Senator Sheldon Whitehouse on the Rising Prospects for a U.S. Carbon Border Fee

Senator Sheldon Whitehouse has a reputation as an advocate for strong climate policies in Congress. The Rhode Island Democrat gained national attention over a decade ago when he gave the first of more than 290 “Time to Wake Up” climate speeches to date on the floor of the U.S. Senate. Many of the speeches were delivered at times when the prospects were bleak for significant leadership from Washington on climate and clean energy issues.

Yet the past three years have been very different. Through the passage of the Bipartisan Infrastructure Law and, most pointedly, the Inflation Reduction Act, Congress has made concrete steps to grow domestic clean energy and improve the nation’s climate resilience. Recently, Senator Whitehouse reintroduced a bill that would levy the first carbon border fee on goods imported to the U.S., and effectively reward American industry for its leadership in energy efficiency and emissions reductions.

On the podcast, Whitehouse discusses his plan for a carbon border adjustment. He also considers an upcoming election that will prove critical for continued progress, and that could jeopardize the full realization of recently passed energy and climate laws and the fate of the Biden administration’s related regulatory accomplishments.

This episode was recorded on March 15, 2024, as a part of Penn Energy Week.

Full Transcript

Andy Stone: Welcome to the Energy Policy Now podcast from the Kleinman Center for Energy Policy at the University of Pennsylvania. I’m Andy Stone. Senator Sheldon Whitehouse has a reputation as an advocate for strong climate policies in Congress. The Rhode Island Democrat gained national attention over a decade ago, when he gave the first of more than 290 “Time to Wake Up” speeches on the floor of the US Senate, in which he has pushed for climate action. Many of the speeches were delivered at times when the prospects were bleak for significant leadership from Washington on climate and clean energy issues.

The past three years have been very different. Through the passage of legislation that includes the Bipartisan Infrastructure Law in 2021, and more pointedly through the Inflation Reduction Act of 2022, Congress has made concrete steps to grow domestic clean energy and improve the nation’s climate resilience. Efforts have not stopped. Most recently, Whitehouse reintroduced a bill that would levy the first ever carbon border fee on goods imported to the US and effectively reward American industry for its leadership in energy efficiency and emissions reductions.

Now, however, we are in an election year, the outcome of which will prove critical for continued progress and which puts in jeopardy the full realization of recently-passed energy and climate laws and the fate of the Biden administration’s related regulatory achievements. Here on the podcast, to discuss his plan for a carbon border adjustment and to talk about the threats to and opportunities for clean energy progress this year and beyond is Senator Sheldon Whitehouse. Senator Whitehouse, welcome to the podcast.

Sheldon Whitehouse: Thank you, Andy. It’s wonderful to be with you.

Stone: It’s great to have you. In December, you reintroduced a proposal for a carbon border adjustment mechanism on imported goods. The plan would also apply a performance standard to domestic manufacturers with large carbon footprints. Could you start us out by talking about the need for a carbon border adjustment?

Whitehouse: As a general proposition, if we want to find a pathway to climate safety, we’re going to have to put some kind of a price on pollution. You shouldn’t be able to emit carbon emissions for free when we know so well what the cost and damages are from all of those emissions. It sends a horrible signal into the market. The dislocation has been identified by the International Monetary Fund at about 600+ billion — billion dollars per year — in the United States alone. The fossil fuel industry really floats on massive, massive, massive public subsidies, and you have to find a way to address that, or you’re not going to land the plane safely.

One of the opportunities we have is that the European Union has already passed its own carbon border tariff. American companies exporting to Europe are going to have to pay tariff fees to the EU. They’re going to have to pay tariff fees to the UK, which has announced that it’s joining the EU, and they’re not going to like that very much. The only way out of that is to have an internal carbon price and a proper carbon tariff of our own. My bill is designed to create that. It’s basically the inverse of a bill that I’ve been pushing for for years, where you start with the carbon price and then attach a border adjustment. This starts with the border adjustment, and then it includes a carbon price.

Stone: We’re talking about the two directions. Do you start with the carbon price, or do you start with the border adjustment? That brings me to the next question I wanted to ask you. Anything to do with the carbon price is deeply partisan. It’s a deeply partisan issue in Washington.

Whitehouse: Can I clarify that, though?

Stone: Sure.

Whitehouse: It became a deeply partisan issue exactly in January of 2010, when the Republican-controlled Supreme Court unleashed unlimited political money in our politics, and within weeks, the fossil fuel industry was there, making promises that, “If you Republicans will all shut up on climate, if you will do what we tell you on climate, we will give you all the money you need to fight the Democrats.” And that was the deal.

So you say it’s a deeply partisan issue, but I’ve got living recollection in 2007, 2008, 2009, when it was not partisan at all. It was made partisan by fossil fuel corrupting influence.

Stone: It’s interesting because one of your Senate colleagues, Bill Cassidy of Louisiana, also has his own border adjustment plan. It’s called the Foreign Pollution Fee Act.

Whitehouse: Yes.

Stone: What are the key differences between your proposal, the Clean Competition Act, and his proposal? And how might these differences be bridged to a bipartisan solution?

Whitehouse: One little step back. Bill and I have been working with a number of other Democratic and Republican senators. There are probably eight in the inside discussion group, along with some very capable think-tank, economic, and analyst-type folks to develop a bipartisan carbon tariff. Because of the US having to pay the tariffs and because there’s the anti-China sentiment — Why should they be getting away with polluting for free? — there’s a pathway for a carbon price related to the carbon border tariff that doesn’t exist in other areas. Bill and Lindsey Graham and others have been very forward-leaning in exploring that. The big difference is that he does not have an internal price on carbon in his bill, which means that it’s almost certainly going to fail the test of the European Union.

Stone: And the WTO, right?

Whitehouse: Well, conceivably, but certainly the immediate thing is that the EU won’t give us credit and lift the tariffs if we don’t have some degree of a price on carbon. My bill does have that sort of 50/50 internal price on carbon, where if you’re in the bottom and heaviest polluting half of your industry, you have to pay, and we think that that will meet the test of the European Union and avoid the tariffs. But this is the one area where bipartisanship, I think, is emerging — re-emerging I should say. I correct myself.

Stone: Or reintroduced. The first time it came out was 2022. Is that right? Or 2021.

Whitehouse: Yes.

Stone: So your proposed carbon border mechanism would apply to basic materials. That’s my understanding — not finished goods. And there’s concern that that might drive some domestic manufacturing overseas where raw materials would be cheaper, and thus the finished products more economically competitive. How might this leakage be prevented?

Whitehouse: The whole purpose of a carbon border tariff is to prevent leakage. That is its primary purpose. It protects the planet by charging countries whose industries are bigger polluters than the domestic companies for the privilege of selling their goods. A perfect example: A cement factory across the border in Mexico, a cement factory on our side of the border in Texas. The two of them sell in the same market. The Texas one has to pay to clean up its carbon emissions. The Mexican one doesn’t, and therefore the Texan one loses competitive advantage to the Mexican one.

Add in the carbon tariff, and suddenly — boom. That neutralizes, and now you’re back not competing on who’s got the worst emissions outcomes, but how good is your product, and how good is your price? So it’s actually the opposite. The whole purpose of this thing is to protect against that leakage because it’s through that leakage that enormous amounts of carbon dioxide and methane emissions get launched.

Stone: Let me jump to a different topic here. You took issue with the EPA’s recent removal of existing natural gas fire plants from the list of generators that would be required to comply under the agency’s pending Section 111 Rules under the Clean Air Act, to limit power plant emissions. However, some environmental justice advocates supporting the EPA’s decision to remove existing natural gas plants from the rule, out of concern that those rules, as written, would not adequately address environmental justice concerns. The EPA itself, from some things I’ve read, appears to be concerned about grid reliability impacts that could come from many gas plants retiring. How would you address the justice and grid reliability concerns that have been raised? And what’s your rationale for opposing EPA’s removal of these plants from the rule?

Whitehouse: Let’s start with the proposition that, if we continue to proceed into a high-climate risk future, that is going to put an enormous burden on a whole variety of communities around the world, but most of the burden will be on poorer communities. People who have a ranch in Montana and can get away to it — that’s a whole different world, flying in their private jets — than somebody who is stuck in a place where suddenly the sea level is rising against their home, and they can’t get out of it.

So there is an enormous environmental justice component to defeating the fossil fuel industry and its polluting emissions. It makes no sense to me that you would look at basically three portfolios of power plants — one, existing coal power plants; two, existing natural gas plants; and three, future natural gas plants, the ones that are in the planning and development stream, and only have a rule that applies to one and three and leaves out the center group, which is also the source of most of the emissions in the power plant sector. So I find it very hard to accept that logic.

If you go ahead and do put rules on those companies and on those plants, you then, I think, have to evaluate those rules as to impact on the grid and impact on frontline communities, and where there is an adverse impact, go fix that. But the idea that you let the emissions roll, because of a potential unaddressed environmental justice concern, is not, to me, the sensible way to go about doing that. I think that was the EPA basically just ducking its responsibilities because it was hard, and because that’s where the bulk of the pollution is, and therefore that’s where the bulk of the objections from the natural gas industry are going to come from.

Stone: So to the extent that there is a lack of carbon capture and storage and clean hydrogen available today, there is concern that legally the EPA’s rules may not hold up because the option for decarbonizing power plants really has not been scaled and is not necessarily available to them. What legal vulnerabilities are really involved here?

Whitehouse: Well, first of all, the fossil fuel industry is very, very comfortable with hypocrisy and dissimulation. The reason that we don’t have robust carbon capture is that the fossil fuel industry is opposed to robust carbon capture because it’s one of the many ways we subsidize them, by letting them put their waste up into the sky, rather than having to pay to capture it, clean it up, and adequately dispose of it.

If you had a company that was just dumping its trash into the street — that’s about the same notion — they don’t want to pay to clean up their mess. So they’ve opposed it, and that’s why this industry is still in a fairly nascent stage. We’ve had no price on carbon, which means there’s no natural revenue basis to proceed with carbon capture, and you have an industry that’s dead opposed to it, because it will raise its costs relative to clean energy.

So there’s a very, very high level of hypocrisy in that argument, and I think if you look around the world at what’s happening, and if you look at the very slow time scale for implementation by EPA, it’s an argument that falls just kind of on the facts because you can do this. We know you can do this. Companies are proving you can do this. Occidental Petroleum is building an enormous carbon capture facility that is proving itself out. The facts just don’t support the argument, but sometimes that doesn’t matter if you’ve got a court that’s predisposed to do what the fossil fuel industry wants, and you’ve got a fossil fuel industry that’s happy to lie to the court, and the public gets left out of that equation.

Stone: So we are in the midst of an election year. Anybody who has paid any attention knows that this is going to be a very contentious election. I want to discuss here the prospect that we get a new administration and a new Republican Congress potentially in 2025. Under this scenario, a number of President Biden’s regulatory achievements could be at risk, and I want to note that there’s a precedent to be concerned here, okay? When Donald Trump became president in 2017, he made a point of undoing Obama-era regulations, using what’s known as the “Congressional Review Act.”

Whitehouse: Correct.

Stone: He used that 16 times. He used a range of suspensions and abeyances to delay new rules going into effect or to stop them from going into effect. This time around, the EPA is expecting the power plant emission rules that we talked about a few minutes ago, like vehicle fuel efficiency standards — both of which have to still be finalized — could potentially be at risk. We’ve also got methane reporting rules for the oil and gas industry that could also be in play here.

My question to you is the following: What might be done to protect key Biden regulatory accomplishments from being rolled back?

Whitehouse: The first thing is to try to make sure that this all gets done before the Congressional Review Act window opens up for throwing it out. There’s a period during which you can file a Congressional Review Act violation and push through an expedited process. The Obama administration was very sloppy about getting their regulations done on time, so they walked into that Congressional Review Act window, I think hoping that Secretary Clinton was going to win, and they wouldn’t have to worry about it.

Stone: And that window now closes in April or May, something like that?

Whitehouse: Yes, I don’t have the date in front of me, but it’s about six months. It’s pretty quick. So they’ve got to hustle to get this stuff done, and when you look at the pace the EPA has gone at so far, “hustle” has not been a way that you would describe their actions. So it is a concern, but there’s an easy solution, which is to get stuff done on time, to note going in, as you’re planning, that this is your deadline, and to meet your own damned deadline. So it’s frustrating to see us potentially facing this situation again.

Stone: Republicans have held 17 floor votes so far to defund certain parts of the IRA, including incentives for clean energy in the IRA, the Inflation Reduction Act. How serious are threats to pull back clean energy-related IRA funding? And what can be done to prevent these efforts from succeeding potentially under a new administration?

Whitehouse: If you’re not operating through the Congressional Review Act, then you have to go through regular parliamentary order in Congress. And under regular parliamentary order in Congress, you have a Senate that can stop a lot of that. First of all, if it’s a Democratic Senate, the leader doesn’t even bring the thing up for a vote, and that’s the end of that. And second, even if it’s a Republican Senate, unless they’re willing to throw out the filibuster, which they’ve argued vociferously against, then we can block it just by not providing them the extra votes to get to 60, to get cloture to be able to vote down the measure. And I would add that behind us, behind us Democrats, are very, very powerful economic forces, including a lot of companies located in Republican states where this law is creating enormous benefit for local communities and for local employees.

If you’re just, for the sake of your fossil fuel industry funders, throwing a vote at the wall, that’s one thing. If you actually want to disable it and take the funding back from a factory that’s being constructed, that kind of takes the fun out of it. So there’s a certain amount of political theater and performance for their fossil fuel industry donors in what’s happened so far. It will be interesting to see if they’re actually shooting with live ammunition, whether they bother to shoot.

Stone: It’s interesting that Jennifer Granholm, the DOE Secretary said, “The best defense is deploy, deploy, deploy,” because as you said, once that money is flowing, it’s really hard to take it back.

Whitehouse: And Republicans are showing up at the groundbreakings and enthusiastically applauding the jobs and the technology and the advancement that all of this represents — and then scrupulously not mentioning that they voted against it.

Stone: As I think we were talking about a few minutes ago, the Securities and Exchange Commission finalized long-anticipated rules very recently that will require certain publicly-traded companies to report their climate impacts and risks to their businesses from climate change.

Whitehouse: Yes.

Stone: In its final rules, however, SEC dropped requirements that would require companies to report their Scope 3 emissions, which are particularly relevant to fossil fuel companies. The SEC also determined that companies only need to report what those companies deem as being “material” to their businesses in the disclosure.

You’ve been very critical of the SEC’s final rule. To what extent can the SEC rule in its final form achieve its goal of alerting investors to corporate climate risk, without the Scope 3 requirement? And what are the prospects for some Scope 3 requirement at some point in the future?

Whitehouse: Yes, I am extremely disappointed in the Securities and Exchange Commission rule. I’m disappointed first in that they seem to have flinched in the face of a fossil fuel-funded propaganda campaign, backed up by a whole bunch of legal threats that (a) I don’t think are credible, and (b) Don’t flinch. Do what’s right, and if a Republican-controlled court wants to take it away, then that’s on them. But you don’t run at the shadow of the punch. You do what’s right.

So they should have done Scope 3. They could have narrowed it to the companies where Scope 3 is actually the biggest part of their risk. It doesn’t have to be a florist. They could have made it very, very narrow and very easily justified, and they just chose to take a walk on it, which was, I think, a real mistake. And then they talk not at all about the problem of climate systemic risk, which I’ve been focusing on as the Chairman of the Budget Committee, which is — just to use one example that has been brought out — Sea level rise and hurricanes make coastal properties uninsurable, which we’re seeing in Florida right now. When they’re uninsurable, good luck with a mortgage. If you’re a seller, and the only people you can sell to are people who can pay cash, the whole mortgage market has evaporated out from underneath you. Your property values crash.

So Freddie Mac, the big mortgage company, has predicted that as coastal property values crash, that it’s going to cascade all the way across the country, like the 2008 mortgage meltdown did, and create that kind of broad, economy-wide, systemic collapse. They didn’t even mention that, let alone test companies about their ability to withstand that kind of a 2008-style economic shock. So they missed a lot of it, and it makes me particularly angry that they ducked the punch when it came from, I think, a fake fossil fuel-funded operation. This whole anti-ESG “woke capitalism” thing — think of it as a Broadway show that escaped the Broadway theater, with actors, with scripts, with producers and directors — the whole thing run by fossil fuel to create antagonism to what is basically obvious fiduciary duty.

Stone: A number of state attorneys general have announced legal challenge to the SEC’s rules on the grounds that they exceed the agency’s authority. Given your legal experience — you’re a former Rhode Island Attorney General. You’re a member of the Senate Judiciary Committee. What defense do the SEC rules have against a Supreme Court that could potentially wield the Major Questions Doctrine to undo the rules?

Whitehouse: Yes, I think the issue here is a Supreme Court that has stopped following law and precedent, where it involves pollution particularly, and remakes the law to suit the interests of the fossil fuel industry at its direction, more or less. You can cross-reference the attorneys general who are filing that with big fossil fuel political contribution recipients, and it’s pretty much perfect. There is the danger that these new doctrines that the Court just invented, like the Major Questions Doctrine, will be deployed here.

At the end of the day, I think it probably loses, because at the end of the day the highest obligation of a regulatory agency is to make reasonable decisions in light of the facts. And as long as people are starting to accept the facts of climate change and the risk that those facts portend, you’ve got to do stuff. You can’t just walk away from that.

So this is part of that anti-ESG performance, that they trot out their paid-for attorneys general to file these suits. Interestingly, suits are coming from the other side, too, with the Sierra Club saying, “Wait a minute. You totally punted on Scope 3 while you could have.” [OVERTALK]

Stone: It wasn’t tough enough.

Whitehouse: You totally punted on system risk. What’s up? You’re not doing your job. You’re not meeting your responsibilities to shareholders and the public. So it will be interesting to see that play itself out. I’m not all that convinced that as much as the Supreme Court has nodded to the fossil fuel industry and has created doctrines to help the fossil fuel industry and was staffed up by justices proposed and recommended by the fossil fuel industry, that they really want to get on the wrong side of climate change.

I don’t trust Thomas or Alito as far as I can throw them. I think they’ll do pretty much whatever they’re told, but you look at Justice Barrett, who’s going to be in there a long time. You look at Justice Kavanaugh, who’s trying to look more moderate. You look at Justice Roberts, who’s trying to make the Court look less like a captured and corrupted court, and I’m not sure that they want to be in the climate-denial column for their legacy.

Stone: I’d like to jump to another hot button issue. Excuse me for all the hot buttons, but there are plenty of them going on right now.

Whitehouse: That’s where we are.

Stone: Yes, so the Department of Energy has paused certification of new LNG export terminals to allow it to review the climate impacts of those projects and determine whether the additional LNG exports are in the “national interest.”

LNG is sort of a double-edged sword, right? There are climate impacts, but there’s also the argument that LNG is essential to the economies of our European allies as they have pivoted away from Russian gas. In your view, what is the US’s role and limit of that role as a supplier of natural gas as an energy security resource for our allies?

Whitehouse: I think that when you have Vladimir Putin trying to weaponize his hold on the European natural gas market, it’s important strategically for the United States to counterbalance that and support our allies with LNG where needed, so that there aren’t significant economic and security risks. That said, I just got back from leading the US delegation to the Munich Security Conference, heavily populated with all of the European Union countries, heavily focused on Putin’s power and on the War in Ukraine. And nobody was saying, “Oh, this pause of yours, that’s going to cause a problem for our LNG supply.” It just isn’t. It just isn’t true that they’re needing us now. There’s an argument that they need us in the long-term, but if in the long-term we’re still dependent on natural gas that way, we’ve lost the climate fight. And so that’s not a good way [UNINTEL OVERTALK].

And the problem with LNG is that by the time you pump it out of the well, pipe it down to the compressor, load it up under high pressure into a vessel, steam that vessel across the Atlantic, move it into a new facility to depressurize it, and put it back into another pipeline to the burner tip at the end of the whole equation, we have absolutely no idea how much methane leakage to place in that, and we don’t have a good read on the energy burn required to support that transition. But what it really looks like is that the world would be better off if the Europeans burned local coal, because when you add the emissions, you compare at the burner tip —

Stone: Whole life cycle here.

Whitehouse: Exactly. If you compare at the burner tip, burning coal versus natural gas, natural gas wins every time. But once you add in the methane leakage of getting it there, once you add in the extra cost and energy burn of the transports, it is not at all clear that LNG is a winner at all from a climate perspective. In fact, the evidence looks very much like it is a big loser. So in essence what you’ll see is a sales pitch here from the natural gas industry, masquerading as a national security argument.

Stone: So as we already discussed, we are in an election year, which makes it less likely that major new legislation will be coming out of Congress this year. Looking ahead to next year, to 2025, what legislative actions on climate and energy would you prioritize in the next Congress?

Whitehouse: I think, again, because the only pathway to climate safety right now, after we’ve been obstructed for all these years, is a proper price on carbon. We’ve got to figure out a way to do that. The easiest entry point to that is the carbon border tariff, so that would be key, in the way that the IRA was passed, which is through a reconciliation measure that allows the Senate to move around filibuster and let the actual majority rule. We could do that again, if we had a Democratic-controlled House to work with, and a Democratic President to sign the bill. So we’re gearing up for a proper carbon border tariff, and to the extent we can make it work politically, a carbon price, which, if you use the revenues wisely, can make enormous differences in the quality of life for the American people. [OVERTALK]

Stone: Pump those revenues back into the economy.

Whitehouse: Pump those revenues back into the economy. Have a really robust Child Tax Credit that lifts half the children in the country out of poverty. There is so much that we can do to undo the economic inequities in the country right now. The economic inequities are going to get way worse in a climate-trashed environment.

Stone: Let me ask you a final question here. You stopped giving your “Time to Wake Up” speeches after Joe Biden became president. More recently, you’ve started giving them again. I think you’re up to 291, #291 at latest count.

Whitehouse: Yes.

Stone: What is the key message you’re getting across in your most recent speeches? And has that message changed from the message you were giving earlier in this administration, before the Bipartisan Infrastructure Law and the IRA, and how is it different from what you gave 12 years ago, when you gave your first speech?

Whitehouse: Yes, we’re focusing more on what the Executive Branch can do, because that’s the world we live in right now. We know that Speaker Johnson is completely in tow to the fossil fuel industry, and he’s not going to do a darned thing that is useful on climate. So we’ve got to focus where the ball can move forward, and that’s within the Biden administration, and that’s where I’ve been focusing.

So things like the Biden administration has set up a methane task force. They announced it last June. Its purpose is to reduce methane leaks out of the fossil fuel sector, and we’re hounding them to try to see what does this task force look like? Does it actually meet? Does it actually work? Is it actually bringing cases? It is actually like the fire department going out when there’s a leak, like smoke out a window, and making sure that it gets plugged? Or is it like the Maytag repairman, sitting around on its rear end? So that’s one.

The other is the social cost of carbon. They did a great job applying the social cost of carbon in government decision-making, at $190 per ton, a serious social cost of carbon. And Shalanda Young, the OMB Director and her OIRA partner, Ricky Revesz, did a wonderful job sending guidance out to all of the executive agencies saying, “Hey, all of you, you have to comply with this.”

So now it’s a little bit like we’re hunting to see whether the methane task force is actually doing anything. We’re hunting to see if the executive agencies are actually following OMB’s direction and coming into compliance with the $190 price on carbon. If those two things happened, and if the administration developed a proper support for a carbon border tariff, those three things together — really robust enforcement against methane leaks, they robustly deployed social cost of carbon within all executive branch decision-making, and a well-negotiated carbon border tariff with the EU and the UK — that’s big. That is a serious emissions trajectory pivot. And so I’m basically hammering at them to pick up the pace, get it done, let’s go. So that’s been the shift.

Stone: Senator Whitehouse, thank you very much for talking

Whitehouse: Great to be with you, Andy. Thanks for having me on. I appreciate all of your expert attention in this area.

Stone: Today’s guest has been Rhode Island Senator Sheldon Whitehouse.