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 studies, including work done by The Global Environment & Trade Study (GETS) and the World Trade Organization (WTO), have focused 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 in precipitation patterns and droughts, and 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.

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