The Impact of the US Climate Legislation on Trade with China

With the current public outrage at the environmental consequences of the oil spill in the Gulf, the president is likely to gain much needed support for his promotion of climate change legislation. A market driven switch to alternative and renewable energy will require a bill that puts a price on carbon and gives producers incentives to switch to and invest in cleaner, more efficient inputs and processes. Such a bill must meet two criteria. First, it must not harm the competitiveness of domestic producers relative to their foreign counterparts; and second, it must minimize emission leakage, thereby reducing global emissions levels. In this project for the US Department of Energy, we model the impacts of future US climate legislation. Policy scenarios are drawn from the precedence set by the American Clean Energy and Security Act (ACESA), which the US Senate did not pass in 2010 but which serves as a blueprint for the future. The goal of the ACESA is to motivate US producers to reduce emissions in five manufacturing industries: Iron and Steel, Non-ferrous Metals, Non-metallic Minerals, Pulp and Paper, and Chemicals. Collectively, these sectors make up the most energy-intensive trade-exposed (EITE) sectors in the world. While the bill did not pass in its current form, future legislation will incorporate its three main policies: instituting a cap and trade system in the US, output-based rebates on allowance purchases, and an import tax on embodied emissions.Energy Information Administration (EIA), Department of Energ