Trade in environmental goods and services (EGS) has significant potential to accelerate global climate action and sustainable development — but that potential remains largely underused. A key reason for this is the range of complex challenges that make EGS difficult to define, liberalise, and trade effectively across borders.
These challenges are not just technical. They are also political, economic, and institutional. They touch on deep asymmetries between developed and developing countries, on unresolved debates around what counts as “green,” and on the structure of global trade rules themselves.
1. Definitional Ambiguity: What Counts as EGS?
One of the most persistent barriers to trade liberalisation in EGS is the lack of a clear, universally accepted definition. Different countries and international organisations define EGS differently, often based on their own priorities and market interests.
Environmental goods may include pollution-control technologies, renewable energy products, or resource-efficient tools — but many are dual-use (e.g. pipes, motors) and not clearly 'green'. Environmental services range from waste management to environmental consulting — but many overlap with broader service categories in trade classifications.
A useful working approach is to define EGS as goods and services that contribute positively to the environment — by reducing pollution, conserving resources, or supporting climate mitigation and adaptation.
This ambiguity creates friction in trade negotiations, makes it hard to track EGS trade flows, and allows for political disagreements over what should be included in trade deals.
2. Classification Issues in the Harmonized System (HS)
The Harmonized System (HS), managed by the World Customs Organization, is the international standard for classifying traded products. Unfortunately, it is not designed to identify environmental goods as a category.
Many EGS are classified under generic codes (e.g. a filter for air pollution vs. for industrial use). Some green goods are hidden in categories not recognised as environmental (e.g. insulation materials or smart meters). This makes it difficult to collect accurate trade data or apply specific tariff preferences to EGS.
Efforts to amend or “green” the HS system have been limited, and attempts to agree on specific product lists — like in the WTO’s Environmental Goods Agreement — have largely stalled.
3. North–South Tensions: Development and Equity Concerns
Developing countries often face constraints in accessing EGS and raising concerns that trade liberalisation could:
- Disadvantage local industries by opening markets too quickly to advanced foreign technologies.
- Limit policy space for green industrial development or environmental regulation.
- Reinforce technology dependency without adequate support for local capacity-building.
At the same time, many developing countries need better access to EGS to meet climate commitments. This creates a tension between environmental goals and economic sovereignty — a tension that must be addressed through flexibility, finance, and technical assistance in trade frameworks.
4. Lack of Coordination Between Trade and Environmental Regimes
Trade policy and environmental policy often operate in parallel silos. While environmental ministries may prioritise sustainability, trade ministries focus on liberalisation and competitiveness.
This disconnect can lead to:
- Missed opportunities to align environmental priorities with trade incentives.
- Conflicting rules or standards, where environmental regulations are challenged as trade barriers.
- Slow progress in negotiations, as trade diplomats lack mandates to prioritise green outcomes.
Bridging this divide requires better inter-ministerial coordination, institutional reforms, and trade policies that explicitly integrate environmental goals.
5. Regulatory Barriers and Standards
Even where tariffs are low or eliminated, non-tariff barriers can restrict EGS trade. These include:
- Differences in technical standards, testing requirements, or certifications.
- Restrictions on foreign participation in environmental services sectors.
- Bureaucratic delays or lack of transparency in environmental approvals.
These barriers often reflect legitimate regulatory goals, but lack of harmonisation increases costs and discourages participation — especially for small exporters or firms in developing countries.
Looking Ahead
To overcome these challenges, international cooperation is essential. Solutions include:
- Building consensus on EGS definitions and classifications.
- Supporting developing countries through finance, training, and technology transfer.
- Integrating environmental objectives into trade agreements, through green chapters or flexibilities.
- Improving data and transparency to track EGS flows and measure progress.
EGSTradeHub.org helps unpack these challenges — providing clarity on how EGS are defined, negotiated, and governed in real-world trade policy.