In April 2025, U.S. Republican Senators introduced the latest version of the Foreign Pollution Fee Act, a legislative proposal designed to strengthen American manufacturing by addressing environmental disparities in global trade. The Act seeks to impose fees on pollution-intensive imports from countries like China, where manufacturing processes typically result in higher greenhouse gas emissions compared to U.S. standards. The sectors targeted include iron, steel, aluminum, cement, glass, fertilizer, hydrogen, solar components, and certain battery inputs. The legislation has been updated from its first iteration, which was released in 2023, to incorporate feedback from a public comment period.
Senator Cassidy introduced the Act as a “nexus between climate, national security, economic security, and energy policy”. While its climate-oriented component is at odds with the federal administration’s anti-environment agenda, as evidenced by the recent Executive Orders and climate-funding withdrawals amongst other actions, the tariff-based approach aligns with the broader goal of bolstering domestic industry by implementing levies on imports. This highlights how trade policy may increasingly be leveraged and intertwined with climate action.
This Act does not directly impact carbon markets, as it does not create or modify any carbon-pricing mechanisms, such as Cap-and-Invest programs. Instead, it imposes a fee on imports based on their emissions intensity, rather than setting a price on carbon emissions, which is an important distinction. However, the successful adoption of the Act may underscore support for carbon markets as it addresses carbon leakage, which is the displacement of emissions to jurisdictions with weaker regulations, as this is a common criticism of carbon pricing mechanisms and carbon markets.
The concept of accounting for emissions intensity differences in imported goods is not new. The Providing Reliable, Objective, Verifiable Emissions Intensity & Transparency Act (PROVE IT) Act, introduced in 2023 and currently still under consideration, directs the Department of Energy (DOE) to conduct and report on the results of a study regarding the greenhouse gas emissions intensity of certain products produced in the U.S. against those of certain other countries, serving as a foundation for the data-collection to support a border adjustment mechanism.
Globally, Carbon Border Adjustment Mechanisms (CBAM) are gaining traction. The EU’s CBAM policy is set to take effect in 2026, with the UK planning its own for 2027. In Canada, Mark Carney’s climate action plan mentions this as a potential policy tool. ClearBlue’s recent webinar “What Mark Carney’s Victory means for Canadian Carbon Markets” discusses this in more detail, and a recording and summary are provided here.
The Foreign Pollution Fee Act is currently under consideration by the Senate Committee on Finance, which may propose amendments before advancing the Bill to the Senate, which will then conduct its debate and voting process. ClearBlue will continue to monitor developments surrounding this Act and broader carbon border adjustment policies in North America and worldwide, providing updates to clients as new information emerges.