The U.S. is moving closer to adopting a Carbon Border Adjustment Mechanism (CBAM)—a policy that could both strengthen domestic industry and reduce global pollution. CBAMs work by placing a fee on imported goods based on the carbon emissions released during their production. The goal is to create fair competition for U.S. manufacturers and stop companies from moving to countries with weaker climate rules.

Unlike a traditional carbon tax, a CBAM is applied at the border. Specifically, it targets carbon-intensive imports such as aluminum, steel, cement, paper, and fertilizers.

• According to Harvard Belfer Center’s new study titled “The Revenue Potential and Country Exposure of a U.S. Border Carbon Adjustment”, pairing this mechanism with a domestic carbon price could unlock up to $200 billion in revenue over five years.

However, this upper limit assumes no retaliation or trade adjustment from other countries—something experts say is unlikely. Still, even under conservative models, the numbers are promising.

Bipartisan Momentum Grows for U.S. CBAM

In recent months, interest in a U.S. CBAM has grown fast, especially after the European Union launched its own version in October 2023. The EU CBAM has already pushed countries like Brazil, Türkiye, and Indonesia to consider their carbon pricing policies, hoping to avoid losing export revenue to border fees. Now, the U.S. sees a chance to catch up—and capitalize.

Currently, several CBAM-related bills are circulating in Congress:

• The Clean Competition Act (CCA), backed by Democrats

• The Foreign Pollution Fee Act (FPFA), introduced by Republicans

• The Market Choice Act (MCA), which combines carbon pricing with border adjustments

According to a new study from Harvard’s Belfer Center, the FPFA could raise as much as $198.1 billion over five years. Meanwhile, the CCA has a lower estimated revenue potential—between $3.2 billion and $85.5 billion—depending on its scope and the carbon price applied.

Importantly, these projections do not yet account for changes in trade behavior, which could lower actual collections. Nonetheless, the outlook remains strong. In fact, support for CBAMs is bipartisan and widespread. Polls show that once voters understand the concept, around 75% support the policy, including in states reliant on heavy industry and fossil fuels.

Why a Carbon Border Fee Makes Economic Sense

The U.S. industrial sector contributes about a quarter of global CO₂ emissions. However, U.S. goods are on average 40% more carbon-efficient than those made elsewhere. This gives the U.S. a clear advantage in a world where emissions carry a cost.

For instance:

• U.S. paper products are less carbon-intensive than 86% of imports

• U.S. fertilizers are 79% cleaner

• Aluminum: 80% cleaner than imports

• Cement: 72% cleaner

• Glass: 66% cleaner

• Iron and steel: 60% cleaner

U.S. Carbon Intensity Relative to U.S. Imports

Because of this advantage, a well-designed CBAM could boost U.S. competitiveness. By placing a fee on dirtier imports, the policy would create a fairer market and drive global demand for cleaner American goods. Analysts argue it could also reduce the U.S. trade deficit and promote clean manufacturing simultaneously.

In addition, a CBAM would prevent companies from offshoring production to nations with weaker environmental rules. This would curb the problem of carbon leakage.

Crucially, by targeting polluting imports from countries like China and Russia, the CBAM would reduce their unfair edge and encourage cleaner production globally.

Winners, Losers, and Global Trade Impact

The Belfer Center study also identifies the countries most exposed to a U.S. CBAM. Mexico, China, Brazil, and India top the list, due to their high export volumes and greater emissions intensity.

Canada, on the other hand, currently escapes most of the impact thanks to its carbon price of around $59 per ton in 2024.

However, this could change. In March 2025, Canada announced plans to remove the requirement for provinces to maintain consumer-facing carbon pricing. If Canada drops its domestic carbon price altogether, it would no longer be exempt from U.S. CBAM charges. In such a case, Canada could owe up to $2.7 billion annually under a $55/ton CBAM scenario, making it the hardest-hit exporter, even ahead of Mexico.

To assess trade exposure, the study groups countries into five categories:

1. Fossil Fuel Heavyweights – Exporters with over $100 million in CBAM dues, where fossil fuels dominate

2. Other Major Exporters – Non-fossil fuel countries with $ 100 M+ in CBAM payments

3. Moderate Exposure – Countries owing between $10M and $100M

4. Low Exposure – Countries owing under $10M

5. Unaffected – Countries with strong carbon pricing and zero CBAM dues

More Revenue with a U.S. Carbon Price

Furthermore, the analysis strongly supports pairing a CBAM with a domestic carbon price. This combination would increase revenue by taxing U.S. emissions and help preserve America’s carbon efficiency advantage.

With low capital costs and innovation capacity, the U.S. is well-positioned to lead in clean tech. Several states, such as California and Washington, already have carbon pricing programs. The Regional Greenhouse Gas Initiative (RGGI) in the Northeast also covers power-sector emissions.

However, no national system is yet in place. Past efforts like the 2009 cap-and-trade bill and the 2019 Energy Innovation and Carbon Dividend Act failed to pass. But with rising global momentum and pressure from EU policies, the timing may now be right.

• READ MORE: Carbon Pricing Revenues Hit Record $104B in 2023, World Bank

What’s Next for U.S. Carbon Border Policy?

Designing a successful CBAM requires answers to critical policy questions:

• What sectors will be covered?

• What benchmarks define carbon intensity?

• Should least-developed countries be exempt?

• Will foreign carbon pricing be credited?

Both the FPFA and CCA offer proposals. The FPFA, led by Senators Bill Cassidy and Lindsey Graham, simplifies the system by assigning products into emissions-based tiers. It also focuses on countering “unfair practices” from non-market economies like China.

The CCA, by contrast, is more aligned with the EU model and uses direct carbon intensity benchmarks.

Despite their differences, both bills share a key feature: they could generate more tariff revenue than all current U.S. import duties combined.

The Path Forward: Climate, Trade, and Competitiveness

The Joint Economic Committee believes that the U.S. is at a pivotal moment. And, a properly executed CBAM would help the U.S. capitalize on its clean manufacturing edge by:

• Making domestic industries more competitive

• Driving global demand for low-emission U.S. products

• Strengthening international climate protections

• Reinforcing supply chains with like-minded allies

• Creating worldwide incentives for cleaner production

If done right, this policy will reduce carbon emissions, future-proof American manufacturing, and position clean U.S. goods as the global standard.

• READ MORE: DOE’s $100M Carbon Capture and $32M Grid Edge Investment Boosts U.S. Energy Transition 

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