Projected Effects of the Foreign Pollution Fee Act of 2025

Carbon–intensity-based border measures, in which a country imposes tariffs on imported goods according to their carbon emissions from each unit of production, have emerged as a key element of the trade and climate policy conversation in the United States and abroad. Proponents of such measures in the US Congress have cited multiple potential benefits, including supporting domestic competitiveness, reducing emissions in US-consumed goods, and reducing the emissions intensity of domestic manufacturing.There have been few detailed studies of the effects of US border measures based on carbon intensity, despite their current policy relevance and long history in the carbon pricing literature. In part, this is due to inherent challenges in the analysis of such border measures, including limited data on the carbon intensities of products worldwide, the complexity of trade relationships, and the myriad potential responses to such measures by actors throughout the global economy.Here, we use a global economic model to assess the effects of a border measure stylized after the Foreign Pollution Fee Act of 2025 (FPFA) introduced to the 119th Congress by Senators Bill Cassidy (R-LA) and Lindsey Graham (R-SC). The FPFA would impose tariffs on a set of covered products including iron and steel, aluminum, cement, glass, fertilizer, hydrogen, solar products, and long-duration storage, based on their relative carbon intensities compared to US production.We find that the FPFA would:Shift US imports toward countries with lower carbon intensity manufacturing: Imports for covered products are reduced from countries facing the carbon tariffs (e.g. China, Mexico, and India) and increase from countries exempt from the tariffs (e.g. the European Union, United Kingdom, and Japan) due to their lower carbon intensity of manufacturing for those products.Increase US manufacturing of covered products: The carbon tariffs protect US manufacturing of covered products, thereby raising their output: cement (+9.1 percent), aluminum (+7.9 percent), iron and steel (+7.4 percent), metal products (+3.7 percent).Raise revenue: Annual revenues from the policy are projected to be $2.8 billion (in 2024$) in the first year and total $33.3 billion over ten years.Have a minimal effect on global emissions: Changes in trade patterns and increased US manufacturing would reduce the embodied emissions of US imported goods, but reshuffling of global trade for covered products offsets the reduction of US imported emissions. US emissions increase due to greater domestic manufacturing. The net effect is that global emissions are relatively unchanged by the policy.Reduce output in downstream industries: Industries such as construction and transportation equipment manufacturing use covered products as inputs, exposing them to higher costs. US production from such downstream industries is projected to fall by 0.2–2 percent.