Revenue Meets Industrial Strategy: The U.S. Explores Its Own Carbon Border Fee

Initial Concepts, Initial Revenue Estimates

While the EU CBAM is about to enter its financial phase, signs are mounting that the U.S. may be heading in a similar direction. Several legislative initiatives - including the Clean Competition Act (CCA) and the Foreign Pollution Fee Act (FPFA) - have proposed frameworks for a U.S. Carbon Border Adjustment Mechanism. A new report from the Harvard Kennedy School now provides the first detailed look at the economic potential of these ideas - and the numbers are striking. Depending on the design, U.S. border adjustment measures could generate between $3.2 billion and $198 billion in revenue over five years. Particularly relevant: The U.S. industrial base has lower emissions intensity in many sectors compared to international competitors - a potential advantage in a world where carbon pricing becomes more widespread.

Different Approaches, Broad Impact

The analysis compares two key legislative proposals: the CCA, which is based on a domestic carbon price, and the FPFA, which instead imposes a value-based tariff. While the CCA could generate roughly $85.5 billion in its most ambitious version, the FPFA - assuming an implied price of $1,200 per ton of CO₂ - could yield up to $198.1 billion. The calculations are based on real trade flows, sector-specific emissions intensity, and national carbon prices. The study also categorizes trade partners by their exposure: countries with high export volumes and high emissions intensity - such as Mexico, China, India, or Brazil - would be most affected. Countries with functioning carbon pricing systems, like EU member states or Canada, would largely be exempt.

Decarbonization as a Competitive Factor

One notable finding: In many industrial sectors - including aluminum, cement, paper, and fertilizers - the U.S. exhibits significantly lower emissions intensity than its trading partners. Should a U.S. CBAM be implemented, this could not only generate substantial revenues but also strengthen the U.S. position in a carbon-constrained global market. One major difference compared to Europe lies in domestic carbon pricing. The U.S. currently lacks a nationwide carbon price. While the CCA includes such a component, the FPFA explicitly excludes it. The Harvard report strongly recommends combining a CBAM with a national carbon price: this would enhance the mechanism’s credibility, increase revenue, and send a clear signal for domestic decarbonization.

What Does This Mean for CBAM-Affected Companies?

It remains uncertain if or when the U.S. will implement a CBAM. The political discussions are ongoing, but no timeline for implementation has been set. Still, if the U.S. does move forward with a CBAM, it could significantly alter the international competitive landscape - especially if there is no mechanism to credit foreign carbon prices. For European companies with supply chains in countries lacking their own carbon pricing systems, this could introduce a new layer of compliance obligations - with the risk of double carbon costs and added reporting burdens. At the same time, a U.S. CBAM could bolster the political legitimacy of the EU CBAM and drive greater global adoption of carbon pricing.

Conclusion

A U.S. CBAM would mark a significant shift in the dynamics of international climate policy. The current proposals show that Washington, like Brussels, is beginning to view carbon border adjustments not just as climate tools, but also as strategic industrial policy. For globally active companies, now is the time to watch geopolitical developments closely - and to proactively manage the carbon intensity of their products across all markets.

Support with Implementation

If you’d like to understand how a potential U.S. CBAM could affect your supply chains or trade strategy, feel free to reach out to us directly at helge@kolum.earth.