Projected Effects of the Clean Competition Act of 2025

The Clean Competition Act (CCA) of 2025, updated and introduced to the 119th Congress by Senator Sheldon Whitehouse (D-RI), would establish a domestic performance standard and a symmetric carbon border adjustment mechanism (CBAM) for certain energy-intensive, trade-exposed goods. US manufacturers of goods covered by the legislation would pay a fee for carbon emissions above a benchmark specified for those goods. Imported, covered goods would face an analogous tariff based on how much more carbon-intensive that good was compared to the benchmark. The benchmark for each good would initially be set at the average level of emissions for its manufacture in the United States, becoming more stringent over time. The carbon emissions fee and tariff rates would also increase over time, providing an ongoing set of symmetric incentives to reduce the emissions intensity of both US manufacturing and imported goods.Here, we use the Global Economic Model (GEM) to assess the effects of a CBAM stylized after the CCA.We find that the CCA would have the following effects:Shift US imports toward countries with less carbon-intensive manufacturing: Imports for covered products are reduced from countries facing the carbon tariffs (e.g., China, Mexico, and India) and increased 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.Reduce emissions globally, led by the United States: Emissions are projected to decrease globally by 81 million metric tonnes (MMt) in the first year of the policy, with US emissions reductions of 63 MMt leading all other countries. The increasing fee and tightening standards lead to greater reductions over time, with 140 MMT of global and 119 MMt of US emission reductions in the tenth year after enactment. US emissions reductions result from decreased energy and emissions intensity of manufacturing driven by the CCA’s domestic performance standard, as well as reductions in overall demand for energy intensive goods.Raise revenue: Annual revenues from the policy are projected to be $7.2 billion (in 2024 US$) for the covered refining and manufacturing sectors in the first year and total $101 billion over the first ten years of the policy. Roughly 75 percent of the revenues derive from the domestic performance standard.Reduce US outputs in covered sectors and downstream industries: The tariffs have a protective effect for US manufacturers, whilst the performance standard increases costs for higher-intensity producers. The balance of effects is slightly negative for US production of covered products: cement (–0.02 percent), aluminum (–1.9 percent), iron and steel (–0.6 percent), and pulp and paper (–0.3 percent). Output in industries such as construction and transportation equipment manufacturing falls slightly (0.04–0.5 percent) in response to higher prices for covered inputs.