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This article collects and analyzes information on the promotion and implementation of the US Clean Competition Act (CCA). It primarily investigates and collects information on the US provisions of the Act and its impact on Taiwanese businesses, and offers recommendations on how businesses can adapt. Furthermore, this article also summarizes a comparison between the EU's Carbon Border Adjustment Mechanism (CBAM) and the US CCA, helping small and medium-sized enterprises (SMEs) to quickly prepare for the carbon tariff policies released by both Europe and the US.
I. Overview of the Bill:
In June 2022, the Clean Competition Act was proposed by the U.S. Senate to implement carbon border adjustments on energy-intensive imported products. It is expected that carbon tariffs will be imposed on U.S.-made products and U.S. importers starting in 2024, including refining, petrochemicals, fertilizers, cement, steel and aluminum.
The difference from the EU CBAM lies in the baseline for calculating carbon tariffs and the targets of levy. The US CCA Act imposes carbon fees on importers and domestic manufacturers, but domestic manufacturers can obtain tax rebates when exporting to other countries. The calculation method is that the US Treasury Department calculates the average carbon content of each category of US products based on reported information, which serves as the baseline for levying carbon taxes. If a manufacturer's carbon intensity exceeds the carbon intensity baseline applicable to the industry in the United States, it must pay carbon taxes on the excess.
Furthermore, the baseline will be lowered by 2.5% annually starting in 2025, and by 5% annually after 2029. It is worth noting that if taxable products exported to the United States use other taxable products as raw materials in their manufacturing process, the carbon emissions generated by these raw materials must also be included in the calculation. Starting in 2026, the affected industries will be expanded to finished products containing more than 500 pounds of carbon-intensive raw materials, and will be reduced to more than 100 pounds in 2028.
The CCA report filing deadline is June 30, 2025, and the U.S. Environmental Protection Agency must be informed of greenhouse gas emissions, total product weight, power consumption, whether electricity comes from the grid, and greenhouse gas emissions generated by non-grid electricity. The tax must be paid no later than September 30, 2025. The act does not apply to less developed countries, which include 46 countries including Afghanistan, Angola, and Bangladesh.
II. List of industries regulated by CCA:
The following is a list of regulated industries classified by the 2023 North American Industry Classification System (NAICS) codes:
In addition to cement, electricity, fertilizer, steel, aluminum, hydrogen and other items regulated by CBAM, the US CCA Act also includes petrochemical industry, adipic acid, paper mills, glass, ethanol and other items.
III. US carbon tariff rate trends from 2024 to 2030
The initial cost of the carbon tariff on US-made or imported products will be set at $55 per ton in 2024. Starting in 2025, the tariff will be adjusted annually by an amount equal to inflation plus 5%. Conservative estimates project the carbon tariff rate to exceed $80 per ton by 2030, and could reach over $90 by then, given the high inflation rates in the US.
The above chart shows the trend of carbon tariff rates in the United States from 2024 to 2030, based on Figure 1 from InfoLink Consulting.
IV. Major importing countries of five regulated products from the United States in 2021
According to the InfoLink Consulting chart, in 2021, the majority of US-regulated products such as cement, glass products, steel products, aluminum, and nitrogen fertilizer were imported from Canada; glass products were imported from mainland China, and Taiwan's only industry on the list was steel products, ranking fifth, making it the fifth largest importer of steel products in the United States, accounting for 3.8%.
According to data from the International Trade Centre (ITC), Taiwan's top 10 exports to the United States in 2022 were machinery and equipment (31.8%), electrical equipment (27.7%), auto parts (7.4%), steel products (6.1%), plastics and their products (4.3%), precision instruments (3.2%), base metal products (1.8%), toys and sports equipment accessories (1.8%), steel raw materials (1.8%) and furniture (1.7%).
Among them, the products regulated by the U.S. CCA Act include steel products (such as screws and nuts) and steel raw materials (such as crude steel). In 2022, Taiwan's steel products exports to the United States ranked fourth in Taiwan's exports, accounting for 6.1%, with exports of approximately US$4.5 billion; steel raw materials exported to the United States ranked ninth, accounting for 1.8%, with exports of approximately US$1.3 billion.
Taiwan is the second-largest exporter to the United States, with exports valued at approximately US$75.1 billion in 2022, a 14% year-on-year increase. According to data from the International Trade Center, Taiwan was listed among the items subject to US import controls in 2022, including steel products and steel raw materials.
In terms of steel products, Taiwan accounts for 3.7% of US imports, ranking fifth. The top four countries are Canada (21.9%), Mexico (12.5%), Brazil (9.6%), and South Korea (6.1%). Among the steel raw materials imported by the United States from around the world, the top five countries are China (26.9%), Mexico (13.5%), Canada (9.5%), Taiwan (8.6%), and South Korea (6.2%), with Taiwan ranking fourth.
Among Taiwan's regulated exports to the United States, steel and its products constitute a significant portion. If Taiwan's steel industry's emissions coefficient is lower than the US average, the CCA will not have a significant impact. According to Global Efficiency Intelligence's 2019 report, "How Clean is the US Steel Industry?", a typical US blast furnace-boost furnace (BF-BOF) steelmaking process emits approximately 1.8 tons of CO2 per ton of steel (Figure 1). Furthermore, according to statistics (Figure 2), US BF-BOF steelmaking has a relatively low global CO2 emission profile. Using electric furnace (EAF) steelmaking would emit even lower CO2 emissions (Figure 3). Furthermore, a 2021 report by the Chung-Hua Institution for Economic Research (CUI) indicates that, based on estimates from the National Greenhouse Gas Registry of the Environmental Protection Administration (EPA) and the sustainability reports submitted by major Taiwanese steelmakers, the average unit carbon emissions from domestic steelmaking activities currently range from 0.3 to 2.3 tons of CO2, a significant gap. Taiwanese steelmakers can reduce CO2 emissions by converting their equipment to EAF steelmaking to gain an advantage in US carbon tariffs.
(Figure 1) CO2 emission intensity of BF-BOF steelmaking in various countries studied in 2016
Finally, the "competition" bill aims to punish manufacturers in carbon-intensive industries and enhance the competitiveness of American companies with relatively low carbon emissions. Seventy percent of the U.S. steel industry is produced by melting scrap steel in electric arc furnaces. The U.S. steel industry also claims that its carbon emissions are relatively low globally, giving it a considerable competitive advantage over the EU's CBAM and CCA regulations.
Other industries subject to CCA regulation include the glass industry. According to data from the International Trade Center, the United States imported approximately $10.6 billion worth of glass from around the world in 2022. The top five importing countries were China (33.5%), Mexico (18.6%), Germany (7%), Canada (5.4%), and India (3.7%). Taiwan ranked sixth, importing over $300 million worth of glass from Taiwan, accounting for 3.65% of its global imports. Although not among the top five, the glassmaking process consumes a significant amount of carbon dioxide. The International Energy Agency (IEA) states that global glass manufacturers emit approximately 86 million metric tons of CO2 annually. However, Taiwan's waste glass recycling rate is as high as 92%, ranking second in the world, only behind Sweden's 99%. Reducing the use of virgin materials (such as quartz) and instead reducing CO2 emissions through glass recycling or crushing and remanufacturing would significantly benefit the Taiwanese glass industry. The lower temperatures required to melt cullet also reduce fuel use, thereby reducing carbon emissions.
According to the U.S. Environmental Protection Agency (EPA), 7 million tons of glass were landfilled in the United States in 2018 alone, accounting for 5.2% of all solid municipal waste. Only 31% of glass containers were recycled, demonstrating that American consumer habits and environmental awareness still require further improvement. Implementing glass recycling, reuse, and remanufacturing would significantly benefit Taiwan's glass exports. Other products regulated by the U.S. CCA, such as aluminum, asphalt, cardboard products, lime, and cement, are not included in this discussion because their imports from Taiwan represent a small fraction (less than 1%) of these regulated industries.
V. Comparison between CBAM and CCA
The Clean Competition Act, introduced by the US Senate, completed its second reading on June 7, 2022, and was referred to the Finance Committee. If passed on its third reading, the bill is expected to take effect as early as 2024. The tax will be levied on US importers and domestic manufacturers, with US domestic manufacturers eligible for export rebates when exporting to other countries. Affected industries include not only items covered by the EU CBAM but also petrochemicals, adipic acid, glass, pulp, paperboard, and ethanol. By 2026, the tax will be expanded to include finished products containing more than 500 pounds of carbon-intensive raw materials. By 2028, the tax will be reduced to finished products containing more than 100 pounds of carbon-intensive raw materials. Emissions will include both direct Scope 1 emissions and indirect Scope 2 emissions.
Although there is no need to submit certificates like the EU CBAM, ISO 14067 carbon footprint verification certificate must be submitted. If the data is unverified or unclear, the taxable portion will be calculated based on the ratio of the GDP carbon intensity of the country of origin to the carbon intensity of the US GDP. Economic carbon intensity is equal to gross domestic product (GDP) divided by greenhouse gas emissions in the most recent year.
VI. Conclusions and Suggestions
The United States is Taiwan's primary export market, and the US Clean Competition Act is looming, prompting Taiwanese manufacturers to heighten their awareness of the crisis. Currently, the CCA calculation standard is more specific than the CBAM and is also the ISO standard with which Taiwan is more familiar. Therefore, companies can prepare for it in advance. First, they should complete carbon footprint audits of regulated products to understand their carbon emissions and promptly implement carbon reduction measures in their processes to mitigate the risk of future carbon tariffs. In addition to the EU CBAM carbon tariff policy and the US CCA Act, the UK is also planning to introduce its own UK CBAM. In March 2023, the UK's newly established Energy Security and Net Zero Department discussed the 2026 launch of the UK CBAM, which is expected to cover industries such as metals, cement, and chemical fertilizers. British steel companies have also called for the accelerated implementation of the UK CBAM to avoid the EU CBAM carbon tariffs hindering steel exports to the European market.
While the CCA has yet to be formally passed its third reading and the collection period may be delayed, it is foreseeable that with the launch of the EU's CBAM, the US will not be slow to follow suit. Furthermore, other countries will gradually incorporate carbon tariffs into their national policies, with the scope of collection expanding and the price of carbon rising annually. Carbon inventory and reduction will be an essential step for businesses to enhance their competitiveness and achieve sustainable development.
Finally, small and medium-sized enterprises should view the trade policies introduced by European and American countries as an opportunity. By adopting strategies such as improving equipment energy efficiency, manufacturing low-carbon products, strengthening technological innovation, and promoting green transformation practices, they can not only help companies cope with climate change-related risks, but also enhance the competitiveness of industrial exports and accelerate companies' progress towards sustainable development.
Sources:
1.InfoLink Consulting：https://www.infolink-group.com/energy-article/carbon-boarder-tax-how-the-us-plays-the-game
2. U.S. Global Efficiency Intelligence: https://www.bluegreenalliance.org/wp-content/uploads/2021/04/HowCleanistheU.S.SteelIndustry.pdf
Organizer: Ministry of Economic Affairs, SME Administration
Executing Unit: Plastics Industry Technology Development Center
