Half-Baked Ideas Vol. 1: The PBAM
If there's one thing that US energy policy needs, it's more acronyms
Every couple of years, an oddball coalition of climate wonks and China hawks gets very excited about the idea of a carbon border adjustment mechanism (CBAM).
The idea is simple: the United States would impose fees on imported goods based on their carbon content, with a particular eye toward carbon-intensive manufacturing from countries like China. This would both advance climate goals and address concerns about industrial competition with nations that have weaker environmental standards.
We've seen a number of recent efforts at implementing CBAMs—the Clean Competition Act, the PROVE It Act, the Foreign Pollution Fee Act, and others. Both Democratic Senator Sheldon Whitehouse and President Trump’s former US Trade Representative Bob Lighthizer have endorsed the idea.
But the CBAM has always suffered from two political economy challenges. First, tying a border adjustment mechanism to carbon or greenhouse gas emissions is a nonstarter for many Republicans. Second, many free trade centrists balk at the idea of levying a CBAM without a domestic tax on carbon, fearing that such a configuration would run afoul of World Trade Organization (WTO) compliance.
For these reasons, with an incoming GOP trifecta, the CBAM will have to take a backseat for the next couple of years. But I want to introduce an idea that is tailor-made for the politics of a Republican-led government, yet also has plenty to offer climate hawks: the Pollution Border Adjustment Mechanism (PBAM).
With a PBAM, the border adjustment would be tied to Clean Air Act criteria pollutants rather than greenhouse gas emissions. Instead of measuring carbon dioxide, we'd focus on pollutants like sulfur dioxide, nitrogen oxides, and particulate matter that are already regulated under U.S. law.
I see several key advantages:
Political Feasibility: Unlike carbon dioxide, conventional air pollutants have immediate, measurable impacts on public health, making the case for regulation more concrete and compelling to voters and legislators alike. And while carbon-related policy instruments remain politically radioactive (ha), air quality standards enjoy broad bipartisan support—Americans across the political spectrum understand and support clean air regulations.
Co-Emissions Correlation: Many high-CO₂ processes also produce high levels of criteria pollutants. Imposing a PBAM can spur some efficiency and fuel-switching that reduces carbon emissions as well. For instance, a steel mill running on coal will produce both high CO₂ emissions and high levels of conventional pollutants, making it a natural target for improvement under either metric.
Leverages Existing US Regulatory Frameworks: The U.S. has decades of data and standards for criteria pollutants under NSPS, Title V permits, and state implementation plans, making it straightforward to benchmark foreign pollution against domestic standards from a regulatory standpoint. Moreover, U.S. firms already bear costs for advanced air pollution controls—a PBAM would help level the playing field against foreign competitors who have not installed similar technology.
Durable Comparative Advantage: Thanks to the Clean Air Act, U.S. manufacturers have already invested heavily in clean air technology and efficient production processes. A PBAM would turn these environmental investments into a competitive advantage, rewarding domestic producers for their cleaner operations while encouraging foreign competitors to match our standards.
If we build it out a bit, here's how it would work:
We'd start by designating a set of conventional pollutants—primarily those covered by the Clean Air Act's New Source Performance Standards (NSPS) and Title V permit programs, such as SO₂, NOₓ, and particulate matter (PM). Each of these pollutants has well-established emission thresholds, compliance metrics, and monitoring protocols in the United States.
For each industry sector (e.g., cement, steel, aluminum), the EPA or a designated federal agency would determine a benchmark emissions rate of these pollutants per unit of output (e.g., pounds of SO₂ per ton of steel). This benchmark could be based on typical U.S. facilities operating at or near Best Available Control Technology (BACT) standards. If an overseas producer can't provide verifiable, facility-level data, the fee would be based on a default (and conservative) emissions rate—effectively a penalty for non-disclosure. This default might be pegged to high-end (i.e., "worst-case") emissions for that sector globally.
The fee mechanism itself would work by multiplying the estimated emissions rate (above the benchmark) by a pollution fee—a dollar-per-pound (or dollar-per-ton) charge for each pollutant. The total import fee for a given shipment would be the sum of the fees for each pollutant exceeding the U.S. benchmark. If a plant is twice as dirty as the U.S. standard, it faces a commensurately higher fee. Fee revenues could be used in a tariff-rebate mechanism.
The implementation would leverage existing frameworks: U.S. plants already measure and report criteria pollutant emissions under Title V permits, providing a robust reporting system that can serve as the reference standard.
Two immediate limitations to this approach spring to mind, though there are surely more.
First, the most immediate challenge for a PBAM is the lack of established frameworks for measuring and verifying criteria pollutants internationally. Unlike greenhouse gas accounting—which benefits from IPCC guidelines, the GHG Protocol, and multiple countries' carbon registries—there is no unified international system to measure these conventional pollutants. While carbon data is becoming more standardized through ESG disclosures and similar frameworks, measuring SO₂ or NOₓ abroad remains fragmented and complex.
Second, a PBAM would primarily reduce local air pollutants, with CO₂ reductions being merely incidental. This is particularly true for certain industrial processes—natural gas-fired facilities, for instance, may emit relatively low levels of criteria pollutants while still producing significant CO₂. A PBAM might give these carbon-intensive but otherwise "clean" processes a pass from a climate standpoint, which could in turn fracture the pro-CBAM coalition on the left. Still, you’d hope that climate hawks would see the benefits, do the political calculus, and recognize it as a significant win.
For Republicans, as we consider our industrial strategy heading into 2025, the PBAM offers a potentially elegant solution: protect American manufacturers, challenge Chinese industry, and leverage environmental standards we already have. No new bureaucracy required—just a straightforward way to reward U.S. companies for the clean air investments they've already made.
So there you have it—curious to hear everybody’s thoughts. I promise the next one will be about something more exciting. Maybe farm subsidies?