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Sat, 04 Nov 2023 18:24:10 GMT

New BCA proposal – the US Foreign Pollution Fee Act - has a chance of being passed with bipartisan support. So it’s worth unpacking. This is a long thread. TLDR: complex to administer, not primarily about climate change, too much discretionary scope. https://bit.ly/40lA4Tn

Covered goods: aluminum, biofuels, cement, crude oil, iron & steel, L-i batteries, critical minerals, natural gas, petrochemicals, plastics, pulp & paper, refined oil, solar cells & panels, wind turbines. Coverage at the 6-digit level.

Side notes: *This isn’t just about carbon leakage – note the inclusion of batteries, solar panels and cells, wind turbines. *This is an enormous number of 6-digit codes.

The charges: Charges based on exporting country average GHG intensity for each covered product. If more intense than US average, charges due (unless differential is <10%). Higher charges for higher differential - >25 tiers. Different value of charge for each tier, each product.

Side note 1: Value of charges yet to be specified. Not based on embodied GHGs – that would be tough since US has no carbon price. Values to be set so as to achieve the objective of lowering average GHG intensity in foreign production of a specific product to below specific targets.

Side note 2: *Extremely convoluted. Different charge for each of >25 tiers for each covered product, based on voodoo criteria. *No credit for carbon price paid in country of export.

GHG intensity to be estimated for each trade partner and each good by US National Laboratories. Reassessed every 3 years. Recycled inputs = zero embedded GHGs. CCUS is allowed to reduce GHG intensity. Facility defaults assigned based on country of ownership, not location.

Side note 1: Mind-boggling amount of estimates: average GHG intensity for each of at least 16 products (maybe more – not clear; there are for example 16 4-digit product categories for aluminum, each with many 6-digit sub-codes) for each trading partner.

Side note 2: *The Advisory Board Members advising on GHG intensity calculations are all CEOs of covered sector producers. *Provision on foreign ownership is designed to get around strategic international shuffling of productive capacity.

Side note 3: Recycled inputs zero carbon assumption is good for US steel and aluminum producers – mostly secondary production. CCUS crediting is no doubt assumed to be good for US production, given the IRA subsidies for CCUS.

Exemptions: *<10% more GHG-intense *Goods for which there’s low domestic production *Goods produced in countries with which the US has a FTA (some exceptions), if GHG intensity difference is <50% and with 100% local content requirement on components (US or FTA country)

Middle-income countries and countries in defence/security pact with US can get special Section 203 treatment (treatment aimed at poorer countries) if determined to assist in the US’ national security or geopolitical positioning.

Side note: Section 203 treatment (described below) is very favourable. Granting it on a conditional subjective basis like this is bad form.

Circumvention: If there is circumvention via, for example, strategic price lowering or domestic subsidies to offset the variable charge, the variable charge will be increased accordingly.

Beating the default (1): Producers can have their individual data used instead of nat’l averages: conclude a Facility-Specific Agreement (FSA) with the US. Congress to be consulted and raise no objections for each FSA. Restrictions on FSAs for state-owned enterprises in MNEs.

Beating the default (2): to get FSA, producers need to: follow all US environmental laws; install real-time monitoring and allow physical access to inspectors/spot checks; set & meet milestones for 20 year emissions reduction to 50% of US levels.

Side note: In terms of fairness and incentives, this is a critically important feature: allowing clean producers to challenge the national average figures. But it is made pretty much useless by the conditions.

International Partnership Agreements: At direction of President USTR can negotiate IPAs with countries, incl with country groups like OECD. IPA = zero charge on products if GHG intensity <50% greater than US average. Condition: partner eliminates charges etc on those goods.

Side note: Presumably the condition on eliminating charges is aimed at countries imposing BCA/CBAM on US goods. But also includes vague requirement for elimination or reduction of duties, import fees, trade barriers.

Low-income & lower middle-income countries get special treatment (Sec 203). If they have IPAs, first 6 years basically zero charges, with provisions to extend another 15 years conditional on GHG intensity of new production. Conditions: improved MRV, progress on developing market economy.

Sat, 04 Nov 2023 18:24:10 GMT

Side notes: *This isn’t just about carbon leakage – note the inclusion of batteries, solar panels and cells, wind turbines. *This is an enormous number of 6-digit codes.

Side note 2: *Extremely convoluted. Different charge for each of >25 tiers for each covered product, based on voodoo criteria. *No credit for carbon price paid in country of export.

Side note: Section 203 treatment (described below) is very favourable. Granting it on a conditional subjective basis like this is bad form.

Circumvention: If there is circumvention via, for example, strategic price lowering or domestic subsidies to offset the variable charge, the variable charge will be increased accordingly.

Sat, 04 Nov 2023 18:01:51 GMT

New BCA proposal – the US Foreign Pollution Fee Act - has a chance of being passed with bipartisan support. So it’s worth unpacking.

This is a long thread. TLDR: complex to administer, not primarily about climate change, too much discretionary scope. https://bit.ly/40lA4Tn

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Side notes:

This isn’t just about carbon leakage – note the inclusion of batteries, solar panels and cells, wind turbines.

This is an enormous number of 6-digit codes.

3/20

4/20

5/20

Side note 2:

Extremely convoluted. Different charge for each of >25 tiers for each covered product, based on voodoo criteria.

No credit for carbon price paid in country of export.

6/20

7/20

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Side note 2:

The Advisory Board Members advising on GHG intensity calculations are all CEOs of covered sector producers.

Provision on foreign ownership is designed to get around strategic international shuffling of productive capacity.

9/20

10/20

Exemptions:

● <10% more GHG-intense

● Goods for which there’s low domestic production

● Goods produced in countries with which the US has a FTA (some exceptions), if GHG intensity difference is <50% and with 100% local content requirement on components (US or FTA country)

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Side note: Section 203 treatment (described below) is very favourable. Granting it on a conditional subjective basis like this is bad form.

13/20

Circumvention: If there is circumvention via, for example, strategic price lowering or domestic subsidies to offset the variable charge, the variable charge will be increased accordingly.

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