This report analyzes the projected impacts of the Clean Competition Act (CCA), which proposes a domestic performance standard and a carbon border adjustment mechanism (CBAM) for energy-intensive goods. Using the Global Economic Model (GEM), the authors assess how carbon fees on US manufacturers and analogous tariffs on imports would influence trade, revenues, and emissions. The policy is designed to incentivize lower emissions intensity by taxing carbon levels above a set industry benchmark. The findings suggest that the CCA would shift US imports toward less carbon-intensive countries, such as the UK and Japan, while reducing imports from higher-intensity producers like China, Mexico, and India.
The CCA is projected to significantly reduce global greenhouse gas emissions, with the United States leading the reductions through both improved manufacturing efficiency and decreased demand for energy-intensive goods. While the policy raises substantial government revenue, it also results in slightly lower domestic production in covered sectors like aluminum, steel, and cement due to increased costs for higher-intensity producers. The report notes that the tariffs provide a protective effect for cleaner US manufacturers, but the overall balance of effects leads to small declines in output across most covered and downstream industrial sectors.
Key projections and economic impacts include:
* Global emissions are projected to decrease by 81 million metric tonnes (MMt) in the first year, with US reductions accounting for 63 MMt.
* By the tenth year of the policy, annual global emissions reductions are projected to reach 140 MMt, with US reductions at 119 MMt.
* Total government revenue is projected to be $7.2 billion in the first year and reach $101 billion over the first ten years.
* Domestic output in covered sectors is projected to fall slightly, including cement by -0.02 percent, aluminum by -1.9 percent, and iron and steel by -0.6 percent.
* The policy results in a 0.6 percent output tax equivalent for domestic petroleum refining, contributing to a 0.3 percent rise in imports from zero-tariffed countries.
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