Share with your friends

Legislative update: “Carbon fee” legislation introduced

“Carbon fee” legislation introduced

Senator Chris Coons (D-DE) and Senator Dianne Feinstein (D-CA) introduced carbon-related legislation—the “Climate Action Rebate Act of 2019.”


Related content

Read a release from Senator Coons’ office about the bill. Congressman Jimmy Panetta (D-CA) introduced companion legislation in the House.

“Carbon fee”

The bill would amend the Internal Revenue Code to impose a “carbon fee” on both fossil fuels and fluorinated gases. The level of the fee would be adjusted for the greenhouse gas potential of the covered emissions. The fee is scheduled to begin at $15 per metric ton of CO2 equivalent and then increase by $15 - $30 per ton each year based upon the overall amount of emissions reduction achieved relative to an established annual target. The targets are designed to achieve a 100% reduction in greenhouse gas emissions (compared to 2017 levels) by the year 2050.

The legislation would provide a refund of the “carbon fee” for taxpayers that capture and sequester emissions in accordance with section 45Q (credit for carbon dioxide sequestration).

Border adjustability

The legislation would make the carbon fee “border adjustable.” In other words, imported goods that were not previously subjected to a carbon tax would have one imposed upon entry into the United States. Conversely, U.S. taxpayers that export goods to other countries would receive a refund of the carbon fee paid in the United States. The objective of the border adjustment would be to put U.S. producers on equal economic footing with foreign-based competitors that may produce goods in a jurisdiction with no (or a lesser) carbon fee.

Allocation of revenue collected

The tax revenue collected from the carbon fee could be substantial. [While there is not yet an official estimate, some reports are that the law could collect $2.5 trillion in revenue over the first decade.]  The proposal would create a “climate action rebate fund” as a mechanism for expenditure of the funds collected. The fund would generally allocated collected fees on a 70/30 basis between tax payments to individuals and direct spending programs.

Seventy percent (70%) of the fees would be allocated as a federal payment—a “carbon dividend”—on a pro-rata basis to taxpayers that are either U.S. citizens or lawful residents of the United States. Children under the age of 19 years would receive a half-share. The carbon dividend payment would be fully phased out for members of a household with adjusted gross income of no more than $100,000 (single-filers) or $150,000 (joint-filers).

The remaining 30% of the fund would be spent on other priorities to achieve a “cleaner energy future” including infrastructure investment, innovation in technologies to reduce or eliminate greenhouse gas emissions, and transition assistance programs for workers displaced in fossil fuel industries.

KPMG observation

While the bill refers to a “carbon fee,” this fee would be administered through the Internal Revenue Code—leaving little debate that the fee could be properly characterized as a carbon tax. As such, the congressional committees of principal jurisdiction are likely to be the Ways and Means Committee in the House and the Finance Committee in the Senate.

The logic of the border adjustability provision is self-evident—without it, carbon intensive industries in the United States could be forced to move operations (along with jobs and investment) outside of the United States. Still, border adjustability is a notoriously difficult concept to put into practice. Consider the case of an imported product comprised of hundreds of components made in dozens of other jurisdictions. Determining the exact CO2 content of that product (not to mention the amount of carbon fee already paid in those other jurisdictions) would be a highly complex undertaking.

Finally, it is worth noting that commentators across the political spectrum have written on the appeal of a carbon tax. Such a tax could achieve multiple policy goals at once—reducing both carbon emissions while simultaneously reducing the federal deficit (or funding social programs in the future). Still, there is no immediate path forward for this, or other carbon tax legislation in the current Congress. A proposal such as this could take years to develop, negotiate, enact, and implement. 

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Want to do business with KPMG?


loading image Request for proposal