A Commodity-specific Border Carbon Adjustment Framework Based on the Costs of Decarbonizing without a Carbon Price

Border carbon adjustments are a class of tariffs under consideration in multiple regions. Their aim is to prevent carbon leakage and the offshoring of manufacturing capacity due to increased costs associated with new domestic requirements to mitigate greenhouse gas emissions. Proposals to date are predominantly based on existing carbon pricing schemes that would extend the same costs to imported goods. However, the United States and most other countries do not have a carbon price, and any border carbon adjustment they implement would either have to introduce one or rely on other metrics. This paper explores the latter situation, providing a capital-based method of calculating border carbon adjustments that would complement non-pricing policy prescriptions. Fertilizers, as an emissions intensive industry, are used to show the magnitude of hypothetical duties under the framework. The requirements and constraints are also discussed in terms of implementation, different logistical tradeoffs, and broader political economy considerations.