US CBAM could generate up to $200 billion in revenue within five years – study

The U.S. mechanism for cross-border carbon adjustment could raise up to $200 billion over five years, although this is an upper limit, given that the likely reaction from trading partners will reduce this figure.

This is stated in a study by Harvard’s Belfer Center. The review analyzes the draft law on carbon fees at the US border (Foreign Pollution Fee Act, FPFA), presented by Republican senators, as well as the Clean Competition Act, a Democratic-led initiative that essentially creates a US CBAM.

According to the researchers, carbon tariffs such as the FPFA have the potential to create a bipartisan way to support American industry, increase revenues, and spur clean energy investments.

According to the study, if the U.S. Border Carbon Adjustment (BCA) is implemented under the Clean Competition Act, the upper bound on potential revenue would be between $3.2 billion and $85.5 billion in 2026-2030, depending on the carbon price, sectoral coverage, and potential exemptions.

Under the FPFA, which sets the tax based on customs value rather than an explicit carbon price, it could raise up to $198.1 billion over a five-year period.

Mexico, China, Brazil, and India are among the most vulnerable countries to the US BCA due to their high trade volumes and carbon intensity. At the same time, Canada, which is also sensitive to such a mechanism, currently has a stable domestic carbon price and can largely avoid its effect under certain conditions.

Combining a cross-border carbon adjustment mechanism with a carbon price in the United States would increase revenue potential by taxing all emissions. It will also help U.S. companies maintain their carbon advantage, as America’s low cost of capital and high innovation potential mean that businesses in the country are well positioned to decarbonize and stay ahead of the competition in a “carbon pricing world.”

Commenting on the report’s findings, Nick Ogilvie, product manager at CarbonChain, notes that transatlantic alignment is also important. The EU CBAM is in a transitional phase and will be fully implemented in 2026, while the UK is launching its own mechanism. With this in mind, the US CBAM could either provoke trade disagreements or foster new climate cooperation. It will be crucial to clearly agree on the design and compliance of the US mechanism with WTO requirements. If the US, EU, and UK harmonize their approaches (e.g., recognize each other’s carbon prices or form a climate club), they will be able to avoid regulatory diversity and reduce trade tensions.

In April of this year, Republican senators Bill Cassidy and Lindsey Graham introduced an updated draft law, the Foreign Pollution Fee Act, which aims to level the playing field for American manufacturers and countries that use unfair trade practices.