AbstractThe impacts of a point‐by‐point tariff/tax reform on the environment under the origin‐based or destination‐based tax principle are examined. The policy reform under the origin‐based principle can raise the optimal pollution tax and, hence, improve the environment when the consumption demand and pollution are strongly substitutable, whereas the reform under the destination‐based principle lowers the optimal pollution tax and, hence, worsens the environment. Nonetheless, when the consumption demand and pollution exhibit weak substitutes or even complements, the tariff/tax reform results in less environmental deterioration under the destination‐based principle.