Executive Summary

• The 2025 Clean Competition Act (CCA), a narrow-based carbon tax proposal, would levy a tax of $60 per metric ton of carbon dioxide equivalent emissions associated with selected carbon-intensive goods, to be increased at a 6-percent real growth rate annually, implemented along with a carbon border adjustment of import taxes and export rebates.
• Although the CCA is unlikely to become law any time soon, it provides a meaningful framework for a U.S. legislative approach to encouraging decarbonization in the United States and abroad.
• This insight provides an overview of the CCA and compares its carbon border adjustment to another U.S. legislative proposal—the 2025 Foreign Pollution Fee Act—as well as the European Union’s Carbon Border Adjustment Mechanism.

Introduction

The 2025 Clean Competition Act (CCA), a bicameral bill reintroduced by Senator Sheldon Whitehouse (D-RI) in the Senate, and Representative Suzan DelBene (D-WA) in the House, is intended to “set fairer, more predictable trade rules that support a race to the top for global decarbonization.”

The CCA, a narrow-based carbon tax proposal, would levy a tax of $60 per metric ton of carbon dioxide equivalent (CO_2E) equivalent emissions associated with selected carbon-intensive goods, to be increased at a 6-percent real growth rate annually, implemented along with a carbon border adjustment of import taxes and export rebates.

Although the CCA is unlikely to become law in the United States any time soon given the Republicans’ control of the administration and Congress, it offers a meaningful framework for U.S. lawmakers to design a border-adjusted carbon tax to reduce emissions.

This insight provides an overview of the CCA and compares its carbon border adjustment to another U.S. legislative proposal—the 2025 Foreign Pollution Fee Act (FPFA)—as well as the European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM).

Overview of the 2025 Clean Competition Act

The 2025 CCA is a narrow-based, border-adjusted carbon tax levied on goods across selected U.S. industries. It provides a meaningful framework for a U.S. legislative approach to encouraging decarbonization in the United States and abroad.

Legislation objective

According to Senator Whitehouse, the legislation is aimed to “address the climate crisis while defending American industries” and “incentivize industries from around the world to prioritize decarbonization and create a level playing field for American workers in these sectors.”

Covered goods

The CCA covers goods across 20 U.S. industries designated by the six-digit North American Industry Classification System code, including fossil fuel production such as petroleum and natural gas extraction, and carbon-intensive manufacturing industries such as petrochemical, iron and steel, and aluminum.

Tax rate

The proposal would levy a tax of $60 per metric ton of CO_2E, to be increased at a 6-percent real growth rate annually.

Tax base

The carbon tax is levied on the portion of greenhouse gas emissions that exceed a baseline—the national average carbon intensity of the covered good. For example, let’s assume Product A’s national average carbon intensity is 20 metric tons of emissions per ton of product, and Facility A’s carbon intensity of producing Product A is 30 metric tons of emissions per ton of product. In this case, Facility B would need to pay a carbon tax on the difference, which is 10 metric tons of emissions, for each ton of Product A.

The baseline would be adjusted annually to make it more stringent. From 2027–2030, the baseline carbon intensity would decline by 2.5-percentage points each year, then by 5-percentage points annually beginning in 2031. By 2047, all emissions associated with manufacturing a covered good would be subject to the tax.

Border adjustments

The CAA includes a carbon border adjustment—an import tax and export rebate to be implemented with the domestic carbon tax.

Import Tax

Import taxes would be levied on imported goods similar to how the tax on domestic covered goods is designed. If a country of origin’s carbon intensity baseline of a covered good is lower than that of a U.S. good, then the imported goods from that country would not be subject to any tax.

The CCA allows different levels of granularity in measuring imported goods’ carbon intensity, which include economy-wide, industry-level, and manufacturer-level carbon intensity data. (See details here on how to use different levels of carbon intensity data to implement carbon border adjustments.) Starting from 2028, covered goods would expand to products that contain 1,000 pounds of covered primary goods, or more than 90 percent (in value) of the covered goods as material inputs.

If the imported good is subject to a carbon price in the country of origin, the import tax levy would be credited.

Export Rebate

The CCA also provides rebates for U.S. manufacturers on covered exported primary goods that are subject to the domestic carbon tax. It expands the coverage to exported finished goods using the same criteria for identifying covered imported finished goods.

The legislation would not provide rebates for certain exported goods if the country of export destination implements a policy that would credit the carbon tax already paid on the goods in the country of origin. The limited rebates are intended to retain the tax revenue for the U.S. government.

Special features

The CCA includes a provision on carbon clubs that authorizes the president to negotiate international carbon-club agreements with other countries that implement similar carbon border adjustment policies. Specifically, partner countries must meet several requirements, including implementing domestic decarbonization policies and carbon border adjustments that tax carbon-intensive imported goods. Import taxes may be waived for carbon-club member countries if they maintain policies with an equivalent emissions-reduction effect as the CCA, and that they are not “contributing to global industrial overcapacity.”

Two-thirds of the revenue raised through the CCA would be used to support U.S. domestic industries’ decarbonization efforts through a competitive grant program administered by the Department of Energy. The rest of the revenue would be allocated to help developing countries decarbonize.

How the CCA’s Carbon Border Adjustment Compares to Other Proposals

A previous American Action Forum analysis compares the 2025 U.S. Foreign Pollution Fee Act, the EU’s Carbon Border Adjustment Mechanism, and the UK’s CBAM. This section compares the CCA’s carbon border adjustment component, the FPFA, with the EU’s CBAM across their key design features. An overview and analysis of the detailed design features of the FPFA and the EU’s CBAM are available here.

There are similarities among the three CBAM designs—all of the proposals are intended to discourage less carbon-intensive goods in international trade and to protect domestic producers’ competitiveness against foreign producers.

The CCA’s carbon border adjustment and the EU’s CBAM have some commonalities of design features, whereas the FPFA is distinctly different. (See more details in the table below.)

• Carbon border adjustment design: The CCA’s carbon border adjustment component is the closest to an ideal carbon border adjustment policy—which should include an import tax, an export rebate, along with a domestic carbon tax. The FPFA and the EU’s CBAM only include some of the policy components.
• Domestic carbon price: While the CCA’s carbon border adjustment and the EU’s CBAM are designed to go with a domestic carbon price, the FPFA does not require domestic producers to reduce their emissions.
• Covered goods: While both the FPFA and the EU’s CBAM cover goods under a select list of carbon-intensive industries, the CCA has a much broader coverage of goods, including primary goods initially and some finished goods eventually.
• Tax rate: Both the CCA and the EU’s CBAM assess the import tax rates to reflect the effective domestic carbon prices; it is unclear what methodology the FPFA uses to determine the punitively high tariff rates.
• Policy goal: The CCA and the EU’s CBAM focus on addressing climate change, while the FPFA is framed as a policy to achieve geopolitical goals of countering adversary countries.

Comparing the CCA,  the FPFA, and the EU’s CBAM

	CCA	FPFA	EU CBAM
Policy Goal	Aims to “set fairer, more predictable trade rules that support a race to the top for global decarbonization.”	Aims to “level the playing field for American manufacturers and workers by holding non-market economies like China accountable for their unfair trade practices.”	Aims to “put a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries.”
Treatment of Imports	Enacts import taxes on imported goods similar to how the tax on domestic covered goods is collected.	Levies an ad valorem tax on imported goods, which means the tariff amount is set in proportion to a good’s customs value.	Requires importers of covered goods to purchase CBAM certificates.
Covered Goods	Goods across oil, gas, coal, refining, petrochemicals, fertilizer, hydrogen, adipic acid, cement, iron & steel, aluminum, glass, pulp and paper, and ethanol.	Specified goods across aluminum, cement, iron and steel, fertilizer, glass, hydrogen, and certain inputs for solar and battery manufacturing.	Specified goods across cement, aluminum, fertilizer, iron and steel, hydrogen, and electricity sectors, with pending broader coverage of downstream goods starting from 2028.
Covered Emissions	The total greenhouse gas emissions associated with the production of a covered good and the electricity used for the production process.	Covers direct and indirect emissions, and emissions associated with the input materials and international transportation of the covered good or input materials before entry into the United States.	Direct emissions (generated onsite at the facility) for all sectors, indirect emissions (embedded in purchased electricity) for the cement and fertilizer sectors.
Tax Rate	$60 per metric ton of CO2E, increasing at a 6-percent real growth rate annually.	Provides country-sector specific tariff rates as high as 200 percent.	Mirrors the weekly average auction price of the EU Emissions Trading System (ETS) allowances, which was on average US$70 per metric ton of carbon dioxide equivalent (Mt CO2e) in 2024.
Domestic Policy	A narrow-based carbon tax levied on emissions that exceed industry benchmark from manufacturing facilities.	Does not include any domestic carbon price; the bill prohibits any interpretation of the legislative text to result in any future U.S. carbon price or carbon reporting obligation for domestic producers.	Complements the EU’s domestic carbon price, which is the EU ETS, a cap-and-trade system.
Treatment of Exports	Provides export rebates for covered primary goods and will expand the coverage to certain finished goods.	Does not cover exports.	Does not cover exports in current law; a legislative proposal on this topic is expected to be released by the end of 2025.
Timeline	Legislation proposed in the Senate and the House.	Legislation proposed in the Senate.	Initially proposed in 2021, the transitional phase of emissions data collection started in October 2023, and the mechanism will officially go into effect in January 2026.
Accounting for Foreign Climate Policies	Includes a carbon-club provision that allows a country with equivalent emissions reduction domestic policies to join, which may lead to the benefit of import-tax exemptions for that country’s goods.	Includes an “International Partnership Agreement” that would fully exempt a country’s exported goods to the United States if that country implements an equivalent climate and trade policy.	Provides a tax refund for imported goods if they are already subject to an explicit carbon price (a carbon tax, or a cap-and-trade system) in the country of origin.
Special Features	Most of the revenue raised will go to a competitive grant program designed to help domestic industries to decarbonize.	Includes provisions to further raise the tariff rates to double or quadruple the size of the specified tax rates if the covered goods are imported from a “nonmarket economy country” or manufactured by a “foreign entity of concern.”	Phases in CBAM gradually and phases out the free allowances given to certain carbon intensive industries under the ETS from 2026 to 2034; a pending proposal of exempting imported goods under a de minimis threshold of 50 metric tons of mass.

Source: Author’s analysis, author’s previous AAF publication “EU and UK CBAMs To Integrate: How They Compare to the U.S. Version.”

Looking Forward

The EU’s CBAM, the world’s first CBAM policy, is set to go into effect on January 1, 2026. The EU regulator’s administration and importers’ compliance with the policy will provide useful insights into the practicality and challenges of implementing carbon border adjustments.

It remains to be seen whether the Trump Administration will respond to the EU’s CBAM with a unilateral policy, and if so, whether it would enact retaliatory tariffs through executive action, as part of President Trump’s second term’s aggressive tariffs agenda. In fact, the administration has threatened to levy retaliatory tariffs in other cases related to carbon taxation, such as on countries that support the International Maritime Organization’s global shipping carbon tax.

Meanwhile, the FPFA and the CCA would need to gain significantly more support from Congress. Although they are unlikely to become law in the United States any time soon, their carbon border adjustment policy designs represent the different approaches U.S. lawmakers may take to reduce carbon emissions.