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We are working to ensure that there are safeguards to avoid the relocation of energy-intensive industries to countries with weak environmental standards, while moving toward a global agreement limiting greenhouse gas emissions to safe levels.
The Waxman-Markey American Clean Energy and Security Act (H.R. 2454, or "ACES" for short) which recently passed in the House of Representatives provides two key mechanisms designed to ensure that high-carbon manufacturers in the U.S. are not placed in an untenable competitive position but are rather part of the conversion to a low-carbon economy. Doing so is essential to both the environmental goals of the legislation and the long-term health of our manufacturing sector.
The competiveness provisions are an essential safeguard to avoid energy-intensive industries from moving overseas to countries with weak environmental standards. If the imposition of tough carbon emissions standards in developed countries simply drives industries from one set of countries to another there could be little or no carbon emissions reductions overall. There is no point in imposing tough emissions reduction standards here if it simply drives dirty carbon-intensive industries from rich countries to poor countries that have no emissions reduction targets. In fact, the overall emissions reductions could be less than nothing if the carbon intensive production here in the U.S. is actually substituted for dirtier production abroad. Steel production, for instance, is currently substantially more carbon-intensive in China and India than in the U.S. Competitiveness provisions like those found in ACES are necessary to prevent this scenario which would be a lose-lose for everyone.
The first mechanism in ACES to address carbon leakage is transition assistance. The U.S. government will distribute rebates or allowances to high-carbon manufacturing industries such as iron, steel, paper cement, glass, etc. to compensate these industries for the compliance costs they will incur that their competitors overseas will not face if located in countries without similar greenhouse gas reduction requirements. The allowances will be distributed to manufacturers based on efficiency paid per unit of output. These rebates cover direct costs (like emissions that facilities need to turn in allowances for) and indirect costs (like increased electricity rates). After 2025, ACES gradually phases out these rebates.
The second mechanism is a border adjustment program. The border adjustment program would not take effect until 2020 and only if no international climate agreement has been reached at that point. Under the program, the importers of high-carbon goods from nations that fail to limit their industries' carbon emissions will be required to submit carbon emission allowances purchased from an international reserve system the President would set up.