New Sierra Club Report Examines U.S., EU Trade Policies for Industrial Transformation

WASHINGTON, DC — A new Sierra Club report, “Using Trade Tools for Industrial Transformation”, examines recent trade policies introduced in the U.S. and the EU that will impact the import and manufacturing of carbon-intensive goods. It assesses the ways that the U.S. can leverage trade policies to fight climate change, manufacture more goods domestically, ensure protections to vulnerable communities, and limit the influence of bad foreign actors. 

The paper compares four trade policies that utilize climate-friendly trade tools called Carbon Border Adjustments, which are either currently proposed in the U.S. or already in effect in the EU: The EU Carbon Border Adjustment Mechanism (CBAM), the Clean Competition Act, the FAIR Transition and Competition Act, and the Foreign Pollution Fee Act.

• Read the report: https://www.sierraclub.org/sites/default/files/2023-12/Carbon-Border-Adjustments-White-Paper-Final-V2.pdf 

“Carbon Border Adjustments can — if well designed — encourage the development of cleaner domestic industrial production, support American jobs, and avoid placing undue burdens on developing countries. However, in order for such trade measures to result in meaningful change, policymakers must avoid a range of policy design pitfalls,” reads the report.

The paper comes after the introduction of multiple bills in the U.S. Senate and House that aim to protect clean American manufacturing and respond to the EU’s CBAM, a carbon tax on U.S. exports that went into effect in October 2023. 

The Clean Competition Act of 2023, introduced by Sen. Sheldon Whitehouse (D-RI), Rep. Suzan DelBene (D-WA), and Rep. Kathy Castor (D-FL) would place a fee on fossil fuel and industrial products made in the U.S. and worldwide that exceed the domestic average carbon intensity, and would reinvest revenue into domestic decarbonization projects to help companies clean up high-emitting facilities. The Foreign Pollution Fee Act, introduced by Sen. Bill Cassidy (R-LA) and Sen. Lindsey Graham (R-SC), would place a fee only on imports of fossil fuel and industrial products based on their pollution intensity relative to the U.S. average, but does not include any provision to specifically reinvest revenue in private sector innovation to help domestic manufacturing expand its global competitiveness.

“The carbon emissions of goods imported into the U.S. equals the carbon emissions of all U.S. factories combined. Why? Global trade rules enable manufacturers to outsource their pollution to other countries, rather than invest in clean industrial production at home,” said Harry Manin, Deputy Legislative Director for Industrial Policy and Trade at the Sierra Club. “As U.S. lawmakers address critical trade issues, they must pass climate-forward trade policies and manufacturing investments like the ones detailed in this report. By accounting for environmental performance and respecting human rights, elected officials can increase the U.S.’s industrial output and create good jobs, combat climate change, and punish foreign bad actors that are polluting communities and exploiting workers.” 

Carbon Border Adjustments, or carbon dumping fees, come in many forms but share a common feature: the imposition of some form of fee or tariff on highly polluting imports. By adopting a properly designed policy, countries can make access to their domestic market contingent on foreign producers meeting environmental standards similar to their own, reducing the pressures of the race to the bottom in environmental standards, while incentivizing an industrial transformation that reduces pollution, creates quality jobs, and improves the health and wellbeing of communities.

The report examines the role that trade plays in perpetuating current environmental, economic, and social challenges — including how trade rules have blocked countries from using mechanisms like tariffs, quotas, and local preference to support and develop local industrial capabilities.

“Focused on ensuring unfettered market access and fueling global price competition without factoring in social and environmental costs, current global trade rules make our global system of production dirtier, more inequitable, and more undemocratic. However, when well designed, trade rules can also be used to promote equity, sustainability, and wellbeing,” said Yong Kwon, Senior Policy Advisor for Industrial Policy and Trade at the Sierra Club.

The report also highlights potential pitfalls that must be resolved in current trade proposals, including environmental degradation, shortfalls in industrial capacity, human rights violations, and other concerns. While trade policies that seek to transform local and global industrial production may not initially address all these issues, they must be flexible to incorporate these issues in future policy refinements and updates:

• Accounting for pollution along the full value chain
• Accounting for greenhouse gases besides CO2
• Accounting for pollution besides greenhouse gases
• Addressing critical environmental impacts besides pollution
• Identifying ethically and practically relevant non-environmental factors

“If climate change has shown us anything, it is that the unintended consequences of economic progress can become existential threats. We cannot risk enabling incomplete, or worse, counterproductive, trade-based mitigation measures that fail to address the socioeconomic, public health, and environmental impacts of manufacturing in the U.S. and abroad,” said Iliana Paul, Senior Policy Advisor for Industrial Policy and Trade at the Sierra Club. “Green trade policy must be more than pro-climate policy. It must incorporate environmental justice and wellbeing objectives in order to realize the industrial transformation we need.” 

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