In 1989 the U.S. Congress enacted a tax on eight ozone depleting chemicals (ODC’s) as part of the Omnibus Budget Reconciliation Act. It extended this tax to 12 additional chemicals and raised the tax on the original 8 chemicals in the National Energy Policy Act of 1992. The Clean Air Act (Title VI)established caps on most CFC’s as agreed upon under the Montreal Protocol, with a complete phase out occurring around the year 2000. The tax on CFC’s was $1.37 a pound in 1990 and 1991, about twice the then current product price. Recycled CFC’s were exempted from the tax.
The tax was raised in 1990 and again in 1992. The tax raised to $3.10 per pound in 1995 and to $4.90 per pound in 1996, raising the price six fold. The tax is proportional to the chemical’s potential for depleting the ozone layer. Congress designed the tax on ODCs to minimize adverse impacts on US manufacturers. Imports of ODCs are subject to the same tax while any tax paid on exports of such chemicals is rebated. The IRS then taxes imported goods based on the average consumption of ozone depleting chemicals used in the manufacture of comparable domestic goods. If the IRS has no comparable product on its list it will tax that product at 5%.
These measures protect the domestic market from predatory tactics by foreign producers who did not pay the tax and allows exports to compete on a level playing field in other nations that have not adopted a tax. Although the concept behind the tax was to encourage the rapid phase out of CFC’s, the tax also has generated large amounts of revenue: $360 million in 1990 and over $1 billion in 1994. Both the tax and the production caps have led to a rapid phasing out of ozone depleting chemicals.