Proposed Climate-and-Trade Policy Could Reduce Emissions, Raise Revenue
New RFF modeling projects emissions and economic impacts of the Clean Competition Act of 2025.
💡 What’s the story?
Yesterday, Senator Sheldon Whitehouse (D-RI) and Congresswoman Suzan DelBene (D-WA) reintroduced to the US Senate the Clean Competition Act, a bill intended to boost clean domestic manufacturing and reduce greenhouse gas emissions at home and abroad. The bill proposes a domestic performance standard for certain manufactured goods, requiring manufacturers to pay a fee if their goods are more emissions-intensive than a benchmark. Importers of foreign-made goods would face a tariff that mirrors the performance standard.
New modeling by a team at Resources for the Future (RFF) projects that the Clean Competition Act would reduce carbon emissions by decreasing the energy intensity of US manufacturing, and by slightly decreasing US production and consumption of goods from covered and connected industries. The fees and tariffs would generate roughly $101 billion in revenue over the first ten years of the policy, which the federal government would use for industrial decarbonization efforts.
🗺️ What are the key findings?
The modeling evaluates how the Clean Competition Act would affect the trade of specific products and a range of effects across the global economy. The authors report the act could have the following big-picture effects on the economy and environment:
- Shift US imports toward countries with less carbon-intensive manufacturing. Under the Clean Competition Act, the United States would import more goods from places with cleaner industries—like the European Union, United Kingdom, and Japan—and import fewer goods from high-emitting countries that face the tariffs, like China, Mexico, and India.
- Reduce emissions globally, led by the United States. The act would decrease US emissions by 63 million metric tonnes in the first year of the policy. Globally, the modeling projects emissions falling by roughly 81 million metric tonnes during the first year. These emissions reductions would be equivalent to shutting down 21 coal-fired power plants for one year.
- Raise revenue. The modeling projects that the US federal government would receive roughly $101 billion in revenue from the covered manufacturing sectors over the first ten years of the policy. Roughly 75 percent of the revenues derive from the domestic performance standard. The bill includes provisions to recycle revenues back into the industrial sector to support decarbonization efforts through a combination of grants, rebates, loans, and a contracts for difference program.
- Reduce US output in covered sectors and downstream industries. The act would slightly decrease US production of cement, aluminum, iron and steel, and pulp and paper. Output in connected industries, such as construction and transportation equipment manufacturing, also falls slightly in response to higher prices for materials covered by the tariff or domestic performance standard.
Expert Perspective
“When a country enacts policies to reduce its domestic greenhouse gas emissions, there is a risk of losing manufacturing to countries without the same restrictions. By pairing a domestic emissions standard with a tariff imposing the same standard on imports, the Clean Competition Act works to reduce emissions domestically and compel similar action in our trading partners.”
—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 tariff and the domestic standard change all prices in the economy—not just products covered by the act—and how producers change their input mixes 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 economic sectors. With this data, the team analyzed the effects of the Clean Competition Act 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 Clean Competition Act would need to pass both the US Senate and the House of Representatives before going to the president. Whitehouse introduced an earlier version of the act in June 2022. RFF researchers unpacked and discussed the design elements of that legislation in a 2023 report.
The modeling team notes that emissions reductions from the act are relatively modest, directly leading to a reduction of US emissions by two percent and global emissions by less than half a percent. However, the act’s greatest leverage may come from policy responses from trading partners. Past research analyzed such policy spillover effects from the EU Carbon Border Adjustment Mechanism, which will go into full effect in 2026.
Expert Perspective
“Between the Clean Competition Act and other bills proposed in Congress like the Foreign Pollution Fee Act, we see that there is interest in climate-and-trade measures on both sides of the aisle. As more countries implement or consider policies like this, we may see carbon border adjustment mechanisms emerge as valuable complements to policies targeting traded products. Of course, such policies are complicated, both in terms of technical implementation and diplomatic dynamics. At RFF, we will be watching to see what happens with this tool in the coming months and years.”
—Milan Elkerbout, RFF Fellow and Director, International Climate Policy Initiative
📚Where can I learn more?
For more information, read the report, Projected Effects of the Clean Competition Act of 2025, by Kevin Rennert, Mun Ho, Katarina Nehrkorn, and Milan Elkerbout.
For information on another recent climate-and-trade bill, read our analysis of the Foreign Pollution Fee Act of 2025, which Senator Bill Cassidy (R-LA) reintroduced this past May.
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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