Vote on Capito Amendment Unmasks PROVE IT as Carbon Tax Enabler

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Last week, the Senate Environment and Public Works (EPW) Committee approved the PROVE IT Act (S. 1863) by a vote of 14 to 5. Ranking Member Shelley Moore Capito (R-W.Va.) offered two amendments that did not pass. However, precisely because the Committee rejected her second amendment on a party-line vote, Capito proved that the PROVE IT Act is exactly what opponents contend it is—the accounting framework and database for a future regime of carbon tariffs, and, thus, the gateway to an economy-wide carbon tax. You can watch the entire Committee proceeding here.

PROVE IT Act Unmasked

The PROVE IT Act would require the Department of Energy (DOE) to estimate the average greenhouse gas intensities of 22 products made, mined, or refined in the United States and certain foreign countries including all major trading partners. Proponents deny that the PROVE IT Act has anything to do with carbon tariffs or taxes. For example, at the EPW meeting, principal Republican co-sponsor Kevin Cramer (R-N.D.) claimed the PROVE IT Act merely empowers DOE to counter the European Union’s Carbon Border Adjustment Mechanism (CBAM) by challenging EU estimates of the comparative carbon intensities of European and U.S. exports.

Capito’s amendment put that claim to the test. The amendment would create a point of order barring the use of PROVE IT Act emissions intensity data in future reconciliation bills to implement carbon tariffs or taxes. Reconciliation bills may not be filibustered, meaning they require only 51 votes for passage in the Senate. Under Capito’s amendment, the Senate may waive or suspend the point of order in a reconciliation proceeding, but “only by an affirmative vote of 60 Members, duly chosen and sworn.” 

If PROVE IT Act supporters truly desire nothing more than accurate information to challenge the EU’s math, they should have no trouble supporting an amendment that would prevent narrow, partisan, 51-vote majorities from using PROVE IT Act data to implement tariffs or taxes based on the greenhouse gas emissions intensity of imported and domestically-produced goods. All nine Committee Republicans voted for the amendment. All ten Committee Democrats voted against it.

By voting down Capito’s amendment, Committee Democrats unavoidably revealed their game plan, which is to create a product-category greenhouse-gas intensity database now, and then later, in subsequent reconciliation bills, enact carbon tariffs and taxes.

Capito’s Legislative History Lesson

Inferring a carbon tax agenda from Democrats’ uniform rejection of Capito’s proposed point of order is not idle speculation, because we have seen this movie before and know how it ends. 

President Biden’s—and EPW Chairman Tom Carper’s—signature climate policy achievement to date is the Democrats’ climate law, the so-called Inflation Reduction Act (IRA). A reconciliation bill, the IRA passed in the Senate on a party-line vote of 51 to 50, with Vice President Harris breaking the tie. Among the IRA’s innovations was a Methane Emissions Reduction Program (MERP) imposing climate taxes on methane emissions from the oil and gas industry. 

Here’s where things get a bit wonky. Although a reconciliation bill can authorize new emission taxes, it cannot authorize the emissions reporting system on which such taxes depend, because the structure and features of a reporting system are not “revenue measures” (taxes or outlays). But that was no obstacle to enacting MERP, because the EPA already maintained the requisite database—Subpart W of the agency’s Greenhouse Gas Reporting Program

The PROVE IT Act would perform the same function—providing the requisite database—for carbon tariffs and taxes in future reconciliation proceedings.       

As Senator Capito explained in her opening remarks

Even if we were all to agree that providing a study at this point in time is the only goal, and not the imposition of a carbon tax or tariff, we have seen through the Inflation Reduction Act how innocuous data collection responsibilities can later be weaponized to implement damaging, partisan policies, including taxes.

I’ll give you an example. Subpart W and the Methane Emissions Reduction Program, also known as ‘MERP,’ is one such cautionary tale.

Through the Inflation Reduction Act, Democrats transformed Subpart W from a reporting requirement to a hammer, used to nail a tax on [the] American oil and gas industry to be paid by the American consumers.

The EPA was directed to update Subpart W, a reporting framework that has existed for over a decade, and then use it to set a tax.

Neither Sen. Cramer nor EPW Chairman Carper (D-Del.) disputed Capito’s history lesson. Indeed, Carper unwittingly confirmed Capito’s assessment that the PROVE IT Act is a carbon tax gateway. Carper explained that he could not support her amendment because it would “prohibit the enactment of any revenue measures based on the greenhouse gas emissions associated with commodities or products.” In other words, Carper opposed the amendment because adding the point of order would impede enactment of the very “revenue measures” PROVE IT Act supporters claim the Act does not facilitate.

Cramer, for his part, voted for the amendment, which is unsurprising, since he claims that clearing a legislative path for carbon taxes is not his intention. That claim, however, is unconvincing. After all, Cramer did not dispute Capito’s assessment of how Democrats used reconciliation and the EPA’s database “to nail a tax” on the U.S. oil and gas industry, nor did he dispute her contention that PROVE IT Act data could be similarly weaponized unless the bill were amended to include her proposed point of order. Yet he still voted for the PROVE IT Act even after Senate Democrats voted down her amendment.

Cramer’s Unserious Defense of the PROVE IT Act

In his opening remarks, Cramer began with a red herring, dismissing allegations that the PROVE IT Act would authorize the EPA “to implement a carbon tax.” He jauntily noted that the bill tasks DOE, not the EPA, to estimate the greenhouse gas emission intensities of domestic and foreign goods in trade, and the PROVE IT Act contains no authority for taxes, tariffs, or regulations related to greenhouse gases. 

None of that is germane, because none of the 40-plus groups opposing Cramer’s bill claim the PROVE IT Act authorizes new taxes or regulations, or puts the EPA in charge. Rather, their actual criticism is quite different. It is that the PROVE IT Act builds the accounting and administrative framework for carbon tariffs. Consequently, due to predictable political dynamics (discussed below), the “national treatment principle” of global trade law, or a combination of the two, the PROVE IT Act would improve the legislative prospects for a carbon tax. 

Cramer also contended that the PROVE IT Act could not be a gateway to carbon tariffs or taxes, because EPW is not, like the Senate Finance Committee, a tariff or tax writing body. This point too is utterly unpersuasive. As Cramer himself noted, Chairman Carper also serves on the Senate Finance Committee, where he chairs the international trade subcommittee. Carper is an enthusiastic booster of carbon pricing. Moreover, the IRA, with its manifold greenhouse gas provisions, including the new methane taxes, was in large part Carper’s handiwork.

Finally, Cramer quoted the Climate Leadership Council’s assertion that the PROVE IT Act “has no relevance in implementing a domestic carbon fee.” CLC explains: “A domestic carbon fee would be applied on fuels when they enter the economy—that data is readily available and has been for several decades. The PROVE IT Act is an analysis of average product-level emissions intensity data. This data … is irrelevant in implementing a U.S. carbon fee.”

CLC’s assessment misfires in two ways. First, although carbon tax proposals impose fees on fossil fuels at the point where they enter the economy to be combusted, there is no natural law of carbon taxation precluding the imposition of carbon fees on manufactured products or processes.  

For example, in addition to imposing emission fees on fossil fuels at their economic points of entry, the Market Choice Act (H.R. 3039 in the 117th Congress) would also impose emission fees on the following industrial source categories, described as an “initial list”: iron and steel, cement, petrochemicals, lime, ammonia, aluminum, soda ash, ferroalloys, phosphoric acid, zinc, lead, magnesium, nitric acid, adipic acid, semiconductors, electrical transmission and distribution, biodiesel fuel, and solid biomass fuel. 

The Congressional Research Service’s July 2022 review of market-based greenhouse gas reduction legislation during the 108th through the 117th Congresses identifies several similar examples.

In the current Congress, S. 3198, the Foreign Pollution Fee Act of 2023, would impose carbon fees on 16 categories of imported goods: aluminum, biofuels, crude oil, glass, hydrogen, methanol, or ammonia, iron and steel, lithium ion batteries, critical minerals, petrochemicals, plastics, refined petroleum products, solar cells and panels, and wind turbines. By what logic would the sponsors oppose taxing domestically-produced goods in cases where those turn out to be more carbon-intensive than the corresponding imports?

Second, and more importantly, CLC’s “no relevance” assertion is mistaken because an emissions intensity program like PROVE IT Act is operationally essential for implementing a carbon border adjustment mechanism (a system of carbon tariffs and rebates), and a CBAM is politically essential for enacting an economy-wide carbon tax.  

The CLC and all other carbon tax proponents advocate carbon border taxes and rebates. Why is that? Absent carbon tariffs, a fuel-based, economy-wide carbon tax would disadvantage domestic firms competing with imports from countries without comparable carbon pricing policies. Absent carbon tax rebates, domestic firms would be taxed twice when exporting goods to countries that do have comparable pricing policies. 

In short, the PROVE IT Act is the first step towards a CBAM, without which most trade-exposed carbon-intensive manufacturers will oppose domestic carbon fees. Any policy that makes industry more willing to support domestic carbon fees is self-evidently relevant to their implementation.  

Think of it this way. States do not need federal tax credits for wind and solar power to authorize the imposition of renewable portfolio standards (RPS). But the availability of such credits—estimated at $40 billion in 2019, and greatly expanded under the IRA—supercharges those mandates by transferring much of their cost from current in-state ratepayers to future federal taxpayers. The federal tax credits are highly relevant to state implementation of RPS programs. Similarly, any emissions database operationalizing a CBAM is highly relevant to the implementation of a carbon tax.

Sky’s the Limit

One last point deserves mention. The PROVE It Act requires DOE to estimate the average greenhouse gas intensity of 22 listed product categories, but also authorizes the agency to add “any other category” of products covered by the Harmonized Tariff Schedule of the United States. The HTS has 99 chapters covering 99 product categories. The chapters are impressive in their density and detail. For example, the chapter on machinery and mechanical appliances spans 130 pages. 

The PROVE IT Act thus sets the stage for imposing carbon tariffs on ever-growing lists of covered products. Companies not protected by the first round of carbon tariffs would lobby to have their product category included. Would their support for or opposition to an economy-wide carbon tax never be factor in whether DOE or Congress grants or denies their pleas? More bluntly put, would PROVE IT Act-based carbon tariffs never be used as leverage to grow the carbon tax lobby? One thing is certain. Nothing in the bill prevents or discourages such corruption. 

Conclusion

Senator Capito has done a mitzvah. She forced Committee Democrats to vote on a point of order that would prevent slim partisan majorities from using PROVE IT Act data to enable a regime of carbon tariffs and taxes. Because they all—quite predictably—voted against Capito’s amendment, we now know their game plan. It is to enact the PROVE IT Act under the guise of enabling DOE to audit the EU’s math, and then use the Act as the accounting framework for carbon tariffs and taxes enacted via future reconciliation proceedings.       

Four Committee Republicans who ultimately voted for the PROVE IT Act—Senators Graham (R-S.C.), Lummis (R-Wy.), Boozman (R-Az.), and Cramer (R-N.D.)—all voted for Capito’s amendment. None disputed her reasons for offering it. Apparently, they voted for the bill despite knowing the risks it poses to affordable energy and market liberty. Let’s hope that upon further reflection, they acknowledge the PROVE IT Act’s serious economic and political risks, and redirect their efforts to advance pro-growth, pro-consumer energy policies.