Building a scalable climate coalition for heavy industry

Abstract: The important interaction between trade and climate policy has sharpened the case for a coalition of countries that commit to price industrial emissions at home and use border adjustments to apply a carbon price to imports from nonmembers. We propose a coalition that initially targets four emissions-intensive industries—iron and steel, aluminum, cement, and nitrogen fertilizers (hereafter, fertilizers)—which together account for roughly 20% of global greenhouse gas (GHG) emissions.

Using plant-level microdata and trade modeling, we examine two institutional designs that have emerged in policy discussions: a uniform price regime with a common carbon price floor and a graduated price regime with income-tiered floors. 

We show that a first-wave coalition could cut global GHG emissions by roughly 1.5% [2.0% of carbon dioxide (CO₂) emissions] relative to 2023 levels while keeping industrial output impacts small, limiting leakage, and raising almost $200 billion per year in public revenues.