IGCSE Economics – Globalisation and Trade Restrictions: Environmental Sustainability
International Trade and Globalisation
Trade Restrictions to Promote Environmental Sustainability
Governments may limit or condition imports and exports not to protect domestic industries, but to address environmental concerns that arise from international production and consumption. These restrictions aim to internalise negative externalities, preserve natural resources and encourage the adoption of greener technologies.
Key Reasons for Environment‑Based Trade Restrictions
Reducing Carbon Emissions: Limiting the import of high‑carbon goods or imposing carbon tariffs encourages producers to lower their carbon intensity.
Preventing Habitat Destruction: Bans on products linked to deforestation (e.g., certain timber or palm oil) protect biodiversity.
Managing Waste and Pollution: Restrictions on hazardous waste shipments and on products with high pollutant content reduce transboundary pollution.
Conserving Natural Resources: Quotas on over‑exploited resources such as fish stocks or rare minerals help maintain ecological balance.
Encouraging Sustainable Production: Standards and certification requirements (e.g., organic, Fairtrade) push exporters to adopt environmentally friendly practices.
Common Types of Environmental Trade Restrictions
Tariffs and Border Adjustment Taxes (BATs) based on carbon content.
Import bans or quotas on products linked to illegal logging, wildlife trade, or over‑fishing.
Export licensing for resources that are scarce or environmentally sensitive.
Subsidies for domestic producers that meet green criteria, creating a competitive advantage.
Illustrative Table of Restrictions
Restriction Type
Mechanism
Environmental Objective
Example Country / Policy
Carbon Border Adjustment Tax
Import duty proportional to embedded CO₂ emissions
Reduce carbon leakage and incentivise low‑carbon production
European Union (proposed CBAM)
Import Ban on Illegal Timber
Prohibition of products without verified legal origin
Prevent deforestation and protect biodiversity
United Kingdom – Illegal Logging Prohibition Act
Export Quota on Tuna
Limit on total tonnage exported per year
Maintain sustainable fish stocks
Japan – Tuna Export Quota
Energy‑Efficiency Standard for Appliances
Minimum energy‑performance rating required for market entry
Lower household energy consumption and emissions
Australia – Minimum Energy Performance Standards (MEPS)
Subsidy for Renewable‑Energy Equipment
Financial support for domestic manufacturers meeting green criteria
Encourage clean‑technology production and export
Germany – Renewable Energy Sources Act (EEG) incentives
Economic Theory Behind Environmental Trade Restrictions
When production generates negative externalities such as pollution, the market equilibrium quantity (\$Q{mkt}\$) exceeds the socially optimal quantity (\$Q{opt}\$). The welfare loss (dead‑weight loss) can be expressed as:
Imposing a tax or tariff equal to the marginal external cost (\$\text{MEC}\$) shifts the supply curve upward, reducing output to \$Q_{opt}\$ and eliminating the dead‑weight loss.
Potential Advantages and Disadvantages
Advantages:
Encourages greener production methods.
Helps meet international climate commitments.
Protects domestic ecosystems and public health.
Disadvantages:
May raise the cost of imported goods for consumers.
Risk of trade disputes under WTO rules.
Implementation and verification can be administratively complex.
Suggested diagram: Flowchart showing how a carbon border adjustment tax influences producer behaviour, reduces emissions, and generates government revenue for environmental projects.