ICYMI: Cassidy Previews Foreign Pollution Fee in Foreign Affairs

The difference in environmental regulation enforcement between China and the United States lowers the cost of manufacturing in China, thereby encouraging U.S. manufacturing and the jobs associated with it to migrate overseas. Such losses for the United States’ economy put downward pressure on its industrial base and American standards of living.

The benefits Beijing has reaped from this imbalance are striking. Since China joined the World Trade Organization, in 2001, China has become the world’s largest manufacturer, its largest emitter of greenhouse gases, its second-largest economy, and its second-largest military power. China has used its newfound wealth to build up its armed forces and to invest in exploitative foreign policy initiatives such as the Belt and Road infrastructure project and the establishment of a network of overseas military bases. These efforts increase Beijing’s international influence while weakening the other countries involved.

To counter China, the United States should make use of a clear competitive advantage—its ability to produce with comparatively low greenhouse gas emissions. It is unacceptable for China, or any country, to both freely pollute and export to the United States. Allowing it to do so effectively rewards Beijing for practices Washington does not permit at home. Instead, the United States should use its capacity for low-emission manufacturing and energy production for its own geopolitical and economic gain. It must enact policies that bolster the U.S. economy by encouraging more American production while creating opportunities for the expanded trade of cleanly produced goods at home and abroad.

This is why I will be submitting legislation calling for a foreign pollution fee. The fee is not a domestic carbon tax. It does not prevent the continued use of U.S. natural resources. Its purpose is to enhance American security and competitiveness, streamline domestic permitting processes, and safeguard the environment, not put a larger burden on American energy producers and job creators.

THE CHINA CHALLENGE

To protect the environment, the world’s largest economies must address pollution. The Chinese Communist Party, however, has shown no sign of doing so. Whereas the United States has led the world in emission reduction over the past two decades, China’s emissions have increased dramatically over the same period. As Chinese President Xi Jinping said in July, “The tempo and intensity” of transitioning away from fossil fuels “should be and must be determined by ourselves, and never under the sway of others.” The only realistic way to interpret this statement is that Beijing’s commitment to the environment is about as strong as its commitment to human rights: so weak as to be nonexistent. Even now, China isbuilding more new coal plants than any other country in the world. In November 2022, China’s coal output hit an all-time high of 390 million metric tons per month.

Americans are seeing, and breathing, the results in our shared atmosphere. According to a 2014 study published in the Proceedings of the National Academy of Sciences, up to a quarter of sulfate pollution in the western United States comes from Chinese emissions. As the Bloomberg columnist David Fickling reported in August, China is responsible for one-third of global carbon emissions today and the majority of the net increase in global greenhouse gas emissions since 2019. On July 28, a Financial Times headline described China as using “wrecking tactics” at climate talks. Former British Prime Minister Tony Blair was right when, in July, he warned his country that restricting emissions while China pumps out carbon unchecked is an exercise in futility.

Washington and its partners can continue to ask Beijing to reduce emissions. They can get China to say it will go green, as they did in the 2015 Paris climate agreement, which still allowed China to expand its greenhouse gas output with only a vague nod to “future environmental progress.” But bilateral or multilateral climate accords are bound to fail again and again if they rely on voluntary Chinese compliance. Congress should act to contain China and its emissions regardless of its paper commitments.

This is where the foreign pollution fee comes in. China will respond to these fees either by transitioning to environmentally responsible development practices or continuing on its current, reckless course. If Beijing chooses the latter, Washington will be induced to transition to more secure, responsible supply chains based domestically or in allied states. Either way, the fee will create an incentive for other countries to engage in clean manufacturing, making low-emission production economically justifiable for everyone. As a result, U.S. companies stand to see expanded export opportunities for their own responsibly produced natural resources, chemicals, and raw industrial materials, whether to China or elsewhere.

BRING IN THE PARTNERS

Some may argue that a foreign pollution fee amounts to an overreaching industrial policy and that the rules of international markets justify the movement of some U.S. jobs to China. The latter may be true, but China’s willingness to ignore pollution is a huge factor in companies’ economic calculations. For example, the CFO of a U.S. multinational firm told me that the difference between U.S. and Chinese enforcement of environmental regulations meant that building a manufacturing facility in China had a return on investment vastly higher than one built in the United States. Needless to say, the company chose to build in China. Washington must reverse this so-called carbon leakage.

As former U.S. Trade Representative Robert Lighthizer wrote in his latest book, No Trade Is Free, “If a product is produced in another country by using much more carbon than we would tolerate here, why should that import have a price advantage in our market over a U.S. product that is made producing much less carbon?” If the cost of doing business in the United States is higher than in other countries, that creates incentives for firms to move to China or elsewhere. American families lose out on economic opportunities, even as the Chinese economy—and Beijing’s ability to fund its military—is strengthened and the atmosphere grows dirtier. A foreign pollution fee eliminates the perverse incentives that feed this cycle.

The United States cannot go at this problem alone. The foreign pollution fee is not intended to be a protectionist policy in the manner of the European Union’s Carbon Border Adjustment Mechanism, which indiscriminately taxes certain imports. Furthermore, the EU policy offers little incentive for third countries to adopt similar policies and provides no assistance to developing countries or existing free trade partners. For Washington, building international partnerships is key. Countries that participate in the foreign pollution fee framework will be expected to impose emission-based tariffs on nonparticipants. But among participating countries, the policy will lower trade barriers, and the pollution fee itself will be waived if the carbon intensity of traded goods falls within a specified range. Preferential treatment will also be given to countries with which the United States has free trade agreements.

Developing countries are another special case. Because fossil fuels—especially coal—are central to their economic development, these countries are increasing their carbon output. They understandably prioritize growth and raising standards of living over climate issues. But in the long run, without some change to their practices, the resulting emissions will overwhelm efforts by developed countries to reduce atmospheric carbon dioxide.

The foreign pollution fee legislation gives low-income and lower-middle-income countries incentives to adopt stricter environmental standards—for example, preferential access to U.S. markets, as well as financing from the Export-Import Bank and the U.S. Development Financing Corporation to support responsible development. If the fee works as it should, a country such as Vietnam could outcompete China as a low-cost manufacturing destination—not by imitating substandard Chinese environmental practices, but by embracing sustainable development.

By creating a foreign pollution fee and harnessing international partnerships, the United States can rally fellow states to confront China peacefully but firmly. Such a strategy recalls the U.S. diplomat George Kennan’s prescription for containing the Soviet Union, issued in Foreign Affairs almost 80 years ago: “It will be clearly seen that the Soviet pressure against the free institutions of the western world is something that can be contained by the adroit and vigilant application of counterforce at a series of constantly shifting geographical and political points, corresponding to the shifts and maneuvers of Soviet policy, but which cannot be charmed or talked out of existence.” It is time to build a similar, multipronged strategy for U.S. China policy, with a foreign pollution fee as the central piece.

AMERICA’S CARBON FUTURE

To successfully implement a foreign pollution fee, the United States must continue to develop its natural resources. The rise of domestically produced natural gas is the primary driver of U.S. emission reduction since 2005. The U.S. Energy Information Administration projects that the United States’ use of liquid fuels and natural gas will increase at least through 2050. There is every reason to believe that carbon fuels will be central to U.S. and global economies long after that. Domestic production of oil and natural gas strengthens the United States’ geopolitical position, increases its national wealth, and provides hundreds of thousands of American jobs. Moreover, U.S. fossil fuel production has a lower carbon footprint than its counterparts abroad. To give away all these advantages is irrational.

The foreign pollution fee makes it clear that U.S. manufacturing—or other clean production in partner countries—is a global environmental win. Modern life is made possible by the rubber, plastic, semiconductors, and other materials created through the use of oil and natural gas. Carbon-based products will be extracted, refined, or transformed in countries committed to environmental standards or in countries without any standards at all. What the United States can do is leverage our lead in responsible production to edge out dirtier mining and manufacturing.

To advance legislation for a foreign pollution fee, Washington needs the support of the American people. And Americans will support this measure—just look at my home state. Louisiana by no means tops the list of carbon-conscious U.S. states. But no state has been more affected by relative sea level rise, either. Louisiana has lost coastal land roughly the size of Delaware. That is why, in June, bipartisan majorities in the Louisiana state legislature voted 122 to 9 to create a carbon capture permitting system whose revenues provide funding to local communities. Likewise, the state legislature passed a resolution calling on the U.S. Congress to pursue a trade policy along the lines of the foreign pollution fee I will be putting forward. Americans can accept a policy of this kind as long as they are not asked to sacrifice their hope for increased prosperity in the process.

Meanwhile, the United States will be refining its capacity for low-carbon production. Through the 2021 Infrastructure Investment and Jobs Act, billions of dollars of private and public investment are being deployed for carbon removal and to limit emissions from manufacturing processes. As the United States builds on its existing capabilities, the carbon intensity of U.S.-manufactured goods will continue to decrease relative to goods manufactured elsewhere. The United States’ competitive advantage relative to high-emitting countries such as China will grow.

As technology improves, it could set the foundation for a carbon capture industrial complex. In this system, existing industries will pull carbon in the form of oil and natural gas out of the ground, using it to power the world and manufacture necessary products. A new industry, with new jobs, will then pull carbon out of the atmosphere or from carbon-based products and either store it or recycle it into other products. Several companies today are testing these very processes and moving toward full commercialization. With this second life, carbon will generate even more good jobs, at good wages, and contribute to prosperity for working Americans. And as the United States develops emission-reducing technologies, it will seek to export them as widely as possible. The incentives built into the foreign pollution fee will make developing countries eager adopters of these technologies, thus lowering their greenhouse gas footprints.