Carbon dividends and carbon fee

The Internal Revenue Code of 1986 is amended by adding at the end the following new subtitle:

CARBON DIVIDENDS AND CARBON FEE

Chapter 101. Carbon Fees.

Chapter 102. Carbon Border Fee Adjustment.

101

Carbon Fees

Sec. 9901. Definitions.

Sec. 9902. Carbon fee.

Sec. 9903. Emissions reduction schedule.

Sec. 9904. Decommissioning of carbon fee.

Sec. 9905. Carbon capture and sequestration.

Sec. 9906. Administrative authority.

9901.

Definitions

For purposes of this subtitle:(a)

Administrator

The term Administrator means the Administrator of the Environmental Protection Agency.(b)

Carbon dioxide equivalent or CO2-e

The term carbon dioxide equivalent or CO2-e means the number of metric tons of carbon dioxide emissions with the same global warming potential as one metric ton of another greenhouse gas.(c)

Carbon-Intensive product

The term carbon-intensive product means, as identified by the Secretary by rule—(1)for purposes of this chapter—(A)any manufactured or agricultural product which the Secretary in consultation with the Administrator determines is emissions-intensive and trade-exposed, except that no covered fuel is a carbon-intensive product, and(B)until such time that the Secretary promulgates rules identifying carbon-intensive products, the following shall be considered carbon-intensive products: iron, steel, steel mill products (including pipe and tube), aluminum, cement, glass (including flat, container, and specialty glass and fiberglass), pulp, paper, chemicals, or industrial ceramics, and(2)for purposes of chapter 102, any economic sector, or product from that sector, which the Secretary in consultation with the Administrator determines is prone to carbon leakage because it is emissions-intensive and trade-exposed, along with other pertinent criteria, except that no covered fuel is a carbon-intensive product.(d)

Carbon leakage

The term carbon leakage means an increase of global greenhouse gas emissions which are substantially due to the relocation of greenhouse gas sources from the United States to jurisdictions which lack comparable controls upon greenhouse gas emissions.(e)

Cost of carbon or carbon costs

The term cost of carbon or carbon costs means a national or sub-national government policy which explicitly places a price on greenhouse gas pollution and shall be limited to either a tax on greenhouse gases or a system of cap-and-trade. The cost of carbon is expressed as the price per metric ton of CO2-e.(f)

Covered entity

The term covered entity means—(1)in the case of crude oil—(A)a refinery operating in the United States, and(B)any importer of any petroleum or petroleum product into the United States,(2)in the case of coal—(A)any coal mining operation in the United States, and(B)any importer of coal into the United States,(3)in the case of natural gas—(A)any entity entering pipeline quality natural gas into the natural gas transmission system, and(B)any importer of natural gas into the United States, and(4)any entity or class of entities which, as determined by the Secretary, is transporting, selling, or otherwise using a covered fuel in a manner which emits a greenhouse gas to the atmosphere and which has not been covered by the carbon fee or the carbon border fee adjustment.(g)

Covered fuel

The term covered fuel means crude oil, natural gas, coal, or any other product derived from crude oil, natural gas, or coal which shall be used so as to emit greenhouse gases to the atmosphere.(h)

Crude oil

The term crude oil means unrefined petroleum.(i)

Export

The term export means to transport a product from within the jurisdiction of the United States to persons outside the United States.(j)

Fossil fuel

The term fossil fuel means coal, coal products, petroleum, petroleum products, or natural gas.(k)

Full fuel cycle greenhouse gas emissions

The term full fuel cycle greenhouse gas emissions means the greenhouse gas content of a covered fuel plus that covered fuel’s upstream greenhouse gas emissions.(l)

Global warming potential

The term global warming potential means the ratio of the time-integrated radiative forcing from the instantaneous release of one kilogram of a trace substance relative to that of one kilogram of carbon dioxide.(m)

Greenhouse gas

The term greenhouse gas means carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), and other gases as defined by rule of the Administrator.(n)

Greenhouse gas content

The term greenhouse gas content means the amount of greenhouse gases of a product or a fuel, expressed in metric tons of CO2-e, which would be emitted to the atmosphere by the use of a covered fuel and shall include, nonexclusively, emissions of carbon dioxide (CO2), nitrous oxide (N2O), methane (CH4), and other greenhouse gases as identified by rule of the Administrator.(o)

Greenhouse gas effect

The term greenhouse gas effect means the adverse effects of greenhouse gases on health or welfare caused by the greenhouse gas’s heat-trapping potential or its effect on ocean acidification.(p)

Import

Irrespective of any other definition in law or treaty, the term import means to land on, bring into, or introduce into any place subject to the jurisdiction of the United States.(q)

Petroleum

The term petroleum means oil removed from the earth or the oil derived from tar sands or shale.(r)

Production greenhouse gas emissions

The term production greenhouse gas emissions means the quantity of greenhouse gases, expressed in metric tons of CO2-e, emitted to the atmosphere resulting from, nonexclusively, the production, manufacture, assembly, transportation, or financing of a product.(s)

Upstream greenhouse gas emissions

The term upstream greenhouse gas emissions means the quantity of greenhouse gases, expressed in metric tons of CO2-e, emitted to the atmosphere resulting from, nonexclusively, the extraction, processing, transportation, financing, or other preparation of a covered fuel for use.

9902.

Carbon fee

(a)

Carbon fee

There is hereby imposed a carbon fee on any covered entity’s emitting use, or sale or transfer for an emitting use, of any covered fuel.(b)

Amount of the carbon fee

The carbon fee imposed by this section is an amount equal to—(1)the greenhouse gas content of the covered fuel, multiplied by(2)the carbon fee rate.(c)

Carbon fee rate

For purposes of this section—(1)

In general

The carbon fee rate, with respect to any use, sale, or transfer during a calendar year, shall be—(A)in the case of calendar year 2023, $15 per metric ton of CO2-e, and(B)except as provided in paragraph (2), in the case of any calendar year thereafter—(i)the carbon fee rate in effect under this subsection for the preceding calendar year, plus(ii)$10 per metric ton of CO2-e.(2)

Exceptions

(A)

Increased carbon fee rate after missed annual emissions reduction target

In the case of any year immediately following a year for which the Secretary determines under section 9903(b) that the actual emissions of greenhouse gases from covered fuels exceeded the emissions reduction target for the previous year, paragraph (1)(B)(ii) shall be applied by substituting $15 for the dollar amount otherwise in effect for the calendar year under such paragraph.(B)

Cessation of carbon fee rate increase after certain emission reductions achieved

In the case of any year immediately following a year for which the Secretary determines under 9903(b) that actual emissions of greenhouse gases from covered fuels is not more than 10 percent of the greenhouse gas emissions from covered fuels during the year 2005, paragraph (1)(B)(ii) shall be applied by substituting $0 for the dollar amount otherwise in effect for the calendar year under such paragraph.(3)

Inflation adjustment

In the case of any calendar year after 2023, each of the dollar amounts in paragraphs (1)(B) and (2)(A) shall be increased by an amount equal to—(A)such dollar amount, multiplied by(B)the cost-of-living adjustment determined under section 1(f)(3) for the calendar year, determined by substituting calendar year 2022 for calendar year 2016 in subparagraph (A)(ii) thereof.(d)

Exemption and refund

The Secretary shall prescribe such rules as are necessary to ensure the fee imposed by this section is not imposed with respect to any nonemitting use, or any sale or transfer for a nonemitting use, including rules providing for the refund of any carbon fee paid under this section with respect to any such use, sale, or transfer.(e)

Exemptions

(1)

Agriculture

(A)

Fuel

If any covered fuel or its derivative is used on a farm for a farming purpose, the Secretary shall pay (without interest) to the ultimate purchaser of such covered fuel or its derivative, the total amount of carbon fees previously paid upon that covered fuel or its derivative, as specified by rule of the Secretary.(B)

Farm, farming use, and farming purpose

The terms farm, farming use, and farming purpose shall have the respective meanings given such terms under section 6420(c).(C)

Other greenhouse gases emissions from agriculture

The carbon fee shall not be levied upon non-fossil fuel greenhouse gas emissions which occur on a farm.(2)

Armed Forces of the United States

If any covered fuel or its derivative is used by the Armed Forces of the United States as supplies for vessels of war, vehicles, or electrical power generation equipment, the Secretary shall pay (without interest) to the ultimate purchaser of such covered fuel or its derivative, the total amount of carbon fees previously paid upon that covered fuel or its derivative, as specified by rule of the Secretary.

9903.

Emissions reduction schedule

(a)

In general

An emissions reduction schedule for greenhouse gas emissions from covered fuels is hereby established, as follows:(1)

Reference year

The net greenhouse gas emissions during the year 2005 shall be the reference amount of emissions and shall be determined from the Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990–2021 published by the Environmental Protection Agency in April of 2023.(2)

Emissions reduction target

The first emission reduction target shall be for the year 2025. The emission target for each year thereafter shall be the previous year’s target emissions minus a percentage of emissions during the reference year determined in accordance with the following table:YearEmissions Reduction Target2005Reference year2023 to 2024No emissions reduction target2025 to 20308 percent of 2005 emissions per year2031 to 20502.5 percent of 2005 emissions per year.

(b)

Administrative determination

Not later than 60 days after the beginning of each calendar year beginning after the enactment of this section, the Secretary, in consultation with the Administrator, shall determine whether actual emissions of greenhouse gases from covered fuels exceeded the emissions reduction target for the preceding calendar year. The Secretary shall make such determination using the same, or appropriately updated, greenhouse gas accounting method as was used to determine the net greenhouse gas emissions in the Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990–2021 published by the Environmental Protection Agency in April of 2023.

9904.

Decommissioning of carbon fee

(a)

In general

At such time that—(1)the Secretary determines under 9903(b) that actual emissions of greenhouse gases from covered fuels is not more than 10 percent of the greenhouse gas emissions during the year 2005, and(2)the monthly carbon dividend payable to an adult eligible individual has been less than $20 for 3 consecutive years,

the Secretary shall decommission in an orderly manner programs administering the carbon fee, the carbon border fee adjustment, and the Carbon Dividend Trust Fund.

(b)

Inflation adjustment

In the case of any calendar year after 2023, the $20 amount under subsection (a)(2) shall be increased by an amount equal to—(1)such dollar amount, multiplied by(2)cost-of-living adjustment determined under section 1(f)(3) for the calendar year, determined by substituting calendar year 2022 for calendar year 2016 in subparagraph (A)(ii) thereof.

9905.

Carbon capture and sequestration

(a)

In general

The Secretary, in consultation with the Administrator and the Secretary of Energy, shall prescribe regulations for making payments as provided in subsection (b) to qualified facilities which capture and sequester qualified carbon dioxide or sequester qualified carbon dioxide obtained from one or more qualified facilities.(b)

Payment amounts

(1)

In general

The Secretary shall make payments to a qualified facility in the same manner as if such payment was a refund of an overpayment of the carbon fee imposed by section 9902, in cases in which such qualified facility—(A)uses any covered fuel—(i)with respect to which the carbon fee has been paid, and(ii)which results in the emission of qualified carbon dioxide,(B)captures such emitted, or an equivalent amount of, qualified carbon dioxide, and(C)(i)sequesters such qualified carbon dioxide in a manner which is safe, permanent, and in compliance with any applicable local, State, and Federal laws, or(ii)utilizes such qualified carbon dioxide or an equivalent amount of carbon dioxide in a manner provided in paragraph (3)(C).(2)

Amount of refund

The payment determined under this section shall be an amount equal to the lesser of—(A)(i)the adjusted metric tons of qualified carbon dioxide captured and sequestered or utilized, multiplied by(ii)the carbon fee rate during the year in which the carbon fee was imposed by section 9902 upon the covered fuel to which such carbon dioxide relates, or(B)the amount of the carbon fee imposed by section 9902 with respect to such covered fuel.(3)

Definitions and special rules

For purposes of this section—(A)

Qualified carbon dioxide; qualified facility

(i)

Qualified carbon dioxide

The term qualified carbon dioxide has the same meaning given such term under section 45Q(c).(ii)

Qualified facility

The term qualified facility means any industrial facility at which carbon capture equipment is placed in service.(B)

Adjusted total metric tons

The adjusted total metric tons of qualified carbon dioxide captured and sequestered or utilized shall be the total metric tons of qualified carbon dioxide captured and sequestered or utilized, reduced by the amount of any carbon dioxide likely to escape and be emitted into the atmosphere due to imperfect storage technology or otherwise, as determined by the Secretary in consultation with the Administrator.(C)

Utilization

The Secretary, in consultation with the Administrator, shall establish regulations providing for the methods and processes by which qualified carbon dioxide may be utilized so as to exclude that qualified carbon dioxide safely and permanently from the atmosphere. Utilization may include the production of substances such as but not limited to plastics and chemicals. Such regulations shall minimize the escape or further emission of the qualified carbon dioxide into the atmosphere.(D)

Sequestration

Not later than 540 days after the date of the enactment of this section, the Secretary, in consultation with the Administrator, shall prescribe regulations identifying the conditions under which carbon dioxide may be safely and permanently sequestered.(4)

Coordination with credit for carbon dioxide sequestration

At such time that the Secretary prescribes regulations implementing this section, no payment under this section shall be allowed to a taxpayer to whom a credit has been allowed in the same taxable year under section 45Q.

9906.

Administrative authority

(a)

In general

The Secretary in consultation with the Administrator shall prescribe such regulations, and other guidance, as may be necessary to carry out the purposes of this subtitle and assess and collect the carbon fee imposed by section 9902.(b)

Specifically

Such regulations and guidance shall include—(1)the identification of an effective point in the production, distribution, or use of a covered fuel for collecting such carbon fee, in such a manner so as to minimize administrative burden and maximize the extent to which full fuel cycle greenhouse gas emissions from covered fuels have the carbon fee levied upon them,(2)the identification of covered entities which shall be liable for the payment of the carbon fee,(3)requirements for the monthly payment of such fees,(4)as may be necessary or convenient, rules for distinguishing between different types of covered fuels,(5)as may be necessary or convenient, rules for distinguishing between a covered fuel’s greenhouse gas content and its upstream greenhouse gas emissions,(6)rules to ensure that no covered fuel has the carbon fee or carbon border fee adjustment imposed upon it more than once, and(7)rules to ensure that the domestic implementation of the carbon fee coordinate with the implementation of the carbon border fee adjustment of chapter 102.

102

Carbon Border Fee Adjustment

Sec. 9908. Carbon border fee adjustment.

Sec. 9909. Administration of the carbon border fee adjustment.

Sec. 9910. Allocation of carbon border fee adjustment revenues.

Sec. 9911. Treaties and international negotiations.

9908.

Carbon border fee adjustment

(a)

In general

The fees imposed by, and refunds allowed under, this section shall be referred to as the carbon border fee adjustment.(b)

Purpose

The purpose of the carbon border fee adjustment is to protect animal, plant, and human life and health, to conserve exhaustible natural resources by preventing carbon leakage, and to facilitate the creation of international agreements.(c)

Imports to the united states

(1)

Imported covered fuels fee

In the case of any person that imports into the United States any covered fuel, there shall be imposed a fee equal to the total carbon fee that would be imposed on the fuel’s greenhouse gas content under the domestic carbon fee, including processing emissions.(2)

Imported carbon-intensive products fee

In the case of any person that imports into the United States any carbon-intensive product, there shall be imposed a fee equal to the total carbon fee which would have accumulated upon the greenhouse gas content of the imported carbon-intensive product had the imported carbon-intensive product been produced domestically and subject to the domestic carbon fee.(3)

Modifications

The Secretary shall make an administrative determination of whether any class of imported covered fuels or class of imported carbon-intensive product is carrying any total foreign carbon cost. The Secretary shall make a determination of whether international law or the enhancement of global greenhouse gas mitigation efforts require that those foreign costs of carbon be deducted from the border carbon fee adjustment determined in subsection (c)(1) or subsection (d)(1).(4)

Foreign cost of carbon; foreign carbon costs

For purposes of this subsection, the term foreign cost of carbon or foreign carbon cost means the explicit price a foreign jurisdiction places upon the emission of greenhouse gas pollution to the atmosphere through law or regulation. Such price shall be expressed as the price per metric ton of CO2-e.(d)

Refund on exports from united states

(1)

Covered fuels

Under regulations prescribed by the Secretary, in the case of a covered fuel produced in the United States with respect to which the fee under section 9902 was paid, there shall be allowed as a credit or refund (without interest) to any exporter of such covered fuels an amount equal to the total carbon fee levied upon the exported covered fuel up to the time of its exportation, including processing emissions. Any such credit or refund shall be allowed in the same manner as if it were an overpayment of tax imposed by section 9902.(2)

Carbon-intensive products

Under regulations prescribed by the Secretary, there shall be allowed a credit or refund (without interest) to exporters of carbon-intensive products manufactured or produced in the United States an amount equal to the total carbon fees accumulated upon the greenhouse gas content of the exported carbon-intensive product up to the time of exportation. Any such credit or refund shall be allowed in the same manner as if it were an overpayment of the fee imposed by section 9902 or 9904.

9909.

Administration of the carbon border fee adjustment

(a)

Generally

The Secretary in consultation with the Administrator shall prescribe regulations and guidance which implement the carbon border fee adjustment under section 9908.(b)

Collaboration

In administering any aspect of the border carbon fee adjustment it is the sense of Congress that the Secretary should collaborate with authorized officers of any jurisdiction, including sub-national governments, affected by the carbon border fee adjustment.(c)

Methodology

In administering the border carbon fee adjustment, the Secretary shall use methodologies, procedures, and data which as may be necessary or convenient—(1)disaggregate a product’s greenhouse gas content;(2)are consistent with international law and facilitate international cooperation;(3)in the case of incomplete data, use customary methods of interpolation that favor enhanced mitigation and facilitate international cooperation;(4)avoid the double pricing of greenhouse gas emissions; and(5)harmonize the border carbon fee adjustment with the domestic carbon fee so as to ensure all covered fuels used in the United States are subject to the carbon fee.(d)

Schedule

The Secretary shall—(1)begin implementation the border carbon fee adjustment for covered fuels at the same time as the implementation of the carbon fee; and(2)begin implementation of the border carbon fee adjustment for carbon-intensive products within two years of the date of the enactment of the Energy Innovation and Carbon Dividend Act of 2023.(e)

Procedure

The Secretary shall—(1)establish fair, timely, impartial, and as necessary confidential procedures by which the importer of any carbon-intensive product or any covered fuel may petition the Secretary to revise the Secretary’s determination of its border carbon fee adjustment liability calculated under section 9908(c)(1);(2)establish fair, timely, impartial, and as necessary confidential procedures by which any exporter of any product from the United States may petition the Secretary to include that exported product on the list of carbon-intensive products; and(3)establish fair, timely, impartial, and as necessary confidential procedures by which the exporter of any carbon-intensive product or any covered fuel may petition the Secretary to revise the Secretary’s determination of its border carbon fee adjustment refund calculated under section 9908(d).(f)

Shipments from the United States to the territories of the United States

Notwithstanding any other treaty, law, or policy, shipments of covered fuels or carbon-intensive products from the United States to Guam, the United States Virgin Islands, American Samoa, Puerto Rico, and the Northern Mariana Islands shall be eligible for a refund of the carbon fee under section 9908(d).(g)

Imports to the territories of the united states

Notwithstanding any other treaty, law, or policy, imports of covered fuels or carbon-intensive products to Guam, the United States Virgin Islands, American Samoa, Puerto Rico, and the Northern Mariana Islands shall not be subject to section 9908(c).

9910.

Allocation of carbon border fee adjustment revenues

The revenues collected under this chapter may be used to supplement appropriations made available in fiscal years 2024 and thereafter—(1)to U.S. Customs and Border Protection, in such amounts as are necessary to administer the carbon border fee adjustment, then(2)to the Green Climate Fund, created by decision 3/CP.17 adopted at the 17th Conference of the Parties to the United Nation Framework Convention on Climate Change held in Durban, November 28 to December 11, 2011.

9911.

Treaties and international negotiations

(a)

Conformance with international treaties

In the case that the Appellate Body of the World Trade Organization, or any other authoritative international treaty interpreter, shall find any portion of the carbon border fee adjustment under this chapter to violate any treaty to which the United States is a party, the Secretary of State is authorized to alter that aspect of such carbon border fee adjustment found to violate a treaty obligation so as to bring the carbon border fee adjustment into conformance with international law.(b)

International negotiations

The Congress finds the international mitigation of greenhouse gas emissions to be of national importance. Therefore, the Congress encourages the Secretary of State, or the Secretary’s designee, to commence and complete negotiations with other nations with the goal of forming treaties, environmental agreements, accords, partnerships or any other instrument that effectively reduces global greenhouse gas emissions to zero percent of 2010 levels by 2050 and which respect the principle of common but differentiated responsibilities and respective capabilities.(c)

Suspension of the carbon border fee adjustment

The Secretary may suspend the border carbon fee adjustment, in whole or in part—(1)when, in the determination of the Secretary, a country has implemented greenhouse gas mitigation policies sufficient to contribute to a global net reduction of greenhouse gas emissions to zero by 2050. In making such determination, the Secretary may partially suspend particular provisions of the carbon border fee adjustment. In making the determination, the Secretary shall consult with the importing country. In making the determination, the Secretary shall follow all existing treaty obligations. The Secretary shall review any carbon border fee adjustment suspension at least every 5 years, or(2)by treaty or other international agreement that meets the criteria of section 9911(c)(1) and includes provisions for the suspension of the border carbon fee adjustment.