This bill adds a new Subtitle L to the Internal Revenue Code that imposes a national tax on greenhouse gas emissions from combusted fossil fuels, listed industrial processes, and certain product uses. The tax begins at $35 per metric ton CO2-equivalent in 2027 and rises annually under a fixed escalation formula; it includes refunds for verified carbon sequestration and a credit for state-level carbon payments.
The measure pairs the tax with a border tax adjustment regime for energy‑intensive manufactured goods, creates a Rebuilding Infrastructure and Solutions for the Environment (RISE) Trust Fund to capture most revenues and direct them to highways, airports, state rebates to low‑income households, research, and worker assistance, and inserts a limited moratorium into the Clean Air Act that blocks EPA regulation of greenhouse gases covered by the tax until certain triggers are met. The bill also contains many unrelated titles (sanctions, voting rules, veterans’ benefits, school security, etc.).
At a Glance
What It Does
Imposes a federal emissions tax beginning in 2027 ($35/ton CO2e) on fossil fuels at specific domestic and import points, on large industrial process emissions, and on selected product uses; establishes border tax adjustments; directs most revenue into a new RISE Trust Fund with detailed percentage allocations; and constrains EPA regulatory action on emissions that have been taxed.
Who It Affects
Producers and importers of coal, petroleum, and natural gas; energy and energy‑intensive manufacturers (iron & steel, cement, refineries, aluminum, chemicals, semiconductors, etc.); importers and exporters of covered goods; state governments (eligible for grants); and end users to the extent costs are passed through (fuel, electricity, manufactured goods).
Why It Matters
The bill substitutes a uniform federal price signal for a patchwork of state programs and many EPA regulatory paths, channels large new revenue streams to transportation and climate R&D via the RISE Fund, and creates a customs‑linked mechanism to blunt carbon leakage — all of which recast incentives across energy, manufacturing, and trade policy.
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What This Bill Actually Does
The bill inserts a new Subtitle L into the Internal Revenue Code to tax greenhouse gas emissions in three buckets: (1) combusted fossil fuels (coal, petroleum products, and natural gas) at domestic production exits and at first entry if imported; (2) industrial process emissions from a statutorily listed set of source categories (with a 25,000 metric‑ton facility threshold); and (3) certain manufactured product uses (fuel ethanol, biodiesel, nitrous oxide, solid biomass fuels, ozone‑depleting agents, etc.). The starting tax is $35 per metric ton CO2e for calendar year 2027; thereafter the rate grows by adding 5 percentage points plus a CPI‑based percentage increase to the prior year’s rate.
The statute also builds in periodic emission‑level tests that can trigger an additional $4/ton increase if cumulative emissions exceed fixed benchmarks.
Administration and compliance matter: the EPA (Administrator) and Treasury (Secretary) share rulemaking and reporting duties. Rules must be published at least one year before the tax’s operative calendar year, and the bill delays collection until one year after applicable regulations are published.
The law defines points of taxation tightly (mine mouth, refinery exit, gas processing exit, or point of import) and allows product manufacturers and sequesterers to seek partial refunds when manufacture or verified sequestration demonstrably reduces taxable emissions; sequestration refunds tie to 45Q regulatory standards. The tax includes a harsh enforcement tool—a nonpayment penalty equal to three times the applicable tax for that year.To address competitiveness, the bill creates a Border Tax Adjustment (BTA) mechanism: the Secretary will publish lists of eligible U.S. industrial sectors (NAICS‑based) that meet greenhouse‑gas intensity and trade‑intensity tests and will levy an import charge equivalent to the domestic tax exposure while rebating tax on exported covered goods.
The statute contemplates exemptions for least‑developed countries and a Presidential waiver for national‑interest reasons; it also directs detailed rulemaking on product coverage, circumvention, and administrative appeals.Revenue policy is explicit and prescriptive. The Treasury must transfer 75 percent of revenues into a new RISE Trust Fund; that fund’s statute prescribes specific percentage shares for a set of recipients and programs (a dominant 70 percent slice to the Highway Trust Fund, 10 percent for State grants to low‑income households, set shares for airport trust, mine reclamation, coastal and flood adaptation projects, carbon R&D and removal programs, and worker assistance, among others).
States must certify plans to distribute their grants; the bill specifies eligibility rules for low‑income households and ties state grant amounts to states’ shares of energy‑related sales.On environmental regulation, the bill amends the Clean Air Act to bar the EPA from issuing or enforcing rules that limit greenhouse‑gas emissions that have passed through the tax’s point of taxation, subject to enumerated exceptions (e.g., rules for other health impacts, non‑GHG pollutants, certain EPA programs, or facilities already regulated for methane under specific NSPS provisions). That moratorium largely lasts through 2038 but includes emission thresholds and reporting triggers that can end the moratorium earlier.
Finally, the bill ties implementation dates to the later of December 31, 2025, and one year after the relevant regulations are promulgated, creating a regulatory lead‑time requirement.
The Five Things You Need to Know
The tax starts at $35 per metric ton CO2e in calendar year 2027 and thereafter the annual rate equals prior‑year’s rate plus 5 percentage points plus the prior year’s CPI percentage increase; periodic cumulative emissions benchmarks can add $4/ton in specified years.
The statute imposes a point‑of‑taxation regime: coal at the mine mouth or processing exit, petroleum at refinery exit, natural gas at the gas‑processing exit (or point of sale if untreated), and imports at the first U.S. entry point.
Nonpayment attracts an automatic penalty equal to three times the applicable tax for the tax year (i.e.
triple the tax liability) in addition to tax collection.
The bill creates a statutory Border Tax Adjustment: the Secretary lists eligible industrial sectors (6‑digit NAICS) using greenhouse‑gas intensity and trade‑intensity tests; imports of covered goods face an import charge equivalent to domestic tax exposure, while exports receive a rebate of tax paid.
Seventy‑five percent of carbon‑tax receipts are directed by statute into a RISE Trust Fund; the bill prescribes line‑item percentages from RISE (70% of RISE to the Highway Trust Fund; 10% of RISE to State grants for low‑income households; set small percentages for airport trust, R&D, carbon‑removal programs, flooding adaptation, mine reclamation, and displaced‑worker assistance).
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
National greenhouse‑gas tax: structure, points of taxation, and enforcement
This is the core of the Market Choice plan: it adds a new Subtitle L to the Internal Revenue Code imposing three tax streams — combusted fossil fuels, industrial processes, and specified product uses — calculated in CO2‑equivalent metric tons. The bill sets precise points of taxation for domestic production and imports, prescribes how emissions are calculated (with EPA rulemaking authority), and ties effective collection to the publication of implementing regulations. Enforcement features include a triple‑penalty for nonpayment and an explicit method‑cost constraint preventing Treasury/EPA from choosing an emissions accounting method whose incremental cost exceeds the tax value it would reveal.
Border carbon adjustments and sectoral tests
The BTA part requires Treasury to publish lists of industrial sectors that qualify for import charges and export rebates using statutorily defined greenhouse‑gas intensity and trade‑intensity tests (NAICS‑based). It authorizes administrative petitions and biennial reviews, contemplates exemptions for least‑developed countries and small emitters, and directs rulemaking on valuation, circumvention, and procedural appeals. The President retains narrow discretion to suspend BTA application to specific sectors for national‑interest reasons; otherwise the mechanism is designed to align import prices with domestic carbon exposure.
Revenue capture and formulaic appropriations to infrastructure, R&D, and households
The bill establishes the RISE Trust Fund as the primary repository for 75% of revenue from Subtitle L and prescribes line‑item percentage flows: a large share (70% of RISE) to the Highway Trust Fund; 10% to State grants for eligible low‑income households; fixed percentages to airports, leaking‑tank cleanup, abandoned mine reclamation, coastal flooding mitigation, carbon R&D and removal, energy storage, ARPA‑E, and a set‑aside for displaced energy workers. The approach limits annual appropriators’ discretion over those shares and attaches wage‑rate and procurement conditions for projects funded from RISE allocations.
Targeted moratorium on EPA greenhouse‑gas regulation for taxed emissions
The bill inserts a moratorium in Clean Air Act Title III: after a fuel passes through the tax point or an emission is taxed under Subtitle L, EPA may not issue or enforce rules limiting those greenhouse‑gas emissions on the basis of their greenhouse effect, subject to enumerated exceptions. The moratorium is time‑bounded (expires January 1, 2039 unless emissions triggers are exceeded earlier) and preserves EPA authority to act on non‑GHG health impacts, other pollutants, monitoring, reporting, and certain facility categories. Practically, this shifts primary greenhouse‑gas policy from administrative regulation to the tax and oversight regime.
Tax and tax‑credit reforms affecting fuel and coal incentives
The bill repeals federal motor‑vehicle and aviation fuel excise taxes (a structural tax change intended to be offset by the new carbon tax) and revises the qualifying advanced coal project credit, including sequestration percentage and capacity thresholds. These changes alter longstanding excise structures and update the eligibility and performance requirements for advanced coal tax credits, with consequential impacts on project finance and tax‑equity markets in affected technologies.
Assistance for displaced energy workers
Using RISE funds, the bill authorizes a 10‑year program of retraining, relocation support, early retirement, health benefits, and community redevelopment grants for workers in fossil and certain nuclear sectors displaced by the transition. The statute also allows transfers to trustees of a specified miners’ pension plan subject to a funding test, and sets out eligible activities with flexible forms of assistance to regional economies.
National Climate Commission — mandate and independent review role
The bill establishes a bipartisan National Climate Commission with appointed experts and industry representatives to set emissions‑reduction goals every five years, analyze Federal progress toward those goals, and report recommendations (including minority views) to Congress and the President. The Commission can obtain federal data, accept private donations (with public disclosure), and will be funded modestly for review, not for rulemaking — its function is advisory and evaluative, designed to provide periodic benchmarked assessments.
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Explore Environment in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- State transportation and infrastructure agencies — the RISE Trust Fund dedicates a large, formulaic share to the Highway Trust Fund and formally channels funds for airports, coastal adaptation, and mine reclamation, reducing direct competition in annual appropriations.
- Low‑income households — States receive a statutory share (10% of RISE) to distribute to eligible low‑income households; the statute prescribes income and program‑participation rules to target relief tied to energy costs.
- Carbon‑removal and sequestration projects — the bill authorizes refunds for verified sequestration and allocates R&D and deployment funding to direct air capture, bioenergy with CCS, carbon usage research, and pipeline infrastructure, improving project economics for removals.
- Manufacturers that can document noncombustive product uses — Subtitle L allows refunds where manufacture transforms a taxed fossil input and demonstrably reduces emissions over product life, creating an explicit pathway for product‑based exemptions.
- Displaced energy workers and affected communities — the bill funds retraining, relocation, pensions support, and community redevelopment targeted at fossil and some nuclear sector workers, creating a focused transition assistance program.
Who Bears the Cost
- Extractors, refiners, and primary fossil‑fuel producers — the tax is collected at points of production or import and will raise operating costs and likely be passed down the chain, imposing compliance, reporting, and cash‑flow burdens.
- Energy‑intensive manufacturers and large industrial facilities — many listed source categories (steel, cement, refineries, chemicals, aluminum, semiconductors) face direct taxes on process emissions and will need capital and process changes or pay the tax.
- Importers and exporters of covered goods — importers face the border tax adjustment charge; exporters must navigate export rebates and additional administrative requirements tied to the BTA regime.
- State regulatory agencies and EPA — the bill shifts greenhouse‑gas control from administrative regulation to tax administration and creates new federal reporting and enforcement obligations that may crowd State programs and create intergovernmental friction.
- Consumers and end users — fuel, electricity, and energy‑intensive goods prices are likely to reflect the tax, increasing household and business energy costs to the degree producers pass through price changes.
Key Issues
The Core Tension
The central dilemma is the bill’s choice to privilege a uniform market price for carbon over administrative regulation: a national tax and BTAs simplify and internalize carbon costs economy‑wide, but the linked moratorium removes administrative levers that target non‑priced externalities, local air quality harms, and sector‑specific failures; striking the balance between a clean economic signal and the need for targeted regulation and trade‑law defensibility is the bill’s core policy trade‑off.
The bill pairs a national carbon price with a statutory moratorium on many EPA greenhouse‑gas actions — that trade reduces overlapping regulation but hands the federal government’s primary emissions lever to the tax code. That design assumes the tax signal will be sufficient to drive emissions reductions, but it also removes administrative tools EPA typically uses to target local co‑pollutants, specific sectors, and technology‑forcing standards.
Implementation depends heavily on detailed Treasury and EPA regulations (emissions accounting methods, refund procedures, and BTA calculations). Delays or contentious rulemakings — for example, defining lifecycle emissions for biofuels, sequestration verification tied to 45Q rules, or sectoral coverage decisions — could push the effective start date beyond statutory targets and create legal uncertainty for investors.
The BTA raises WTO and diplomatic complexity; the statute attempts to reduce trade frictions with NAICS‑based tests and least‑developed‑country carveouts, but real‑world valuation of embedded emissions, rules to prevent circumvention (multi‑country manufacture), and Presidential waiver authority leave room for politicized or contested application. On revenue allocation, locking RISE shares into statute reduces appropriators’ flexibility but also means programs are funded mechanically — good for predictability but risky if revenues fall short of projections.
Finally, the bill’s triple‑penalty for nonpayment and the broad sweep of sanctions in other titles (e.g., a separate Russia sanctions title) create a legal and enforcement landscape in which Treasury, Customs, and enforcement agencies must coordinate closely to avoid overreach and to ensure fair appeals and compliance pathways.
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