ProjectedEffectsoftheCleanCompetitionActof2025

KevinRennert,MunHo,KatarinaNehrkorn,andMilanElkerbout

Report25-19

December2025

AbouttheAuthors

KevinRennertisafellowanddirectstheComprehensiveClimateChangeprogram

aswellastheFederalClimatePolicyInitiativeatResourcesfortheFuture(RFF).His

currentresearchfocusesonfederalpoliciestoadvancelow-carbonenergysources

anddomesticmanufacturing,addressbarrierstoenergyinfrastructure,andenhanceUScompetitivenessandreduceemissionsthroughtrademeasures.Priortohisarrival

atRFFin2017,RennertservedasDeputyAssociateAdministratorfortheOfficeof

PolicyattheUSEnvironmentalProtectionAgency.

MunHoisavisitingscholaratRFFandaresearchassociateattheChinaProjecton

Energy,EconomyandtheEnvironmentattheHarvardUniversitySchoolofEngineering

andAppliedSciences.Hisresearchisfocusedoneconomicgrowth,productivity,

energyandenvironmentaleconomics.Hisworkonmodelingenergyandenvironmentalpoliciesincludesa2013bookDoubleDividend:EnvironmentalTaxesandFiscalReformintheUS(Jorgenson,Goettle,Ho,andWilcoxen),whichdescribesthedevelopmentof

econometricmodelsusedinalarge-scaleintertemporalequilibriummodel.

KatarinaNehrkornisaresearchassociateatRFF.ShegraduatedfromtheUniversityofMichiganin2020withaBAinEconomics.Aftergraduating,sheworkedatDeloitte

fortwoyearsinitsRiskandFinancialAdvisorysector.In2023,Nehrkorncompleted

hermaster’sinEnvironmentalEconomicsandClimateChangefromtheLondonSchool

ofEconomicswhereherdissertationwasfocusedonenergycommunitieswithinthe

InflationReductionAct.

MilanElkerboutisfellowatRFFandthedirectorofRFF’sInternationalClimatePolicy

Initiative.Heisparticularlyinterestedintheintersectionofclimateandtradepolicy,

greenindustrialpolicy,andcarbonpricingandmarketsaroundtheworld.Priorto

joiningRFFin2023,hewasaresearchfellowandheadofclimatepolicyattheCentre

forEuropeanPolicyStudies(CEPS),aBrusselsthinktank,workingonEUclimate

policy,emissionstrading,andindustrialdecarbonization.In2019–2020,hespentayear

asaMistraFellowatIVLSwedishEnvironmentalResearchInstituteinStockholm.His

academicbackgroundisinEuropeanpoliticaleconomy

Acknowledgements

TheGlobalEconomicModelusedhereisdevelopedwithXianHuoftheEnvironmental

DefenseFund.Wearegratefulforherassistanceinmodelsimulation.

ResourcesfortheFuturei

ProjectedEffectsoftheCleanCompetitionActof2025ii

AboutRFF

ResourcesfortheFuture(RFF)isanindependent,nonprofitresearchinstitutionin

Washington,DC.Itsmissionistoimproveenvironmental,energy,andnaturalresourcedecisionsthroughimpartialeconomicresearchandpolicyengagement.RFFis

committedtobeingthemostwidelytrustedsourceofresearchinsightsandpolicysolutionsleadingtoahealthyenvironmentandathrivingeconomy.

TheviewsexpressedherearethoseoftheindividualauthorsandmaydifferfromthoseofotherRFFexperts,itsofficers,oritsdirectors.

SharingOurWork

OurworkisavailableforsharingandadaptationunderanAttribution-

NonCommercial-NoDerivatives4.0International(CCBY-NC-ND4.0)license.Youcancopyandredistributeourmaterialinanymediumorformat;youmustgive

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ResourcesfortheFutureiii

ExecutiveSummary

TheCleanCompetitionAct(CCA)of2025,updatedandintroducedtothe119th

CongressbySenatorSheldonWhitehouse(D-RI),wouldestablishadomestic

performancestandardandasymmetric

carbonborderadjustmentmechanism

(CBAM)forcertainenergy-intensive,trade-exposedgoods.USmanufacturersofgoodscoveredbythelegislationwouldpayafeeforcarbonemissionsaboveabenchmark

specifiedforthosegoods.Imported,coveredgoodswouldfaceananalogous

tariffbasedonhowmuchmorecarbon-intensivethatgoodwascomparedtothe

benchmark.Thebenchmarkforeachgoodwouldinitiallybesetattheaveragelevel

ofemissionsforitsmanufactureintheUnitedStates,becomingmorestringentover

time.Thecarbonemissionsfeeandtariffrateswouldalsoincreaseovertime,providinganongoingsetofsymmetricincentivestoreducetheemissionsintensityofbothUS

manufacturingandimportedgoods.

Here,weusetheGlobalEconomicModel(GEM)toassesstheeffectsofaCBAMstylizedaftertheCCA.

WefindthattheCCAwouldhavethefollowingeffects:

?ShiftUSimportstowardcountrieswithlesscarbon-intensivemanufacturing:Importsforcoveredproductsarereducedfromcountriesfacingthecarbontariffs(e.g.,China,Mexico,andIndia)andincreasedfromcountriesexemptfromthe

tariffs(e.g.,theEuropeanUnion,UnitedKingdom,andJapan)duetotheirlowercarbonintensityofmanufacturingforthoseproducts.

?Reduceemissionsglobally,ledbytheUnitedStates:Emissionsareprojected

todecreasegloballyby81millionmetrictonnes(MMt)inthefirstyearofthe

policy,withUSemissionsreductionsof63MMtleadingallothercountries.The

increasingfeeandtighteningstandardsleadtogreaterreductionsovertime,with140MMTofglobaland119MMtofUSemissionreductionsinthetenthyearafterenactment.USemissionsreductionsresultfromdecreasedenergyandemissionsintensityofmanufacturingdrivenbytheCCA’sdomesticperformancestandard,aswellasreductionsinoveralldemandforenergyintensivegoods.

?Raiserevenue:Annualrevenuesfromthepolicyareprojectedtobe$7.2billion(in2024US$)forthecoveredrefiningandmanufacturingsectorsinthefirstyearandtotal$101billionoverthefirsttenyearsofthepolicy.Roughly75percentoftherevenuesderivefromthedomesticperformancestandard.

?ReduceUSoutputsincoveredsectorsanddownstreamindustries:ThetariffshaveaprotectiveeffectforUSmanufacturers,whilsttheperformancestandardincreasescostsforhigher-intensityproducers.ThebalanceofeffectsisslightlynegativeforUSproductionofcoveredproducts:cement(–0.02percent),

aluminum(–1.9percent),ironandsteel(–0.6percent),andpulpandpaper(–0.3percent).Outputinindustriessuchasconstructionandtransportationequipmentmanufacturingfallsslightly(0.04–0.5percent)inresponsetohigherpricesfor

coveredinputs.

ProjectedEffectsoftheCleanCompetitionActof2025iv

Contents

1.Introduction1

2.LegislativeOverview2

3.ModelResults3

3.1.CalculatedForeignCarbonIntensitiesandAdValoremRates3

3.2.CalculatedCarbonIntensitiesandFeesforDomesticFacilities5

3.3.SimulatedEffects8

3.3.1.TradeandUSProduction8

3.3.2.USGovernmentRevenues9

3.3.3.GreenhouseGasEmissions11

4.Discussion12

References15

Appendix16

A1.FeaturesoftheGlobalEconomicModel(GEM)16

A2.ImplementingCCAPolicyintoGEM18

A2.1.CCARulesandtheCalculationofTariffs18

2.2.EstimatingBenchmarkIntensityandTaxableProductionfrom

USFirmData19

A2.3.AdjustingtheBenchmarkOverTime22

A2.4.ImplementingCCACarbonFeesonUSProducersinGEM23

A2.5.ImplementationNotes24

A2.5.1.Revenuerecycling24

A2.5.2.Incentivesandmodelingofproductionintherest-of-the-world24

A2.6.RegionsandSectorsRepresentedinGEMandMappingto

CCACategories24

A3.CarbonIntensities,Tariffs,andFeesonUSProducers30

A3.1.TariffRates34

A3.2.CCAFeesonUSProducers41

ResourcesfortheFuturev

A4.SimulatedEffectsoftheCCA46

A4.1.ChangesinImportsDuetotheCCA46

A4.2.ChangesinUSOutputandGDPDuetoCCA56

A4.2.1.CoveredSectors59

A4.2.2.SectorsNotCoveredbyCCA59

A4.3.EffectsonOutputOverTime62

A4.4.RevenuesRaisedbytheCCA63

A4.5.EffectsonCarbonEmissions66

A4.5.1.SourcesofchangeinUSemissions69

A5.CommentsandCaveats70

ProjectedEffectsoftheCleanCompetitionActof20251

1.Introduction

Carbonborderadjustmentmechanism(CBAM)policies,ingeneral,imposetariffsonasetofcoveredgoodsintendedtomirrortheeffectsofdomesticpoliciestoreduceemissionsfromtheproductionofthosegoods.Byestablishingasetofsymmetric

incentivesunderwhichdomesticandforeignmanufacturersaresubjecttoequivalentpolicies,CBAMsareintendedtodetertheunintended“l(fā)eakage”ofmanufacturing

fromthecountryinitiatingthecarbonpolicytoforeigncountrieswithlessstringentenvironmentalstandards.TheEUCBAMinitiatedin2023isanexampleofsucha

policy.Forcertainenergy-intensivegoods(e.g.,steelandcement),EUimportersarerequiredtosurrendercarboncertificatesunderobligationsthatmirrorthoseimposedonEUproducersbytheEUEmissionsTradingSystem(EUETS).AparallelsystemisfollowedbytheUnitedKingdom.

TheimpositionoftheEUCBAM,amongotherfactors,hasledtoarenewedinterest

inCBAMpoliciesglobally,withproposalsunderactiveconsiderationinJapanand

Australia.USpolicymakershavealsodemonstratedinterest,driveninpartbythe

current“carbonadvantage”thattheUnitedStatesholdsbymanufacturingmany

energy-intensive,heavilytradedgoodswithfewercarbonemissionsthancompeting

countrieslikeChina,Mexico,andIndia(Davidetal.2025;Rorkeetal.2025;DeFilippo

andWise2025).Forexample,SenatorCassidy(R-LA)introducedthe

ForeignPollution

FeeActof2025

,whichwouldimposeanad-valoremtariffongoods,includingsteel,

aluminum,andcement,basedonthecarbonintensityofproductionintheforeigncountriesrelativetoaUSbenchmark.The

bipartisanPROVEITAct

introducedbySenatorsCramer(R-ND)andCoons(D-DE)wouldinitiatedatacollectiontosupportafuturebordermeasurebasedoncarbonintensity.TheCCAintroducedbySenatorWhitehousewouldenactafullUSCBAM,imposingasetoftariffsbasedoncarbonintensitythatmirroradomesticindustrialperformancestandardforthecovered

goods.

Inthisreport,weassesstheeffectsoftheCCAusingtheGlobalEconomicModel

(GEM)describedinCaoetal.(2024).Themodelsimulateshowthetariffsandthe

domesticcarbonintensitychargeschangeallpricesintheeconomy,notjustchangestocoveredproducts,andhowproducerschangetheirinputmixtorespondtothe

overallchangesincosts.Itaccomplishesthisbyemployingatop-downmodeling

approachthatcapturesinter-industry“generalequilibrium”effects,suchashow

changesinthepricesandquantitiesofsteelaffectothersectorssuchasmotor

vehicles,aircraft,andconstruction,aswellastheeffectonaggregateGDPandgrowthovertime.GEMisbuiltontheGlobalTradeAnalysisProject(GTAP)databasecovering160countriesand65industries.Toreducecomplexity,GEMrepresentseachofthe

G20countriesindividually;theremainingcountriesaregroupedintonineregions(TableA2)1.GEMalsodistinguishesbetween30economicsectors(TableA3).

Byassessinggeneralequilibriumeffects,GEMdiffersfromotherapproachesusedtoassessbordermeasures.Forexample,partialequilibriumapproaches,suchasthe

1Citationswhichincludetheletter“A”refertofiguresandtablesintheappendix.

ResourcesfortheFuture2

approachemployedbyDavidetal.(2025),leveragedetailed,product-levelinformationtoassesspriceandtradeeffectsforeachproduct.Partialequilibriumapproaches

canoffergreatersectoraldetail,butdonotaccountforinteractionsbetweenspecificsectorsandmaynotcapturethefullsubstitutionamongsuppliersfromdifferent

countriesfacingvaryingtariffrates.

TheimpositionofasymmetricsystemofUStariffsanddomesticfeesbasedupon

carbonintensitywouldhavemanypotentialeffects.HereweuseGEMtoassesstheextentoftheseeffectsusingthefollowingmetricsforapolicystylizedaftertheCCA:

1)PatternsofUSimports,2)USandforeignoutputforeachsector,3)USgovernmentrevenue,4)Overalleconomicoutput,and5)Country-andglobal-levelemissions.

2.LegislativeOverview

TheCCA,originallyintroducedintothe117thCongressbySenatorWhitehouse,wasupdatedandreintroducedintothe119thCongressinDecemberof2025.Weprovideddetailedinformationaboutthepreviousversionofthelegislationinthefollowing

reports:

ComparingtheEuropeanUnionCarbonBorderAdjustmentMechanism,

theCleanCompetitionAct,andtheForeignPollutionFeeAct

;and

CarbonBorder

Adjustments:DesignElements,Options,andPolicyDecisions

.Inbrief,forasetofcoveredgoods,thelegislationwouldimposefeesondomesticproductionandtariffsonimportsbasedonthecarbonemissionsofproductionaboveabaselinecarbon

intensityforthatgood,hereafterreferredtoasthe“benchmark.”

Thedomesticcarbonintensitychargesandtariffsaresetonadollar-per-ton-of-

carbon-dioxidebasisandapplyonlytoproductionemissionsabovethebenchmark.

AnalogouschargeswouldbecalculatedbytheUSDepartmentoftheTreasuryfor

eachimportedgoodbasedonthecarbonintensityofproductioninthecountryof

origin,likelythroughconversiontoanadvaloremrate.Thebenchmarkisinitially

establishedattheaveragecarbonintensityofUSproductionforeachcoveredgoodfortheyearofenactment,anditbecomesmorestringentby2.5percentperyearstartingin2027,andby5percentperyearstartingin2031,untilreachinga0percentintensityin2048.Thefeeisinitiallysetat$60andescalatesby6percentperyearabove

inflationtoreach$101inyear10ofthepolicy2(FigureA1).

ThelegislationidentifiesasetofcoveredgoodsusingtheNorthAmericanIndustryClassificationSystem(NAICS,TableA4).Coveredgoodsincludepetroleumextractionandrefining,naturalgasextraction,coalmining,pulpandpaper,manufacturingof

asphalt,ironandsteel,petrochemicals,adipicacid,ethylalcohol,fertilizer,andlimeandgypsum,aswellastheproductionofhydrogen,glass,cement,andaluminum.

Greenhousegasemissionsincludedinthecarbonintensitycalculationsincludedirectemissionsfrommanufacturing(oftenreferredtoasScope1emissions)aswellas

indirectemissionsfromconsumedelectricity,steam,heating,orcooling(Scope2).

Large,finishedgoodsthatareimportedtotheUnitedStatesandcontainsubstantialamountsoftheprimaryCCA-coveredgoods(e.g.,carsandrefrigeratorswithhighsteelcontent)arephasedinovertimeasadditionalcoveredgoodssubjecttotariffs.

2SeeSectionA4fordetails.

ProjectedEffectsoftheCleanCompetitionActof20253

Thecarbonintensitiesforimportedgoodsareassessedinoneofthreeways

dependingontheavailabilityandqualityofdatainthecountryoforiginandother

circumstances:1)Basedupontheeconomywidecarbonintensityofproductionacrossallindustries,2)baseduponthedistributionofcarbonintensitiesfortheindustrial

sectorinthatcountry,or3)atthefirmleveluponsuccessfulpetition(whichisavailableunderspecificcircumstances).Carbonintensitycalculationsarecarriedoutatthe

manufacturingfacilitylevelfordomesticmanufacturers.Carbondioxidesequesteredviadirectaircapturemaybeusedtooffsetdomesticcharges.

Revenuesraisedbythepolicyarerecycleddirectlybackintotheindustrialsectorto

supportdecarbonizationeffortsthroughacombinationofgrants,rebates,loans,andacontractfordifferencesprogram,with75percentofthefundsearmarkedfordomesticprogramsand25percenttosupportemissionsreductionsfromforeignfirms.$100

billionofsuchrevenuesarepre-appropriatedforrapiddisbursaluponenactmentofthelegislation.Thepresidentisauthorizedtonegotiate“carbonclubs”withothercountriestoaligntheCBAMandsimilarpoliciestoaccelerategreenhousegasemissions

reductions.USmanufacturersarerefundedfeespaidunderthedomesticperformancestandardforexportsofcoveredgoods.

3.ModelResults

3.1.CalculatedForeignCarbonIntensitiesandAdValoremRates

WhenmodelingtheCCA,weusedtheGTAPdatasettoestimatecountry-andsector-specificaveragecarbonintensitiesofimportsbasedonScope1andScope2emissionsinthecountryoforigin.Thesector-specificestimatesfortheUnitedStatescalculatedinthismannerareusedtosetthebenchmarkforpurposesofcalculatingthetariffs

anddomesticfees.

Toenablethiscalculation,coveredproductsarefirstmappedintothecorrespondingnineGTAPsectorsencompassingthoseproducts(e.g.,cementandglassproducts

aremappedtothenon-metallicmineralproductssector,TableA3).Thesesectors

canbeconsideredintwogroups:1)threesectorscorrespondingtothefossilfuel

extractionandcommoditiesthemselves(coalmining,oilextraction,andnatural

gasextraction)and2)sixsectorsrelatedtofurtherrefiningofsuchproductsand

industrialmanufacturing.ForeachoftheGTAPsectorscorrespondingtorefining

andmanufacturing,wecalculatethepercentageofUSimportsofcoveredproductsasapercentageoftotalimportsfromthatGTAPsector.Thisincludesthefollowingsectors:IronandSteel(90percent);NonmetallicMineralProducts(36percent);

NonferrousMetals(21percent);Chemicals(5percent);PetroleumRefining(100

percent);andPulpandPaper(41percent)(TableA5).Fertilizer,adipicacid,andethylalcoholmanufacturingcompriseaverysmallshareoftheGTAPchemicalssector,soweomitthissectorfromthemodelingtoavoidoverestimatingtheeffectsthepolicy’sapplicationtothoseproducts.

ResourcesfortheFuture4

Figure1.CarbonIntensitybyCountryforCoveredSectorsandTradeVolume(BillionUS$)withtheUnitedStates,2017

9

BillionsUS$BillionsUS$

7

5

3

1

10

8

6

4

2

Non-MetallicMinerals

20

16

12

8

4

3,000

2,500

2,000

1,500

1,000

500

PetroleumRefining

8

6,000

5,000

6

4,000

4

2

3,000

2,000

1,000

Non-FerrousMetals

1,400

TonsCO2permillionUS$TonsCO2permillionUS$

1,200

1,000

800

600

400

200

IronandSteel

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

China

Mexico

Canada

Brazil

Russia

India

SouthAfrica

Germany

Japan

SouthKorea

Italy

UK

BillionsUS$

Imports(LeftAxis)USAverageIntensity

GHGIntensity(RightAxis)

PaperandPublishing

India

Italy

TonsCO2permillionUS$

10

8

6

4

2

1,600

1,200

800

400

2,000

China

Mexico

Canada

Brazil

Russia

SouthAfrica

Germany

Japan

SouthKorea

UK

Note:Figure1displaysthevalueofUSimports(leftaxis)andtheassociatedcarbonintensityofproduction(rightaxis)formajortradingpartnersacrossthefourmodeledcoveredsectors.CarbonintensitiesarebenchmarkedagainsttheUSaverage(dottedline)forthatsector.CountrieswithbothhighimportvaluesandhighercarbonintensitiesthantheUnitedStateshavegreater

exposuretotheCCAtariffs.ThesecalculationsarebasedonGTAPdatafor2017.

Foreachcoveredsector,arelativelysmallsetofcountriesprovidesmostoftheimportstotheUnitedStates(e.g.,Canada,Mexico,andChina)(Figure1).Sincethedataisfrom

2017andtheGTAPsectorsencompassingthelistofcoveredproducts3arehighly

aggregateinnature,theestimatedcarbonintensitiesareaverageswhichwilldeviate

frommoredetailedanalysesofspecificcoveredproductsusingmorerecentdata.

3Forexample,theGTAPsector‘non-ferrousmetals’usedtorepresentaluminumalsoincludesadditionalmetalssuchascopperandnickel.

ProjectedEffectsoftheCleanCompetitionActof20255

Forthefossil-producingsectors(coalmining,oilmining,andgas),currenttradeflowsdepartfromthe2017datasufficientlythatwereportonanddiscusstheireffectsundertheCCAintheappendixbutomitthemfromourcalculationsofrevenuesdiscussedinSection3.

Theestimatedcarbonintensitiesforeachcountryandsectorareusedtocalculate

country-andsector-specificadvaloremratesforeachyearofthepolicysimulationbymultiplyingthecarbonintensitychargerateforthespecificyear(inUS$pertonneofcarbondioxide)bythedifferencebetweenthecarbonintensityinthecountryof

originandthecarbonintensitybenchmarkforthatyear(bothintonnesofcarbondioxidepermillionUS$ofproductvalue,asshowninequationsA1andA2).4Figure

2showstherelationbetweentariffratesandcarbonintensityforthefivesectors.Ascarbondioxideintensitiesdifferfromsectortosector,sowilltheequivalentadvaloremratesoftheper-tonnefee,evenifthereisthesamepercentagedifferenceincarbon

intensitybetweenthedomesticbenchmarkandtheaverageinthecountryoforigin.Agivenper-tonnefeeleadstoahigheradvaloremrateforsectorsthataremorecarbonintensiveandlowerinvalueofsectoroutputpertonofembodiedcarbondioxide,andviceversa.ManyEuropeancountries,aswellasSouthKoreaandJapan,areestimatedtohavezeroornear-zerotariffsacrossallcoveredsectorsinourmodel(Table1).5

Advaloremratesforothercountriesvary:Chinaat0.2–7.7percent,Mexicoat0.5–5.4percent,Russiaat0.5–18.1percent,Indiaat0.0–35.9percent,andSouthAfricaat

2.7–25.6percent.6

3.2.CalculatedCarbonIntensitiesandFeesforDomesticFacilities

UndertheCCA,USmanufacturersforthecoveredsectorswouldbeassessedcarbonintensitychargesatthelevelofthemanufacturingfacility,baseduponthecarbon

intensitiesofeachfacilityrelativetothebenchmarkforthatyear.Facilitiesproducingabovethebenchmarkwouldbeassessedfeescorrespondingtohowmuchhigher

theircarbonintensityisthanthebenchmark,whilefacilitiesproducingwithcarbonintensitieslowerthanthebenchmarkwouldnotbeassessedfees.EstimatingthefeeamountsandtheireffectsontheUScoveredsectorsthereforerequiresknowledgeofthedistributionofcarbonintensitiesatthefacilitylevelforeachcoveredsector.

ThedatacollectionrequiredbytheCCAtosupportcalculatingfacility-levelcarbon

intensities—tonnesofcarbondioxideperunitofphysicaloutput—wouldleverage

existingreportingrequirementsforemissions,electricityusage,andproduction

volumes.Undercurrentregulations,USgreenhousegasemissionsdataispublicly

availableatthefacilitylevelbytheUSEnvironmentalProtectionAgency,butfacility-levelproductionvolum