The Clean Competition Act adds a new Subchapter E to the Internal Revenue Code that charges imports and domestic producers when a facility’s or product’s measured carbon intensity exceeds a U.S. industry baseline. The law builds a multi‑part compliance system: annual facility reporting, facility‑ and industry‑level carbon intensity calculations, a per‑unit charge tied to a dollar “cost of pollution,” export rebates, and limits for carbon removal credits.
The bill couples trade measures with active industrial policy. It authorizes bilateral “carbon club” agreements that can waive charges for compliant partners and creates a large Department of Energy program (grants, loans and competitive contracts for difference) plus State Department assistance to accelerate low‑carbon production.
For businesses and trade officials this is not merely a tariff: it’s a regulatory, accounting and trade‑policy regime that creates new compliance costs, new funding opportunities, and new data and verification obligations across supply chains.
At a Glance
What It Does
The bill requires covered facilities to report emissions and production annually, computes a facility and U.S. industry carbon intensity (tons CO2‑e per unit of output), and imposes a charge when intensity exceeds a baseline percentage. Imports are assigned carbon intensities by default using country and industry data, or by petitioned manufacturer or industry data. The statute also rebates charges on exported goods and allows negotiated ‘‘carbon club’’ waivers for compliant trading partners.
Who It Affects
Energy‑intensive sectors listed by NAICS (e.g., steel, cement, petrochemicals, aluminum, paper, oil refining), importers and exporters of those goods, facility operators required to report under the Greenhouse Gas Reporting Program, DOE applicants for grants/contracts, and trade agencies that will negotiate carbon club agreements and verify foreign data.
Why It Matters
This creates the first U.S. carbon border adjustment based on measured carbon intensity, pairing carbon pricing with industrial finance and trade diplomacy. It changes supply‑chain economics for energy‑intensive inputs, forces detailed emissions accounting across domestic and imported production, and embeds trade negotiation into climate enforcement — raising measurement, administrative, and international‑law challenges that corporate compliance and trade teams must plan for.
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What This Bill Actually Does
The bill adds a standalone carbon‑intensity regime to the Internal Revenue Code. Covered entities — defined as producers required to report under the federal Greenhouse Gas Reporting Program — must file annual facility reports by June 30 with IRS, EPA and DOE-style authorities.
Those reports feed a per‑facility carbon intensity calculation: covered emissions (process emissions plus electricity‑related emissions) divided by the facility’s production (the ‘relevant quantity’). For grid electricity the bill uses the regional grid average unless a power‑purchase‑agreement (PPA) guarantees hour‑for‑hour matching within a regional zone.
For imports the statute sets a tiered approach: a default economy‑wide scaling of U.S. industry intensity using a country’s national emissions per GDP; where available, the Secretary will substitute country‑level industry intensity; importers can petition with verified manufacturer‑level data (environmental product declarations) to use factory‑specific intensities. The law excludes certain least‑developed countries and contains anti‑gaming rules (inter‑firm resource‑shuffling, treatment of inputs, and transshipment language) to limit manipulation of origin or ownership to avoid charges.Charges apply to covered primary goods beginning in 2026 and to finished goods later (the bill sets phased weight/value thresholds to define finished goods), and are calculated as the per‑unit relevant quantity multiplied by the amount the product’s carbon intensity exceeds an ‘‘applicable percentage’’ of the U.S. 2025 baseline, multiplied by a dollar “cost of pollution.” That dollar amount starts at a fixed level and escalates annually by a CPI‑based formula.
Domestic producers pay on the same intensity‑above‑baseline principle; exporters may claim refunds equal to charges previously levied, subject to crediting by foreign policies.To reduce the domestic cost of decarbonization the bill funds an industrial competitiveness package: a competitive DOE program for grants/loans to retrofit or build low‑carbon facilities, and a larger program of competitive contracts for difference (CFDs) awarded through auctions to underwrite the gap between a strike price and market value for low‑carbon primary goods. The statute sets program design features — labor and community benefit requirements, cost‑share rules, recapture for underperformance, and dynamic indexing of strike prices — and provides initial multi‑year appropriations authority tied, over time, to a fraction of revenue raised by the carbon‑intensity charges.
The State Department receives a separate appropriation stream for bilateral/multilateral assistance tied to carbon club objectives.
The Five Things You Need to Know
Covered entities must submit annual facility emissions and production data by June 30 for the prior calendar year.
Importers and domestic producers owe the carbon‑intensity charge for a calendar year no later than September 30 of the following year.
The statute sets the initial ‘cost of pollution’ at $60 per metric ton CO2‑e in 2026 and escalates it annually using CPI plus 6 percentage points.
The ‘applicable percentage’ of the 2025 U.S. baseline starts at 100% in 2026 and declines (−2.5 points per year 2027–2030, then −5 points per year 2031–2047) to 0% after 2047.
DOE and State Department programs receive frontloaded funding: $75 billion for DOE industrial investments and $25 billion for international climate/clean‑energy assistance in FY2027, with subsequent funding tied to revenues produced by the charge.
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
Carbon‑intensity measurement and reporting
This section establishes the reporting duty and the arithmetic for carbon intensity. Facilities must report GHGs and electricity use; covered emissions are process emissions plus emissions associated with electricity use (using regional grid averages unless a qualifying PPA exists). The Secretary, EPA Administrator and Energy Secretary jointly determine industry‑level intensities, allow petitions to carve goods out of broader industry groupings, and publish methodologies and annual intensity results — creating the technical MRV backbone of the entire regime.
Imposition and calculation of the carbon‑intensity charge
The charge applies to imported covered primary goods (beginning 2026) and to domestic eligible facilities that exceed the baseline percentage for their covered national industry. Calculation multiplies the per‑unit excess intensity by the ‘cost of pollution’ (dollars per metric ton). The statute sets the payment schedule (due Sept. 30 following the year of production/import), includes finished‑good passthrough rules, excludes specified least‑developed country imports (with a market‑share exception), and allows the Secretary to waive charges where a foreign country imposes equivalent verifiable carbon fees.
Export rebates and anti‑gaming rules
Exported covered primary goods and finished goods are eligible for rebates equal to the charge that would have applied (to prevent double taxation), but rebates are reduced if the importing country would credit the U.S. charge against its own import climate measures. The section also requires aggregated calculations for refund claims to prevent domestic resource‑shuffling and applies rules to ensure that rebates don’t become a loophole for relocating emissions.
Carbon clubs — trade diplomacy and conditional waivers
This creates an executive path for negotiated ‘‘carbon club’’ agreements: countries that adopt interoperable MRV, enforce labor and environmental standards, and implement domestic decarbonization measures can receive waiver treatment (and other trade preferences). The president negotiates and enforces these agreements; parties must allow mutual validation and meet phase‑in schedules. The provision is explicitly designed to pair enforcement with incentives and assistance.
Definitions and scope (listed industries and goods rules)
Definitions tie the statute to specific NAICS codes and HTS classifications, set the 2025 U.S. baseline year, define covered primary goods versus finished goods (using weight and value thresholds that phase down), and codify terms like ‘‘covered emissions,’’ ‘‘regional grid,’’ and ‘‘inter‑firm resource shuffling.’’ These definitions will govern boundary issues — what’s charged, what’s rebated, and what can be petitioned into or out of an industry grouping.
Grants/loans and program priorities to lower facility carbon intensity
The bill creates a DOE competitive program for grants, rebates, and low‑interest loans to retrofit existing facilities (minimum 20% intensity reduction) or to finance proposed facilities that achieve best‑in‑class intensity. Applicants face a required 50% cost share, preference points for projects that maximize emissions reductions, job creation and community benefits, recapture rules if performance targets aren’t met, and outreach duties to recruit historically impacted communities.
CFDs via auctions, payment mechanics, and funding tethered to revenue
DOE will run competitive auctions for contracts for difference by eligible goods class. Winning projects must meet minimum decarbonization (20%+) and labor/community standards; payments equal the gap between a strike price and market value, dynamically indexed for inflation and key input costs. The bill authorizes an initial $75B (DOE) and $25B (State) in FY2027, then ties future program funding to 25% of incremental revenues from the carbon‑intensity charge once revenues exceed a threshold — a structural link between the tax instrument and industrial finance.
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Explore Trade 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
- Lower‑carbon domestic producers — Firms with facility intensities below the U.S. industry baseline gain a competitive edge because they pay little or no charge, and they can qualify for DOE grants or contracts that further lower their costs and increase export competitiveness.
- Exporters of covered goods — Export rebates return charges on goods that leave the United States, avoiding double‑penalizing exported production and supporting export markets from decarbonizing facilities.
- Successful DOE grantees and CFD winners — Companies that secure grants, loans or contracts for difference receive financial support that narrows the price gap for low‑carbon production, making investments in advanced industrial technology commercially viable.
- U.S. downstream manufacturers and supply‑chain buyers — Buyers who switch to lower‑carbon inputs or source from carbon‑club partners face lower import charges and more predictable compliance costs, improving planning for procurement teams.
Who Bears the Cost
- Importers of energy‑intensive goods — Importers pay the charge (or must supply verified low‑intensity manufacturer data) and may face cash‑flow and compliance costs, including new reporting and documentation obligations.
- High‑carbon domestic facilities — Facilities with intensities above the applicable percentage face per‑unit charges, plus capital costs to decarbonize under time‑sensitive baselines and potential recapture if they accept public funds and fail to meet targets.
- Federal agencies and regulators — IRS, EPA, DOE, USTR and the Trade Representative must build or scale MRV, verification, dispute‑resolution and audit capacity; that increases administrative costs and staffing needs.
- Consumers and downstream industries — Producers and importers are likely to pass some incremental charge through prices; supply chains for affected finished goods may see margin pressure and sourcing shifts.
Key Issues
The Core Tension
The central dilemma is trade‑off between environmental integrity and administrative/ trade feasibility: impose a tight, measurement‑based charge to drive real decarbonization (and risk data‑driven disputes, high compliance costs, and potential WTO challenges), or simplify the system for easier administration and diplomacy (and risk weak signals, loopholes, and carbon leakage). The bill tries to balance both by coupling strict MRV with trade‑policy incentives and large industrial subsidies, but that mix forces a hard choice between accuracy and practicability that has no easy technical or political solution.
Measurement and data gaps are the regime’s principal operational risk. The statute depends on facility‑level reporting, regional grid intensity estimates, verified manufacturer declarations, and country‑level industry data — but those datasets vary widely in availability and verifiability.
Where manufacturer or industry data are unavailable the law relies on a country‑level economy scaling approach, which can misstate the emissions embodied in traded goods and invite disputes or requests for recalibration.
The bill attempts to thread WTO and trade legality by basing charges on measured carbon intensity and by providing waivers for countries in ‘‘carbon clubs,’’ but legal and diplomatic risk remains. Disparate methodologies, perceived discrimination, or implementation gaps (e.g., exclusions for least‑developed countries, the 3% global‑share exception) will be flashpoints with trading partners.
The auctioned contracts for difference and the appropriation linkage (future DOE/State funding capped at a share of revenues) create complex interactions: program funding depends on revenues that the policy itself suppresses as decarbonization proceeds, and rebate/waiver provisions can blunt price signals or create lobbying pressures to relax standards.
Finally, anti‑gaming provisions (resource‑shuffling, input treatment, transshipment restrictions) shift the battle from tariffs to verification and customs enforcement. Successful implementation will require detailed MRV rules, robust third‑party verification, and durable interagency and international cooperation — all of which raise significant cost and timing uncertainties for businesses and governments alike.
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