As Californians drove to the polls for statewide primaries in early June, they were shackled with $9 per gallon gas, the highest ever gas prices on record. 

Even before Iran closed the Strait of Hormuz to oil tankers this spring, gas prices were already high due to taxes and fees on fossil fuels levied by the state of California.

The state, which is aiming for net-zero carbon emissions by 2045, is ground zero for the United States to transition to renewable energy.

In addition to the state’s cap-and-invest taxes, California’s high gas prices are due in part to a mandatory boutique anti-smog fuel blend, and policies that led to steady refinery closures across the state in recent decades.

Taxes, fees, and environmental programs account for as much as 30% of every gallon of gas pumped in California. These taxes mean that untaxed foreign producers can undercut local producers and refiners.

The state gets much of its petroleum from foreign countries, many of which do not share the same high environmental and labor standards to which U.S. firms must adhere. That same regulatory gap hamstrings U.S. producers of a broad swath of goods, including chemicals, fertilizers, glass, steel, and aluminum.

The largest energy shock in history illuminates a bipartisan solution that has been garnering increasing support in recent years: green tariffs. 

Taxing high-pollution imports could generate hundreds of billions of dollars in revenue, create a more even playing field for U.S. firms, and incentivize cleaner manufacturing globally. Perhaps most importantly, it could do something seemingly impossible: forge what might actually be a durable bipartisan consensus at the nexus of climate and trade. Applicable far beyond California’s reliance on foreign oil, the tariffs would apply to any carbon-intensive product arriving on U.S. shores.

A Crucial Opening for Climate and Trade

President Donald Trump is of course the most pro-tariff U.S. leader in more than a century. During his first 100 days, he unilaterally imposed global Liberation Day tariffs, based on a simple calculation of a given nation’s overall trade deficit against the U.S.

The Supreme Court overturned those reciprocal tariffs in February 2026, on grounds that Trump exceeded executive powers under the International Emergency Economic Powers Act. 

The administration immediately issued similar tariffs under a different authority, but those are set to expire in July. Congressional action is the surest way to actually ensure tariff policy is on solid legal footing, and therefore offers an option to rescue his trade agenda.

And well before Trump took office, lawmakers on both sides of the aisle put forth serious green tariffs — taxing foreign goods produced with carbon emissions and other pollutants, or what are often called “carbon border adjustments.”

Both the Democratic and Republican bills carry national security, economic, and environmental virtues.

These designs resemble the European Union’s Carbon Border Adjustment Mechanism, or CBAM, which was fully implemented in January 2026, after a phase-in period of several years.

In 2022, Rhode Island Senator Sheldon Whitehouse introduced his bill, the Clean Competition Act, alongside several Democratic cosponsors. GOP Senators Bill Cassidy and Lindsey Graham followed up in 2023 with the Foreign Pollution Fee Act (FPFA). Rather than touting emission reductions, the Republican case prioritizes addressing unfair trade.

“It’s a way to peacefully confront China,” Cassidy said during a CNBC interview shortly after introducing the bill.

The policies were a key focus at the Bipartisan Policy Center’s Climate and Trade Summit in July 2024, where Cassidy and Whitehouse spoke in a fireside chat about their bills, and the need for a U.S. carbon border adjustment. Though there are key differences between the two lawmakers, they stressed their common ground.

After Trump won the presidency alongside majorities in both houses of Congress, it was clear that the Democratic version couldn’t advance. Cassidy then sought to win over much of Trump’s new Cabinet, whom he pressed during their confirmation hearings.

“I think this is a very interesting idea,” said Treasury Secretary Scott Bessent. “It could be part of an entire tariff program.” Energy Secretary Chris Wright called it a “creative idea.” U.S. Trade Representative Jamieson Greer, noted that “other countries take advantage of a total lack of environmental regulation.”

First, they would improve U.S. energy security by decreasing dependence on foreign oil. Global price shocks have prompted policymakers

Commerce Secretary Howard Lutnick, Interior Secretary Doug Burgum, and Environmental Protection Agency Administrator Lee Zeldin also offered positive public comments about the foreign pollution fee.

Cassidy lost the Republican primary for his reelection this year on May 16. He has just months left in the Senate. However, he aims to use his remaining time in office to push the bill forward, Politico reported.

“I’d like to try to get it done this Congress. But if not, I’m comfortable that there will be somebody who would be interested in pushing it,” he said. “Now that folks understand the concept, they have very much gotten into it.”

Domestic Carbon Pricing Failed During the Obama Years

The FPFA approach to climate policy is unique in actually bringing a pro-business and trade lens, and launching the legislation with a raft of endorsements from trade associations. It is a marked departure from the traditional left-wing approach of reducing greenhouse gases for scientific and environmental reasons, which has never enjoyed commercial support.

The conventional economic case for reducing harmful greenhouse gases rests on pricing in the high environmental and social consequences of carbon emissions.

Next, they could shore up U.S. manufacturing and make environmental protections less costly for businesses.

During President Barack Obama’s first term, his administration worked with congressional Democrats to pass a cap-and-trade bill in the House. The legislation, called the American Clean Energy and Security Act, was designed to cap carbon emissions, and then sell credits permitting companies to pollute more.

At the time, however, the nation was in the grips of the Great Depression. Unemployment was high. Republican leaders had long doubted the science around climate change. The fossil fuel lobby and trade associations lobbied vociferously against the costs of the bill. It faced staunch opposition from Republicans, who branded the proposal “cap and tax.” It was filibustered in the Senate, and never reached a floor vote.

Rather than revisit the political pain of carbon pricing, the architects of the landmark Biden-era climate package opted for positive incentives instead. The 2022 Inflation Reduction Act focused on positive incentives such as subsidies and tax credits for electric cars and renewable energy projects.

Yet even though Senate Republicans squashed carbon pricing in 2009, they now offer perhaps the most politically realistic case for it today. Rather than top-down climate elitism, this case comes from China hawks. They look to boost U.S. manufacturing and preserve wages here. At the same time, they put high-polluting Chinese industries on notice, and hope to curb revenues that can grow China’s military.

Finally, they would generate federal revenue without raising taxes on Americans. 

They use a carbon pricing mechanism that would impose a fee based on pollution intensity, as calculated by the EPA.

Traditional progressive groups, such as the Citizens’ Climate Lobby (CCL), have expressed support for the FPFA. “CCL’s Research and Government Affairs staff have taken a close look at the bill language in the Foreign Pollution Fee Act and are confident that this legislation would reduce carbon pollution while promoting transparency and fairness in global trade.”

The Parties Have Overlapping Priorities

Both the Democratic and Republican bills carry national security, economic, and environmental virtues.

First, they would improve U.S. energy security by decreasing dependence on foreign oil. Global price shocks have prompted policymakers to explore new ways of insulating the American public from geopolitical instability and energy price shocks. Similar shocks also coincided with the 2020 COVID-19 pandemic and the 2022 Russian invasion of Ukraine. Taken together, these three global disruptions each underline the need for a more coherent architecture for energy security.

They could shore up U.S. manufacturing and make environmental protections less costly for businesses. China’s comparatively low environmental standards attract firms seeking lower production costs. American firms with higher labor and environmental standards consistently complain that the foreign producers are more competitive because they don’t have the same constraints.

American climate politics has suffered from a Jekyll and Hyde phenomenon. A green tariff might therefore strike the perfect balance.

Finally, they would generate federal revenue without raising taxes on Americans. 

Sen. Whitehouse’s Clean Competition Act could generate between $39.7 billion and $85.5 billion during its first five years, according to a 2025 study by Harvard University’s Belfer Center for Science and International Affairs. Those funds would be reinvested in industrial decarbonization projects.

The Graham-Cassidy bill, which imposes a tax based on customs value rather than an explicit carbon price, would raise up to $198.1 billion over a five-year period.

On the left, Sen. Sheldon Whitehouse’s Clean Competition Act goes much further with universal carbon tariffs, meaning its carbon pricing scheme applies not just to foreign goods, but to domestic goods as well.

Staking Out the Messy Middle

There are critical discrepancies between the two bills. Most notably, the Republican bill stops short of calling for a domestic carbon price, which was a key issue that ended Obama’s hope for a comprehensive cap and trade bill.

In satisfying conservative opposition to a domestic carbon price, it could be harder for a foreign pollution fee law to abide by World Trade Organization rules. A WTO court might rule that the law violates provisions in the General Agreement on Tariffs and Trade, a treaty in place since World War II meant to eliminate tariffs, quotas, and subsidies. Charges of American protectionism dressed up as environmentalism would become a sticking point in future climate negotiations.

Carbon tariff regimes like the Clean Competition Act and the Foreign Pollution Fee Act are effective and surgical interventions, unlike the Trump administration’s across-the-board tariff regime. 

By avoiding an explicit domestic carbon price, the FPFA calculates its tariff based on the total cost of the good, not just the carbon cost priced into it. Its defenders, including at the Bipartisan Policy Center, argue that the bill does in fact include an implicit carbon price in the form of environmental regulations, EPA compliance, and permitting requirements. This might pass muster in a WTO tribunal. 

Political pundits expect a blue wave in November. Yet while 13 states have enacted carbon pricing schemes, Democrats are unlikely to command large enough majorities to pass a federal bill with domestic carbon pricing. Even if they do, they face Trump’s veto pen for at least two more years.

Therefore, it may be worth not letting Cassidy’s imperfect bill be the enemy of the good. American climate politics has suffered from a Jekyll and Hyde phenomenon: Obama brought the U.S. into the Paris Climate Accords and Biden secured the Inflation Reduction Act. Both Trump administrations, on the other hand, have been hellbent on reversing that progress.

A green tariff might therefore strike the perfect balance.

Domestic Beneficiaries

Carbon tariff regimes like the Clean Competition Act and the Foreign Pollution Fee Act are effective and surgical interventions, unlike the Trump administration’s across-the-board tariff regime. 

They keep U.S. manufacturing among the cleanest in the world, and directly address the core regulatory mechanisms that drive unfair competition from abroad. 

For instance, in Washington state, Chinese overproduction and dumping led to the closure of the Intalco aluminum smelter. This resulted in the loss of over 700 good-paying union jobs, with workers receiving compensation from a U.S. program that helps workers who lose jobs to foreign competition. Closures like Intalco have been typical across the U.S. aluminum industry, whose production levels have fallen to the lowest levels since World War II. Some 90% of Chinese metal production is coal-powered, resulting in a carbon footprint many times greater than hydro-powered smelters.

A U.S. foreign pollution fee could in theory improve the situation of American workers by harmonizing with the structure of the European CBAM.

Another example, solar cell manufacturing, is twice as pollutive in China as in the U.S. Trade associations have repeatedly filed cases against China and other countries for manufacturing and selling solar panels for artificially low prices.

The same is true in the glass industry, with the United States Glass Producers Association filing unfair trade accusations against China, Mexico, and Chile for dumping wine bottles into the U.S. market. Glass requires extraordinary levels of heat, making manufacturing it a highly energy-intensive process. Studies show that carbon emissions associated with glass manufacturing are about 40% higher with coal power compared with natural gas.

By making carbon-intensive products less competitive in the U.S., the outcome should be an opening for renewable energy development, while also smoothing out the costs of environmental regulation domestically.

Harmonizing with Europe?

In addition to pushing back on China, a U.S. foreign pollution fee could in theory improve the situation of American workers by harmonizing with the structure of the European CBAM.

However, in July 2025, the Trump administration negotiated its own trade deal with the EU Commission President Ursula von der Leyen, as a bilateral deal to replace the larger Liberation Day tariff threats. Called the Turnberry Agreement, it took effect on July 4, 2026. That deal — which calls for 0% tariffs for U.S. goods entering the EU, and 15% tariffs on EU goods entering the U.S. – is moving forward, albeit with tensions.

The EU’s leadership with green tariffs could give the EU a crucial foreign policy victory in its vision to shape global norms. If successful, it represents a potential environmental, financial, and reputational victory for the bloc.

For now, Senate hopes for a U.S. foreign pollution fee are essentially on a separate track from the administration’s approach. They aim for transactional agreements like Turnberry to replace the Bretton Woods rules-based trade system in place since World War II. Rather than harmonize with CBAM, the administration has lambasted European climate policy, called for the elimination of the carbon tax, and threatened to quit the International Energy Agency. That said, American policymakers can still refine their approach based on learnings from the European CBAM implementation. Mirroring the Foreign Pollution Fee could be useful for reciprocal trade negotiations.

Despite the Trump administration’s ambitious aims to revamp the postwar world order, the European Parliament conditioned its approval of the Turnberry agreement on provisions to sunset it in 2029. The EU’s leadership with green tariffs could give the EU a crucial foreign policy victory in its vision to shape global norms. 

If successful, it represents a potential environmental, financial, and reputational victory for the bloc. However, its uneven rollout and significant criticism risk failure, tying up the policy for years at the WTO, undermining internal confidence in the EU, and slowing down the global energy transition during a crucial decade.

Empowering Consumers

California is a global climate leader, but a disproportionate share of that burden falls on the sizable working class in the state who don’t hold high-paying tech jobs in Silicon Valley.

In California, the Foreign Pollution Fee Act might help smooth the transition to renewable fuels, while simultaneously protecting some of the domestic producers of crude oil and other products in the short run.

Taxes, fees, and environmental programs account for as much as 30% of every gallon of gas pumped in California. These taxes pay for clean transportation, sustainable agriculture, and affordable housing, but they mean that untaxed foreign producers, in countries such as India and South Korea, can undercut local producers and refiners.

The global price shock has shined a light on global energy security.

In the lead-up to Election Day, even the most climate-vocal candidate, billionaire Tom Steyer, signaled his support for oil refining in an interview with KCRA, saying “We need to have more refining capacity for internal combustion engines for sure.”