Proposed Carbon Tariff Could Boost US Manufacturing and Emissions
New modeling shows that the Foreign Pollution Fee Act of 2025 would increase domestic manufacturing of covered goods, shift imports toward countries with cleaner manufacturing processes, and raise government revenue.
💡 What’s the story?
In early April, Senators Bill Cassidy (R-LA) and Lindsey Graham (R-SC) introduced the Foreign Pollution Fee Act of 2025—legislation that would impose tariffs on imported aluminum, cement, steel, and other select goods manufactured in countries with more carbon-intensive processes than the United States. The tariff proposal is the latest attempt in the US Congress to encourage domestic manufacturing and discourage trade with countries without similarly stringent environmental standards.
New modeling by researchers at Resources for the Future (RFF) analyzes the potential effects of the Foreign Pollution Fee Act of 2025 on imports, global carbon emissions, and government revenue. The team found that the act would increase domestic manufacturing of the covered goods, shift imports toward countries with cleaner manufacturing processes, and raise government revenue. However, the act is unlikely to result in significant global emissions reductions.
🚢 What are the key findings?
The authors point out the following big-picture impacts of the legislation, which the modeling projects would:
- Shift US imports toward countries with lower carbon intensity manufacturing. The United States would import fewer products in the covered sectors from China, Mexico, and India, and import more of these products from Japan, the European Union, and the United Kingdom.
- Increase US manufacturing of covered products. US manufacturers would produce about 9 percent more cement, 8 percent more aluminum, 7 percent more iron and steel, and 4 percent more metal products.
- Raise revenue. The US government would collect $2.8 billion during the tariff’s first year and $33.3 billion over the following decade.
- Have a minimal effect on global emissions. While the carbon emissions embodied in imported goods decrease, greater domestic manufacturing would mean that the United States would produce more emissions because of the policy. The net effect is that global emissions would be relatively unchanged.
- Reduce output in downstream industries. Industries such as construction and manufacturing, which rely on materials covered by the tariffs, would face higher costs. As a result, the modeling projects that US production from these downstream industries could fall by 0.2–2.0 percent.
Expert Perspective
“Typically, countries without stringent environmental protections can produce goods more cheaply than countries with such protections in place. A border tariff based on carbon intensity is one way to level the playing field and reward countries that have invested to reduce their emissions from manufacturing. Momentum for countries to use emissions as the basis for trade measures is growing across the world, especially since the European Union’s own system of carbon border tariffs went into effect in 2023.”
—Kevin Rennert, RFF Fellow and Director, Federal Climate Policy Initiative and Comprehensive Climate Strategies Program
📈 How do we know?
The research team modeled how the carbon tariff changes all prices in the economy—not just products covered by the tariffs—and how producers change their input mix to respond to changed costs. The dynamic multi-region, multi-sector economic model traced the impact of the policy on economic growth across 29 global regions and 30 industries. With this data, the team analyzed the effects of the Foreign Pollution Fee Act of 2025 on imports from particular countries and regions, revenues, emissions, and changes to US production over a 14-year period. The modeling does not account for the set of recent tariffs put in place by the Trump administration.
🗺️ What’s next?
To become law, the legislation would need to pass both the US Senate and House of Representatives before being signed by the president. Cassidy and Graham introduced an earlier version of the act in 2023, which did not make it to a vote in the House. RFF unpacked and discussed the design elements of that legislation in a 2023 issue brief, and has now updated the brief to reflect the current iteration of the legislation.
The Foreign Pollution Fee Act of 2025 is one of several border adjustment mechanisms that members of Congress have introduced over the past few years. Others, including the Clean Competition Act, are also the subject of prior RFF research. Beyond the United States, the European Union continues to implement its own carbon border adjustment mechanism, while Canada, the United Kingdom, and Australia have also expressed interest in such policies.
Expert Perspective
“If this legislation went into effect, we would probably see a rearrangement in trade patterns for construction materials, iron and steel, aluminum, electrical equipment, and more. However, these tariffs are very complicated. Countries that stand to lose out may implement retaliatory measures, find new markets, or adopt policies to make them more competitive for US trade. Border carbon adjustments are a relatively new tool to include climate policy in trade—it will be interesting to see how these policies evolve over time.”
—Milan Elkerbout, RFF Fellow and Director, International Climate Policy Initiative
📚Where can I learn more?
For more information, read the issue brief, “Projected Effects of the Foreign Pollution Fee Act of 2025,” by Kevin Rennert, Mun Ho, Katarina Nehrkorn, and Milan Elkerbout.
The authors dive into the methodology and the effects of tariffs on additional regions and goods in a supplemental document attached to the issue brief. They also describe the policy elements of the legislation in an updated 2023 issue brief.
Resources for the Future (RFF) is an independent, nonprofit research institution in Washington, DC. Its mission is to improve environmental, energy, and natural resource decisions through impartial economic research and policy engagement. RFF is committed to being the most widely trusted source of research insights and policy solutions leading to a healthy environment and a thriving economy.
Unless otherwise stated, the views expressed here are those of the individual authors and may differ from those of other RFF experts, its officers, or its directors. RFF does not take positions on specific legislative proposals.
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