What is an 'Environmental Tariff'

An environmental tariff, also known as an eco-tariff, is a tax on products imported to or exported from countries with inadequate environmental pollution controls. An environmental tariff is, in effect, a sin tax, designed to make the trade with environmentally negligent countries less desirable.

Many believe that global trade contributes significantly to pollution and environmental degradation. Environmental tariffs serve as controls on global pollution. They are a mechanism to prevent nations from ignoring environmental controls to increase exports.

BREAKING DOWN 'Environmental Tariff'

 Advancements in technology and transportation coupled with the expansion of global trade have sparked debate about impacts to the environment. There are varying opinions about global trade's contribution to pollution and environmental degradation. Proponents of environmental tariffs believe that these tariffs lead to a harmonious blend of efforts from nations to establish environmental standards and that the taxes encourage non-compliant countries to improve their processes. 

Environmental tariffs have led to an increase in Environmentally Preferable Products (EPPs), designed with smaller carbon footprints than their alternatives. Carbon footprint refers to the emission of carbon dioxide and other compounds into the environment due to the petroleum and fossil fuel use.

Many, including The Global Environment & Trade Study (GETS) and the World Trade Organization (WTO), have conducted studies on the effects of trade on the environment.  Empirical evidence shows a direct correlation to an increase in greenhouse gas emissions, such as carbon dioxide (CO2). Greenhouse gases, which require hundreds of years to dissipate, trap heat from the sun in the atmosphere. The trapped gases result in increased terrestrial temperatures. 

The increase of sea and land temperatures, in turn, causes changes in weather patterns. Global warming is connected to the increases in sea levels, changes precipitation patterns and droughts, and in contributing to the changes in behaviors and the extinction of plants and animals. Regarding global trade, the primary contributors to the excess emission of COare the burning of fossil fuels and deforestation.

Opponents of environmental tariffs believe that tariffs limit trade and stifle the natural progression of consumers and businesses to adopt cleaner and more efficient processes. They also argue that tariffs do nothing to reduce or identify the source of pollution. The tariff is a reaction rather than a solution to a problem. Foreign manufacturers of developing or less-developed nations (LDC) raise concerns that developed nations may impose unreasonable standards to which developing and underdeveloped nations cannot adhere. These standards could threaten the viability of their operations and adversely affect their nations' economies.

Environmental Tariffs and the United States

The United States began implementing environmental tariffs with the passing of the International Pollution Deterrence Act of 1991. Although such tariffs are put in place to discourage trade with countries that have dubious environmental standards, various studies show that taxes and regulations have had little impact on international trade. Nonetheless, more negative pressure is brought to bear on companies that trade with polluters and human rights violators.

  1. Environmental Economics

    Environmental economics is an area of economics that studies ...
  2. Carbon Trade

    Carbon trade is an exchange of credits between nations designed ...
  3. Tariff

    A tariff is a tax imposed on imported goods and services.
  4. Environmental Impact Statement

    An Environmental Impact Statement is a report addressing the ...
  5. Carbon Dioxide Tax

    A carbon dioxide tax is paid by businesses and industries that ...
  6. Green collar

    A green collar worker is one who is employed in an industry in ...
Related Articles
  1. Insights

    What Does It Mean To Be Green?

    Green investing is the new buzz word for companies and investors. Find out what it means.
  2. Insights

    For Companies, Green Is The New Black

    Sustainability and reducing environmental impact are hot corporate objectives. Find out why.
  3. Investing

    Trump's Tariffs Would Hurt Nearly Every Segment of Auto Industry: Moody's

    Moody’s warns that Trump's auto import tariffs will dent corporate profits.
  4. Investing

    US Futures Plunge After China Retaliates to Trump Tariffs

    Beijing’s announcement took stock markets by surprise, causing the likes of Boeing, Ford and General Motors to fall in pre-market trading.
  5. Investing

    Gundlach Pessimistic About a Trade War

    The billionaire bond investor says he was taught from an early age that tariffs caused the Great Depression.
  6. Investing

    US Futures Dip After New $100B Trump Tariff Threat

    Wall Street had been hoping that a compromise was forthcoming.
  7. Investing

    Vanguard's Davis: Tariffs Will Be a Non-Event

    Vanguard isn't concerned about the new tariffs, saying that the policy will have little impact on the economy.
  8. Insights

    Trump, Xi and Trade: Trade's Biggest Winners and Losers by State

    While the U.S. runs a big trade deficit with China, it's a different story at the state level.
  9. Investing

    U.S. Steel Poised for Breakout, Tariff or No Tariff: E*TRADE

    Whether or not President Trump's steel tariff proposal is enacted, E*TRADE sees room for growth in U.S. Steel shares.
  10. Insights

    Trump's Steel and Aluminum Tariffs: What You Need to Know

    A look at key issues regarding the latest import tariffs on steel and aluminium announced by President Trump
  1. What are common reasons for governments to implement tariffs?

    Gain a basic understanding of a government-sanctioned import tariff, what it is meant to accomplish and common reasons for ... Read Answer >>
  2. How does Federal Trade Commission use the Herfindahl-Hirschman Index to evaluate ...

    Understand specific examples of domestic products that rely on protective tariffs to survive. Learn about the varying tariff ... Read Answer >>
  3. How does government regulation impact the oil & gas drilling sector?

    Find out how government regulation of the oil and gas sectors is often positive for the large companies, but may be negative ... Read Answer >>
  4. What impact does government regulation have on the financial services sector?

    Learn about how the financial services industry is affected by government regulation, and the different types of regulations ... Read Answer >>
  5. What does greenwashing mean?

    The term "greenwashing" was added to the Oxford English dictionary in 1999, where it is defined as "disinformation disseminated ... Read Answer >>
  6. What does a Power Purchase Agreement (PPA) mean in the utilities sector?

    Read about the use of power purchase agreements, or PPAs, in the United States and their extensive influence in the public ... Read Answer >>
Hot Definitions
  1. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  2. Current Assets

    Current assets is a balance sheet account that represents the value of all assets that can reasonably expected to be converted ...
  3. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  4. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  5. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
  6. Depreciation

    Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account ...
Trading Center