White House later this afternoon. It is Merkel’s last visit to Washington before she leaves office later this year after more than 15 years in power.
Biden and Merkel will look to launch “a climate and energy partnership,” which will enable the U.S. and Germany to “work together to address climate change, transformational energy technologies, and support for energy transitions in emerging economies,” a senior administration official told reporters on a press call previewing the visit.
Nord Stream 2 tensions linger: We’ll also be looking to see whether Biden and Merkel address disagreement over Russia’s Nord Stream 2 natural gas pipeline to Germany, which the U.S. firmly opposes but has given up trying to stop in a concession to keep ties strong with its trans-Atlantic ally.
The pipeline is expected to be complete by the end of the year, but Biden will likely seek assurances that natural gas transiting to Europe won’t bypass Ukraine, a U.S. ally that fears the pipeline will strengthen Russia’s influence.
FOSSIL FUEL RESILIENCE: While the U.S. and European Union are introducing aggressive climate plans aimed at phasing out fossil fuels from electricity, the International Energy Agency offered a harsh reality check this morning about the challenge ahead.
Renewables are expanding quickly but not fast enough to meet a strong rebound in electricity demand forecast globally this year as the world recovers from the pandemic.
In a new report, IEA projects a 5% rise in power demand in 2021, with almost half of the increase met by fossil fuels — including coal — which could push emissions from the electricity sector to record levels. Coal-fired electricity generation is set to exceed pre-pandemic levels this year and reach an all-time high in 2022.
The majority of the increase in electricity demand is expected to come from Asia, primarily China and India.
“As economies rebound, we’ve seen a surge in electricity generation from fossil fuels,” said Keisuke Sadamori, the IEA’s director of energy markets and security. “To shift to a sustainable trajectory, we need to massively step up investment in clean energy technologies – especially renewables and energy efficiency.”
The Rundown
Politico Biden’s BLM pick hit with new allegations from former investigator in tree-spiking case
New York Times How Europe’s ambitious new climate agenda will affect business
Wall Street Journal Wall Street opens back up to oil and gas—but not for drilling
Washington Post St. Croix refinery files for bankruptcy amid mounting complaints from residents
Calendar
THURSDAY | JULY 15
2:30 p.m. The House Select Committee on the Climate Crisis will hold a remote hearing titled “Advancing Environmental Justice Through Climate Action.”
