Why the PROVE IT Act would result in carbon taxes

The PROVE IT Act (S. 1863) is not a benign information collection bill on the carbon intensity of domestic and foreign goods. Instead, it would put in motion the creation of carbon taxes: a carbon tax on imported goods and a domestic carbon tax. It would also help the Biden administration as it works with the EU to impose carbon taxes on imported metals. Here’s why:

• Congress has already demonstrated what will happen with PROVE IT Act information. Just over a year ago in the Inflation Reduction Act (IRA), which was a partisan reconciliation bill, Congress took information collected under the EPA’s greenhouse gas reporting program  to create a methane tax. The Senate passed the IRA on a 51-50 party-line vote with Vice President Kamala Harris casting the tiebreaker.

• Many bill supporters have shown they would replicate what happened with the methane tax. In the Senate EPW Committee markup of the bill, all Committee Democrats voted to kill an amendment that would have helped block the future use of reconciliation to impose a carbon tax on imported goods or a domestic carbon tax based on PROVE IT Act information. Chairman Tom Carper (D-DE) opposed the amendment precisely because it “prohibits any revenue measure based on the greenhouse gas emissions associated with commodities or products.”

• When PROVE IT Act supporters argue the bill is a way to hold foreign countries accountable, they reveal that the legislation is about more than information. Supporters, including lead sponsors Sens. Kevin Cramer (R-ND) and Chris Coons (D-DE), have argued that the PROVE IT Act is a way to hold other countries accountable for their emissions. Merely providing information cannot hold any country accountable. Their arguments are a tacit admission that the bill will be used to impose carbon taxes on imports, at a minimum.

• Bill supporters openly acknowledge that the PROVE IT Act is intended to lead to more taxes. Many of the bill supporters are expressly admitting that the legislation will mean carbon taxes of some kind. Sen. Coons (D-DE) has said about the bill, “figuring out a fair process for imposing tariffs on countries that don’t have any transparency around their emissions is also going to be a complex part of any border carbon adjustment mechanism.” The European Union (EU) has created the first and only carbon border adjustment mechanism (CBAM) and it includes both a carbon tax on imports and a domestic carbon pricing scheme. Sen. Sheldon Whitehouse (D-RI) has said the bill will “help us construct a carbon border adjustment of our own.” Since 2021, about half of the sponsors of the PROVE IT Act have sponsored bills imposing carbon taxes on imports, with many of these bills also imposing domestic carbon taxes. Senator Coons, a lead sponsor of the PROVE IT Act and two co-sponsors, Sens. Whitehouse and Martin Heinrich (D-NM), sponsored the Clean Competition Act, which uses carbon intensity data to impose carbon taxes on imported goods and a domestic carbon tax.

• The bill helps to collaborate with the EU on its harmful climate policy. Senator Cramer has repeatedly argued for working with the EU on climate policy. He wrote: “We have an opportunity to counter Putin’s playbook with a bold initiative consistent with European priorities… One aspect of that initiative could be a joint trade mechanism between the United States and the European Union that levels a common carbon fee on imported goods.” Instead of fighting and rejecting the EU’s disastrous climate policy, the PROVE IT Act embraces what the EU is doing. Many supporters advocate for a CBAM similar to the EU’s, and seek to create a “carbon club” of countries that join together to impose carbon taxes in some fashion.

• The PROVE IT Act will help the Biden administration in its negotiations with the EU to tax the carbon intensity of metals. The Biden administration and EU are working on the Global Arrangement on Sustainable Steel and Aluminum that would impose taxes on imported metals based on their carbon intensity. This is part of the Biden administration’s broader plan as USTR explains to “use trade tools to decarbonize our economies.” The PROVE IT Act would legitimize these efforts and help the Biden administration reach an agreement with the EU on carbon taxes by pointing to this domestic effort to develop carbon taxes. It would also provide the Biden administration the data necessary to try and unilaterally impose carbon taxes on imports, such as under Section 232 of the Trade Expansion Action of 1974.

• Creating a carbon tax on imported goods leads inexorably to a domestic carbon tax.
  
  1) To be part of a “carbon club” with the EU, as many bill supporters want, the US would logically need to have a system like the EU CBAM that includes a domestic carbon pricing mechanism. Not surprisingly, the PROVE IT Act helps to create the framework to implement an EU-type system.
  
  2) The US would sooner or later impose a domestic carbon tax if it imposes a carbon tax on imports. This is not simply due to trade law obligations but also because environmental groups and others would not stay silent as domestic industries failed to meet similar greenhouse gas reduction commitments.
  
  3) The PROVE IT Act is a way to build a lobby for a carbon tax on imports that can then be used to secure a domestic carbon tax. Domestic manufacturers would oppose a domestic carbon tax absent a corresponding tax on imports to “level the playing field.” Therefore, the PROVE IT Act is a political solution for domestic carbon tax supporters: The bill will lead to carbon taxes on imports, which will lead to a domestic carbon tax.

Bottom line

The PROVE IT Act would make carbon taxes a reality. If legislators genuinely oppose carbon taxes, then why even take the risk of facilitating their enactment and implementation by building the administrative framework and lobbying base for such taxes? And this would be a huge risk given that many bill supporters would use the reconciliation process to impose carbon taxes once they have the PROVE IT Act information.