Policy makers on both sides of the Atlantic are looking at targeting steel, chemicals and cement. The tariffs would give a competitive advantage to manufacturers in countries where emissions are relatively low.

Economists and policy makers have been exploring the idea of carbon tariffs over the past 20 years, to level the playing field for domestic companies and to encourage trading partners to toughen their own emissions rules. When Yale University economist William Nordhaus accepted the Nobel Prize for his work on the economics of climate change in 2018, he proposed a global "climate club" of low-polluting countries that would impose a 3% tariff on imports from higher-polluting non-club members.

The European Union has taken the lead in carbon tariffs, unveiling its proposed plan in July. It currently has a cap-and-trade system in which domestic companies must obtain a permit to emit carbon, capped at a set amount. Permits currently change hands for around 60 euros, or $68, per metric ton of emissions.

Under its proposal, the EU would charge producers outside the area a fee similar to what domestic companies pay, based on the carbon content of their products sold in Europe. The border adjustments would initially apply to four heavily polluting sectors: steel, aluminum, cement and fertilizer. European officials hope to implement the program by 2025 as part of a broader deal to cut continental emissions 55% by 2030.