Can the 2025 Clean Competition Act Cut Global Emissions and Maintain U.S. Competitiveness

Commentary by Kyle Meng

Published January 28, 2026

Introduction

In late 2025, Congress introduced the U.S. Clean-Competition Act (CCA), a proposal meant to pursue two objectives: maintaining U.S. industrial competitiveness and accelerating industrial decarbonization. The bill combines a domestic performance fee with carbon import tariffs applied to carbon-intensive, trade-exposed (CITE) sectors. The CCA also includes provisions for building international climate clubs.

This commentary analyzes the U.S. and global economic and climate impacts of the CCA using a general-equilibrium global trade model. There are three main takeaways from the modeled results:

• CCA meaningfully lowers both U.S. and foreign greenhouse gas (GHG) emissions, raises $10.6 billion annually in U.S. revenue, and slightly boosts U.S. GDP and welfare.
• A domestic performance fee is critical to CCA benefits. Without the domestic fee, U.S. emissions rise, and global GHG reductions are two-thirds of the full CCA. U.S. government revenue from just a carbon tariff is one-third that of the full CCA. U.S. GDP and welfare gains are also smaller.
• CCA's climate club provisions amplify global emissions reductions, but only when enacting domestic climate policy is a condition for joining a club.

Background

Industrial activity lies at the junction of competitiveness, security, and climate policy. Many traded industrial goods-especially iron-and-steel and aluminum-carry strategic weight. At the same time, industry accounts for more than one-fifth of U.S. and worldwide fossil-fuel GHG emissions, while many low-carbon process technologies remain early in deployment.

The U.S. CCA, introduced in December 2025 by both chambers of Congress, aims to address these challenges by accelerating industrial decarbonization while maintaining U.S. industrial competitiveness. It does so through two key components: a domestic carbon performance fee and a carbon import tariff applied to carbon-intensive, trade-exposed (CITE) sectors. The CCA also contains climate club provisions that waive carbon tariffs for trade partners implementing comparable domestic climate policies.

To understand whether the CCA can achieve these goals, my team at the University of California, Santa Barbara's Environmental Markets lab just released a policy brief that models the CCA's economic and climate impacts for the United States and around the world. This analysis uses a general-equilibrium global trade model specifically designed for analyzing climate and trade policies (modeling details can be found in the policy brief).

The modeling shows that CCA's two-instrument architecture is critical. A carbon tariff alone behaves like a tariff with limited benefits to the U.S. economy, U.S. government revenue, and the global climate. The full CCA with both a domestic performance fee and tariff yields greater benefits to the U.S. economy, raises more U.S. government revenue, and can lead to significant global GHG reductions through CCA's climate club provisions.

What the CCA Does-and Why the Details Matter

The CCA is built on two core policy instruments applied to CITE sectors. Covered CITE sectors under the CCA are aluminum, iron and steel, cement, chemicals, glass, nitrogen-based fertilizers, paper and pulp, and fossil fuel extraction (though the model does not include fossil extraction). First, a U.S. carbon-based performance fee starts at $60/ton CO2e and applies to firms whose emissions intensity exceeds a benchmark set to today's U.S. average for that sector. Cleaner U.S. firms face no fee. The second instrument is a carbon import tariff levied on imports arriving from jurisdictions whose sector-average intensity exceeds the same benchmark, also valued at $60/ton. Both the benchmark declines and the carbon price increase over time.

Conceptually, the domestic performance fee creates an incentive for dirtier U.S. firms to clean up and cleaner U.S. firms to stay ahead, driving domestic decarbonization. To address competitiveness concerns, the carbon import tariff levels the playing field by raising costs on foreign producers similar to those faced by U.S. firms. When operating together, these two instruments help to maintain U.S. competitiveness while inducing emissions cuts domestically and abroad.

The CCA's climate club provisions are particularly consequential geopolitically. CCA waives the carbon import tariff on a U.S. trade partner if it adopts a domestic policy comparable to CCA's domestic performance fee. This simple provision provides the foundation for a trade agreement that rewards meaningful domestic climate policy with market access, amplifying similar climate and trade policies being put in place elsewhere, such as the European Union's Carbon Border Adjustment Mechanism.

Impacts of a Unilateral U.S. CCA

Figure 1 shows results from modeling the initial year of CCA's domestic performance fee and carbon import tariff. It assumes CCA is implemented unilaterally without international climate club cooperation. CCA lowers U.S. CITE emissions by 8 percent. Globally, it lowers global CITE emissions by 44.9 million tons (mtons) of GHG, split between 16.3 mtons of U.S. reductions and 28.6 mtons of foreign reductions (Figure 1).

The model projects that CCA will raise $10.6 billion (in 2025 USD) in U.S. government revenue on an annual basis, $7.1 billion from the domestic performance fee, and $3.5 billion from the carbon import tariff (Figure 2A). The tariff contributes less because CITE imports are a relatively small fraction of domestic consumption (about 23 percent in the underlying data), so the domestic base of emissions is larger than the imported base.

On macroeconomic effects, the model predicts virtually no effect on U.S. GDP. Indeed, the model predicts a slight increase in GDP (Figure 2B). All else equal, an increase in production costs from the domestic fee pushes GDP down. But this is offset by the fact that both the tariff and domestic policy improve U.S. terms of trade, lowering the price of imports relative to U.S. export prices, as has been documented elsewhere for tariffs and unilateral carbon prices. This latter improvement of U.S. terms of trade from CCA's performance fee occurs because in an open economy, a domestic performance fee can raise GDP, provided that the taxed good is sufficiently exported and tax revenue is recycled back into the economy. Indeed, CITE sectors represent 13 percent of total U.S. exports. U.S. welfare, which further accounts for avoided climate damages from lower global emissions, also increases slightly (Figure 2B).

The Importance of the Domestic Fee

The analysis shows that CCA's domestic performance fee is critical to the magnitude of its impacts. If the CCA were implemented as a carbon tariff without a domestic performance fee, global emissions reductions would fall entirely on foreign countries. Under a tariff-only policy, U.S. emissions rise 1.5 mtons even as other countries' emissions decline by about 30.4 mtons, for a net global reduction of 28.9 mtons-about two-thirds of the full CCA impact (Figure 1).

Increased U.S. emissions and decreased foreign emissions occur because a carbon import tariff, like any tariff, protects domestic producers. It raises domestic output while lowering the output of foreign producers, and likewise for emissions. In that sense, a carbon tariff-only approach runs counter to how climate policies (e.g., carbon pricing and clean energy subsidies) typically operate: Those policies aim to lower domestic GHG emissions, while a carbon tariff raises domestic emissions.

A carbon tariff-only approach also raises much less revenue: Without the domestic performance fee, U.S. revenue comes only from the import tariff (about $3.4 billion annually), roughly one-third of the full CCA's total revenue (Figure 2A). U.S. GDP and welfare gains are also smaller than the full CCA (Figure 2B) because less revenue is recycled, and avoided climate damages are smaller.

Climate Clubs Can Be a Global Climate Multiplier-but Only with Domestic Policy Requirements

The CCA's climate club provisions reward comparable domestic climate policy with U.S. market access. Modeling different club configurations makes the strategic logic clear: Climate clubs based on both the domestic performance fee and carbon tariffs can lead to substantial global GHG reductions, and the global effect scales with membership.

In the modeled $60 per ton GHG climate club scenarios with membership requiring comparable domestic policies, global CITE emissions decrease by 1.5 percent in a U.S., EU, and UK club, 3.2 percent in an Organisation for Economic Co-operation and Development (OECD) club, and 24.2 percent in an OECD, Brazil, China, Indonesia, and India club. In a global club with all countries joining, global CITE emissions fall by 31.6 percent. Across these climate club scenarios, U.S. CITE emissions reductions are largely unchanged at 8 percent.

By contrast, climate clubs without domestic policy requirements do not have global emissions reductions scaling with membership. For example, the OECD, Brazil, China, Indonesia, and India club achieves only a 1.2 percent reduction in global emissions. This is because, without requiring domestic policies, a tariff-only club primarily shifts emissions around globally from club members to non-club members. Indeed, the model shows that a tariff-only club that involves all countries achieves zero global emissions reductions. With no countries to shift emissions to, a global climate club based only on carbon tariffs brings the world back to where it is today: no carbon tariffs and no new domestic climate policy.

For the geopolitics of climate, this is significant: CCA's climate club provision can magnify global climate impact without necessarily imposing more reductions on the United States, but only if club membership is conditioned on domestic action.

What If Carbon Tariffs Were Implemented First Before Domestic Policy?

The modeling also suggests that sequencing a carbon tariff first before the domestic performance fee may be ineffective compared with simultaneously implementing both, as done under the full CCA. A carbon tariff by itself increases CITE output more than a combined policy. Once a carbon tariff is adopted, later adoption of a domestic fee would lower output relative to the tariff-only policy, making CITE firms less inclined to politically support the domestic fee. In short, having a carbon tariff first amounts to granting the carrot before the stick. If the goal is both U.S. emissions reductions and U.S. competitiveness, the performance fee and the carbon tariff should be enacted at the same time.

Geopolitical competition and climate concerns intersect when it comes to industrial activity. General equilibrium trade modeling shows that the CCA can address these concerns jointly. CCA can lower U.S. and global GHG emissions and raise U.S. government revenue while having negligible effects on U.S. GDP. CCA also lays the groundwork for a global climate-and-trade regime, with the potential for substantial worldwide GHG reductions through its climate club provisions. For both unilateral and multilateral effects, CCA's domestic performance fee is essential. Without that fee, many of CCA's economic and climate gains are substantially weakened.

Kyle Meng is a senior associate (non-resident) with the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

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