What Is an Environmental Tariff?

An environmental tariff, also known as an eco-tariff, is a tax on products imported from countries with inadequate environmental pollution controls. They are a mechanism to prevent nations from ignoring environmental controls to increase exports. Direct environmental tariffs are uncommon because they tend to run afoul of international trade commitments and treaties, though other trade measures with similar environmental intent have become more common.  

Key Takeaways

  • An environmental tariff is a punitive or countervailing tariff imposed on goods from a country with lower environmental laws and standards.
  • Environmental tariffs have never been widely adopted or accepted due to their impact on development in emerging economies and conflict with international trade agreements.
  • Instead, other approaches that treat environmentally-friendly goods and services more favorably in trade have been implemented. 

Understanding Environmental Tariffs

An environmental tariff is, in effect, a sin tax, designed to punish countries with more relaxed environmental policies by making trade with them more expensive less desirable. 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. 

An early proposal for an environmental tariff was introduced into the U.S. Senate in 1991, which would have imposed countervailing tariffs on goods from countries who did not enforce effective pollution controls in a manner which would constitute an unfair subsidy to their exports. However this bill was never passed into law. Moreover, for a variety of reasons, environmental tariffs that impose this kind of trade barrier have proven politically undesirable. 

For one, developing or less-developed countries (LDCs) raised concerns that developed nations may impose unreasonable standards to which developing and underdeveloped nations cannot adhere. The opposing argument maintains that part of the stated intent of early attempts at environmental tariffs was specifically to prevent an international race-to-the-bottom among emerging market economies. These standards could also just be pretexts for protectionist trade barriers against them that might threaten the viability of their nations' economies.  

The consensus on imposition of environmental tariffs was thus seen as counterproductive to the goals of international development and globalization. Because of this, environmental tariffs never gained acceptance under the General Agreement on Tariffs and Trade (GATT) or the World Trade Organization (WTO).

Alternative Approaches

Instead of imposing punitive environmental tariffs, the more accepted approach has been to lower tariffs with respect to so-called "environmental goods." This approach was formally adopted under the Doha round of WTO negotiations in 2001, where ministers agreed in principal to reduce or remove tariff and non-tariff barriers on environmental goods and services. 

Environmental goods include pollution control devices, such as catalytic converters and smoke stack scrubbers, or renewable energy goods, like wind turbines. By lowering barriers to trade for these and similar goods, rather than raising barriers to pollution-generating goods, the goals of promoting healthy environmental policies and fostering global economic development are thought to be made more compatible. Some critics argue instead that economic development through industrialization, mechanization of agriculture, and long-distance global transportation of goods is inherently contradictory to promoting a healthy global environment. 

In addition to increased international trade in environmental goods, there has been an increase in environmentally preferable products (EPPs) designed with smaller carbon footprints or otherwise lower environmental impact than their alternatives. Carbon footprint refers to the emission of carbon dioxide and other compounds into the environment due in part to petroleum and fossil fuel use.