Washington Insider -- Tuesday

Border Carbon Tax Introduced

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Impact Unclear From Court Ruling On RFS In Favor Of Environmentalists

The U.S. Court of Appeals for the District of Columbia on Friday ruled in favor of environmental groups who challenged EPA's conclusion that the Renewable Fuel Standard (RFS) levels for 2019 did not pose a danger to the habitats of endangered species.

The court said EPA violated the Endangered Species Act by not consulting with the U.S. Fish and Wildlife Service and the National Marine Fisheries Service before setting the 2019 biofuel levels.

The ruling orders EPA to reassess the 2019 levels. But the court also rejected claims by the biofuel industry that EPA set the 2019 levels too low and a claim by refiners that the levels were set too high.

It is still not clear what impact the ruling will have and history has shown it may not be a quick turnaround on a reexamination of the issue by EPA.

China Continues to Focus on Commodity Hoarding, 'Malicious' Speculation

Chinese authorities are continuing to focus on commodity prices, with the country's Ministry of Industry and Information Technology the latest to issue statements about the supply of bulk commodities.

Reuters reported that the agency was focusing on the issue. "We will coordinate with relevant departments to ensure the stability of bulk commodities supplies and prices... guide upstream and downstream players in the industrial chain to stabilize production, supply and marketing of raw materials," ministry spokesperson Huang Libin told a press conference on Friday, according to a transcript on the ministry's website. "In responding to the risk of the market's price fluctuation, we must resolutely crack down on hoarding, malicious speculation, and the bidding up of prices."

Other Chinese agencies have focused on commodity prices and have announced efforts to rein in commodity speculation as the country seeks to temper price increases.

Washington Insider: Border Carbon Tax Introduced

Sen. Chris Coons, D-Del., and Rep. Scott Peters, D-Calif., have introduced what is called the FAIR Transition and Competition Act of 2021, a plan that would address costs faced by U.S. businesses as they seek to reduce greenhouse gas (GHG) emissions.

"Despite the leadership of many U.S. businesses in reducing harmful greenhouse gas emissions, they will be left at a disadvantage as trading partners consider levying carbon-related tariffs on certain goods," said a release from the two lawmakers. "The FAIR Transition and Competition Act of 2021 will establish a border carbon adjustment on carbon-intensive imports to account for the cost incurred by U.S. businesses to comply with laws and regulations limiting greenhouse gas emissions."

So what is a border carbon adjustment? A tax. It will be a tax levied on imports that the lawmakers say is "imported pollution." The lawmakers said it would address the "carbon leakage that undermines urgent climate action."

A summary of the plan said it would base the import fee on the "domestic environmental cost incurred and will initially cover goods that are both carbon-intensive and exposed to trade competition, including aluminum, cement, iron, steel, natural gas, petroleum, and coal." But the legislative language also includes that there could be additional products added if there is "reliable data" on the GHG emissions of a product and that it is "in the interest of the United States" to include the product as one where a border tax.

There could be some interesting developments linked to the "fee" or tariff or "tax," as they note that under the law, a "domestic environmental cost incurred by businesses" would be developed.

The effort would start in 2023 with several determinations required to be made by the U.S. government, primarily by the Environmental Protection Agency (EPA).

The legislation divvies up the funds received via the tax with 50% going to grants to states and 50% to be used for "high-impact research, development, demonstration, technology transfer, commercialization, and export of technologies that reduce or eliminate greenhouse gas emissions." That could become a relatively broad definition that firms will eye to use for research efforts. Those grants would start in 2025.

In a bid to no doubt attract support in certain sectors, the grant portion would be aimed at providing job training and worker transition assistance "with priority given to workers and former workers in fossil fuel-related industries." That is aimed at getting the support from lawmakers from states that currently produce oil, natural gas and coal.

And there's even a mention to generate support from agriculture, as the funds would be used to implement plans like climate-smart infrastructure and "agricultural climate solutions" would be build "climate resilience and support carbon sequestration."

The grants to states would be set by an amount that takes into account the percent of the population of the U.S. living in that state, the vulnerability of the state to climate change and the percent of the total workforce employed in fossil-fuel-related industries that are employed in a state.

The legislation also lists several "slow-onset climate hazards," which they define as sea level rise, desertification, biodiversity loss, increasing temperatures, ocean acidification, soil salinization, drought, land and natural resource degradation, glacial retreat or reduced snowpack and related impacts, and permafrost thaw.

This is aimed at funding the transition to address climate change. But what is not covered by the legislation is what happens if products exported by the U.S. are subject to similar taxes by other countries. The U.S. has also warned that if a border carbon tax is put in place by other countries, the U.S. may opt to take trade action against those countries.

There is the potential too that products outside those covered by this border fee could be hit by retaliatory actions by an importing country, negatively impacting those exports from the U.S.

So we will see. This effort seems like one that could be loaded with the infamous "law of unintended consequences" and therefore needs to be watched very closely as this process unfolds, Washington Insider believes.

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