Towards Overcoming the Conflict Between Environmental Tax Leakage and Border Tax Adjustment Concessions for Developing Countries

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Border tax adjustments (BTAs) may be able to alleviate concerns of reduced competitiveness for countries introducing environmental taxes and standards, while limiting the risk of companies relocating to developing countries to exploit lax environmental regimes - known as leakage. However, the ability of industrialized nations to offer developing countries special trade privileges for developmental purposes, including border tariff exemptions on exported goods, provides what is referred to in this article as a “leakage loophole.” This allows relocating companies to produce goods in developing countries at high environmental cost and sell them in the industrialized country they relocated from with no adjustment at the border at a potentially lower cost than domestically-produced goods which have internalized their negative environmental externalities.This article considers tax methods that counter the ability of such trade privileges benefiting those wishing to relocate and exploit them as to prevent leakage and ensure any concessions are only available for whom they are intended. In light of current academic debate, this article uses the “best available technology” standard to exemplify the potential grounds for adjustment exemption. Further, it considers the uses of BTAs for any legitimate environmental goal, not simply for carbon emissions.