A Climate-Aligned Trade Policy Can Strengthen the U.S. Aluminum Industry

Carbon border measures are policy tools that feed two birds with one scone: 

1. They help ensure that domestic manufacturers investing in cleaner production are not undercut by dirtier imports.
2. They incentivize foreign producers to reduce emissions and invest in cleaning up their facilities. 

Carbon border measures can specifically benefit countries like the United States where production of covered goods like aluminum is already cleaner than most foreign competition. Not only would such trade measures help prevent the risk of offshoring aluminum production and related jobs to countries with lower environmental  safeguards, but they would also create an incentive for manufacturers in the United States and abroad to further clean up their production to increase their competitiveness.  

Clean domestic manufacturers and only the cleanest foreign producers stand to benefit from tying access to the U.S. market to product carbon intensity. Increased domestic market share paired with investment of revenue collected from dirtier imports could be part of the winning ticket to a clean thriving domestic aluminum industry that would protect the United States from supply chain shocks, price spikes, and national security risks amid a globalized industry.

The United States, following the lead of the European Union, has been considering carbon-conscious trade measures to ensure that importers of certain high-pollution foreign goods pay a fee to prevent undercutting cleaner domestic producers. The recent GEI report models the effects of two leading American carbon-conscious trade measures: the Foreign Pollution Fee Act (FPFA) and the Clean Competition Act (CCA). 

The FPFA, introduced by Senators Bill Cassidy and Lindsey Graham, is a carbon tariff that applies only to imports of high-pollution products coming into the United States. The bill does not specify how any revenue would be spent, so it would presumably go to the treasury.    

The CCA, introduced by Senator Sheldon Whitehouse and Representative Suzan DelBene, includes both a fee on relatively high-pollution foreign imports and relatively high-pollution domestic producers. Under the CCA, revenue raised is reinvested to clean up domestic industry and to support cleaner manufacturing abroad.  

Both proposals would strengthen U.S. aluminum producers’ competitiveness in domestic markets by placing fees on high-pollution imports, but the differences in design come with key tradeoffs. Here is how they stack up across three key metrics for the aluminum industry: emissions reduction, revenue generation, and trade disruption.  

Trade disruption 

• The FPFA would quickly cause drastic changes to aluminum trade patterns. Within the first year of implementation, aluminum imports from China and India would reach near zero, and imports from Vietnam would decline by 49 percent. For this reason, the FPFA creates a risk of short-term aluminum supply constraints, which would result in price volatility with dangerous implications for downstream industries like food and beverage and automaking. 
• The CCA would have smaller immediate trade contractions preventing short-term supply shocks and disruptions early on in implementation. This gradual shift would function to improve domestic aluminum producers’ competitiveness vis-à-vis higher-emitting producers while limiting risk of severe market disruptions. 

Revenue generation 

• The FPFA would deliver substantial revenue early on ($3.4 billion to $5.1 billion after one year of implementation, increasing to $7.1 billion five years after implementation), but revenue would sharply decline as imports from high-carbon intensity producers fall. 
• The CCA would generate more moderate revenue ($3.7 billion to $4.5 billion) in initial years of implementation, but the amount of revenue raised would grow gradually as a result of an increase in carbon price. Under the CCA, revenue would also be less likely to suddenly decrease after an import collapse from high-emissions producers. 

Emission reduction  

• The FPFA would significantly lower import-related emissions: They would fall by 9.1 metric tons of carbon dioxide (Mt Co2) per year compared to 2024 aluminum import-related emissions. 
• The CCA would also have more moderate emissions reduction of emissions (0.8 Mt Co2 per year) because of the measure’s smaller impact on imports.  
• One factor that is not included in this report’s measurement of emission reduction is the impact of any reinvestment of revenue in decarbonization. Notably, the CCA directs 75 percent of generated revenue to cleaning up domestic industry; the FPFA is silent on how revenue would be used. Reinvestment of revenue could have a significant impact on domestic pollution: The GEI report finds that transitioning aluminum smelters to 80 percent renewable electricity and storage would reduce annual aluminum emissions by 80 percent (3.8 Mt Co2 in annual emissions reduction) and require only $360 million per year—a small amount relative to revenue collected from either the FPFA or CCA. 

Overall 

• The FPFA “is a blunt instrument [that] generates significant early revenue (that goes to the U.S. treasury and not specifically toward decarbonization) but creates high disruption risk, potential supply gaps, and volatile fiscal outcomes.” 
• The CCA “is a precision tool [that] creates gradual trade shifts and maintains more stable revenue for domestic and international decarbonization” designed for “stronger long-term climate alignment.” 

The takeaway is clear: Congress should prioritize a strong border carbon measure alongside cleaning up the grid to reduce emissions from the aluminum industry at home and abroad. If properly designed, the CCA has the makings to do just this.  

America is in the position to be a global leader in clean manufacturing while also increasing supply chain resiliency at home. It is time we held foreign polluters accountable and capitalize on American manufacturer’s competitive advantages in cleaner and labor friendly production.