Abstract
This paper examines the case of a good, polluting in consumption, whose pollutive content is restricted by a government with strong environmental policies. When foreign producers are unable to comply with the restrictive environmental standard of such a country, to which they wish to export, they often allege that those standards constitute illegal barriers to free trade. An example of such a good is gasoline, excessively pollutive formulations of which are prohibited from importation into the United States by the 1970 Clean Air Act. Rather than banning them, such imports should be taxed, along with the domestically produced substitute good, according to their respective pollutant contents. This would foster economic efficiency and should be more acceptable to foreign producers than the outright prohibition mandated by the Clean Air Act. The results of this paper reaffirm the argument in a previous article in this journal (Socio-Economic Planning Sciences 29 (1995) 187), though the countries’ roles in the two papers are reversed, that free trade and Pigouvian environmental policies increase international welfare.
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