Saturday, 1 November 2014

Chile Enacts a Carbon Tax

On September 26, Chile became the first country in South America to enact a carbon tax. This story was picked up the following day by Reuters, and was not picked up by the New York Times until October 29. The New York Times is taking its divestment from climate change coverage seriously, it appears. It appears to be too busy trying its best to save the Senate from Republican control.

The tax will be $5 per ton of carbon dioxide, and is limited to the electricity generation sector, and will cover 55% of country-wide emissions.There is some natural political economy to the measure, as 80% of Chile's energy emissions are from fossil fuels, and most of it is imported oil and coal, so it is not as if domestic production of fossil fuels will be curtailed so much, as it would in the United States. But of course, the electricity generators (there are four big ones) will raise the price of electricity, and the energy-intensive mining industry, an important one for Chile economically, will feel some pain. Chile reports that it expects to collect $160 million per year in carbon tax revenues, which I can't quite back out. In 2013, Chile's emitted of 24 Mt of carbon, or (taking into account the weight of carbon dioxide as opposed to carbon) 88 tons of carbon dioxide. If, as economist Juan-Pablo Montero reports, the tax will cover 55% of Chile's emissions, it would seem to me that the covered emissions would be 48.4 Mt of CO2, and therefore revenues should be around $242 million, not accounting for the demand response to the carbon tax. Maybe the Chilean officials and Dr. Montero have different estimates of what emissions will be covered.

At any rate, Chilean officials and Dr. Montero state the obvious, which nevertheless eludes some in the United States: that of course, Chile will have to go beyond $5 per ton, but that the institutions can now be put into place to pave the way for increases in the carbon tax in the future.

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