Understanding Border Carbon Adjustments

Border Carbon Adjustment (BCA) policy is entering the limelight as a potential bipartisan climate and trade policy, but there is significant confusion as to how exactly a BCA would work and what it would accomplish. There are three major versions of a BCA policy design, and each has its own set of pros and cons. Additionally, there are multiple design decisions within each version of a BCA that change the overall impact of the policy. This issue brief explains the three major approaches — Carbon Tax BCA, Regulatory Cost BCA, and Emission Performance BCA — and compares how each version stacks up against a set of goals. Understanding these differences, and not ascribing the deficiencies of one approach to another, will be crucial to good-faith efforts to advance a BCA policy in a bipartisan manner.

When comparing the policy design options, it becomes clear that the Emission Performance BCA offers the most potential to accomplish the goals set forth in this brief analysis. While internal design choices are important in expanding political support for an Emission Performance BCA – both domestically and internationally – serious political and implementation limitations to the Carbon Tax and Regulatory Cost BCAs make them less attractive options.