What is an environmental tariff? Definition and meaning

An environmental tariff, also known as an eco-tarrif or a green tariff, is a tax (in the form of either an import or export tax) imposed on goods with a high carbon footprint or goods imported from nations with poor environment controls.

Proponents of environmental tariffs believe that the tariffs can help control global pollution by forcing nations to be more environmentally responsible as they punish countries with lax environmental regulations.

However, whether global trade has had a role in increased levels of pollution is a point of contention among experts. Some believe that there is a definitive link between increased global trade and environmental degradation, while others maintain that international trade helps boost economies, subsequently making the population more affluent and increasing their willingness to advocate for cleaner environments.

According to a World Bank paper: “Since freer trade raises income, it directly contributes to increasing pollution levels via the scale effect. However, it thereby induces the composition (and) technique effects of increased income, both of which tend to reduce pollution levels”.

Opponents of environmental tariffs argue that certain standards could be unreasonable for emerging economies to adhere to and threaten their economies.

The first legislative proposal for an environmental tax was made in 1991 in the US against countries whose exports had significant cost advantages because of lax environmental regulations.

The proposed legislation, called the International Pollution Deterrence Act of 1991, called for an amendment to the “Tariff Act of 1930” to “declare that a country’s failure to impose and enforce effective pollution controls and environmental safeguards shall constitute the bestowal of a bounty or grant (subsidy) by such country on its manufactured products and require the imposition of countervailing duties on such products.”