The Revenue Potential and Country Exposure of a U.S. Border Carbon Adjustment

2025, Paper: "This paper estimates the revenue potential and country-by-country exposure of a U.S. Border Carbon Adjustment (BCA). BCAs are trade policy instruments that impose fees on imports based on carbon emissions intensity. By imposing these costs, BCAs help ensure competitive neutrality between domestic producers, who may face higher regulatory burdens or carbon taxes, and foreign exporters. While several legislative proposals for a BCA have emerged in the United States, including the Foreign Pollution Fee Act, the Clean Competition Act, and the Market Choice Act, there has been no comprehensive, granular analysis of the goods covered or the BCA’s fiscal impact. Using trade volume data from the U.S. Census Bureau, sectoral emissions intensity estimates from the Global Trade Analysis Project, and jurisdiction-specific carbon pricing data, we calculate the potential impact of a U.S. BCA under various design scenarios on a good-by-good and country-by-country basis. Our findings are preliminary, and do not account for key factors such as trade responses, which are likely to be large, therefore framing our figures as a likely upper-bound rather than prediction for revenue. Nonetheless, we estimate that a U.S. BCA modeled on the Clean Competition Act could generate $39.7 billion over a five-year period, or up to $85.5 billion depending on key policy parameters such as sectoral scope and carbon price. The Foreign Pollution Fee Act, which imposes a tax based on customs value rather than an explicit carbon price, could raise up to $198.1 billion over a five-year period. To understand the impact of a BCA on trade, we categorize all U.S. trading partners by exposure, and find that countries such as Mexico, China, Brazil, and India are most exposed given their high trade volumes and emissions intensity. In terms of competitiveness, we find that the United States is significantly less carbon intensive than most trading partners, suggesting U.S. firms may have an advantage in a world with more carbon pricing. We conclude by examining the impacts of different U.S. BCA design parameters, including the introduction of a national carbon price, and give recommendations for how a BCA could be successfully implemented."