U.S. Senators Bill Cassidy (R–La.) and Lindsey Graham (R–S.C.) have reintroduced the Foreign Pollution Fee Act of 2025, a legislative effort to impose tariffs on imported goods based on their carbon intensity. The proposal, signed into the Senate as S. 1325 on April 8, 2025, seeks to protect American manufacturers from competition with imports produced in countries with laxer environmental regulations and align economic competitiveness with environmental accountability.
At its core, the Act establishes a Carbon Border Adjustment Mechanism (CBAM), applying an import fee proportional to the extra emissions tied to goods produced abroad compared with U.S. equivalents. Covered imports include industrially intensive products—such as steel, aluminum, cement, fertilizer, glass, hydrogen, solar components and battery storage—industries where domestic production is commonly cleaner.
The legislation mandates that tariffs be calculated as a percentage of the product’s import value, scaled by the variance in carbon intensity. A product that is twice as carbon-intensive could face, for example, a substantial ad valorem fee, incentivizing foreign producers to decarbonize. Unlike its European counterpart, this U.S. version does not credit carbon pricing paid in exporting countries—a choice likely made for simplicity and political viability.
Cassidy and Graham have tapped into growing bipartisan concern over U.S. manufacturing competitiveness and climate change. Cassidy, in announcing the bill, emphasized how foreign producers gain a price advantage by sidestepping costs that U.S. companies face. Graham framed it as a moral measure: “It is long past time that the polluters of the world, like China and others, pay a price for their policies… We are leveling the playing field.”
The Act has garnered support beyond its Republican roots. Environmental groups like Sierra Club have endorsed its approach, while policy analysts suggest it could serve as a stepping stone to more comprehensive carbon pricing. Senator Sheldon Whitehouse (D–R.I.) dubbed it a promising entry point for bipartisan climate action.
Economic modeling forecasts that the Act could generate between $133 billion and $185 billion in federal revenue between 2026 and 2035. A study by Resources for the Future predicted modest boosts in U.S. manufacturing, with gains in sectors such as steel and cement, but anticipated global trade shifts and only marginal overall climate benefits.
Notably, research from Harvard’s Belfer Center suggests Canada would be disproportionately affected by the tariffs—facing estimated fees of over $11 billion compared with $3.4 billion from China—owing to its status as a major exporter of steel and fertilizers.
Supporters argue the Act responds to evolving global norms: the EU will roll out its CBAM in 2026 and the UK in 2027. Without a U.S. policy, American exporters might face retaliatory measures abroad.
The proposal raises significant trade and administration questions. Analysts caution that the Act may conflict with World Trade Organization (WTO) rules unless structured carefully, especially because it omits credit for foreign carbon pricing systems. Critics worry it may fuel protectionist backlash and trade tensions.
There are also administrative complexities. The Act grants broad discretionary power to decision-makers in setting tariff tiers, evaluating exemptions, and negotiating bilateral agreements. Some environmental advocates note that even within covered sectors, only imported goods are penalized—raising questions about fairness and whether domestic competitors could free ride on the policy.
Cassidy and Graham have intentionally avoided pairing the Act with a domestic carbon tax, recognizing current political hurdles. This makes the policy more palatable to Republicans but weakens its alignment with international standards that welcome border adjustments tied to national carbon pricing. Analysts suggest pairing domestic and border pricing in the future would strengthen the policy’s legal footing and environmental impact.
The Act’s reintroduction appears timed for consideration during budget reconciliation or as a potential amendment to broader fiscal packages, particularly in a narrowly divided Congress.
The bipartisan interest in carbon tariffs signals growing consensus that trade policy can serve climate goals—without requiring overtly partisan measures. As Time magazine noted, such plans weave together economic competitiveness and climate urgency in a way that garners support from both parties.
If enacted, the Foreign Pollution Fee Act would position the U.S. as a carbon-aligned trade actor, complementing global peers and rewarding domestic clean manufacturing. But its success hinges on navigating technical, legal, and diplomatic minefields—balancing climate ambition against trade norms and international cooperation.
