Apr 22, 2014 - 8:30am

How Free Trade Can Help Save the Earth

Senior Vice President for International Policy

solar panels by angel navarrete.JPG

Photo: Angel Navarrete/ Bloomberg
Photo: Angel Navarrete/ Bloomberg

As we celebrate Earth Day this year, a new initiative is under way that promises to lower the cost of environmental goods and make them more widely available. These are technologies that help keep clean the air we breathe, the water we drink, and the land we farm for today and future generations.

In January, 14 World Trade Organization (WTO) members, including the United States, China, and the 28 member states of the European Union, launched negotiations to eliminate tariffs on environmental goods.

The Environmental Goods Agreement (EGA) aims to eliminate the steep tariffs that too many countries apply to such products as solar hot water heaters; turbines used for the generation of electricity; catalytic converters; and products to control air pollution and treat wastewater.

These are anything but fringe products: Global trade in environmental goods approaches $1 trillion annually. However, some countries apply tariffs to these goods as high as 35%, discouraging use of environmentally-friendly technologies.

A study by the World Bank entitled International Trade and Climate Change investigated the role of tariff barriers on environmental goods and services. It found that China applies a 15% tariff to clean coal technologies; so does India, which applies the same steep tariff on wind and solar technologies. Brazil slaps duties of 18% on solar technologies and 14% on wind turbines and related goods.

In today’s generally low-tariff world, these duties are sky high. According to a report by Australia’s Institute of Public Affairs, “in Asia and Latin America the average tariff on environmentally sensitive technologies is between 15 and 20 per cent.” If governments want to promote the wider use of environmental goods, “they can do something immediately—remove their tariff barriers.”

The countries taking part in the EGA negotiations account for 86% of global trade in environmental goods. The parties have begun to reach out to other countries, such as Brazil and India, to encourage them to join the initiative.

The talks aim to build on the Asia-Pacific Economic Cooperation (APEC) Leaders’ commitment to reduce tariffs on a list of 54 environmental goods to make them cheaper and more accessible. But the parties will surely try to expand the list to additional products as well.

The EGA will complement U.S.-led efforts to remove barriers to trade in environmental services, such as air pollution monitoring and solid and hazardous waste treatment, as part of the Trade in Services Agreement (TISA) negotiations.

The U.S. Chamber of Commerce has welcomed the initiative. Eliminating barriers to trade in environmental goods is both pro-environment and pro-growth—and something well worth celebrating this Earth Day.

About the Author

About the Author

Senior Vice President for International Policy

Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy.