Chile is poised to adopt South America’s first carbon tax | RenewEconomy

Chile is poised to adopt South America’s first carbon tax

Chile to become the first country in South America to institute a carbon tax, and the second in Latin America after Mexico.


Climate Progress

Chile’s Atacama Desert. Credit: Shuttershock

It’s a big year for fighting climate change in Chile. A carbon tax is set to go before its House of Representatives next week, as part of a larger tax reform package that includes measures intended to fight air pollution and climate change. Chile would become the first country in South America to institute a carbon tax, and the second in Latin America after Mexico, which imposed its carbon tax in January.

A carbon tax is what it sounds like. The government charges emitters of carbon pollution for every metric ton they release into the atmosphere. Carbon taxes are gaining popularity as a way to massively cut the amount of carbon dioxide put into the atmosphere, whilecreating jobs, raising incomes, and cutting deficits in countries where they’re implemented. British Columbia, Canada has had a carbon tax since 2008 and has seen success cutting energy use and carbon emissions, and giving revenue from the tax back to low-income families to offset higher energy prices.

Chile’s initial tax will be $5 per ton of CO2, and Mexico’s taxes fuels at different rates, averaging out to about $3.50 per ton. Those are both pretty low, but once a carbon tax is in place, it can be raised. British Columbia’s started at C$10 per ton in 2008, ramping up over the years to C$30 in 2012. A study in California found that even a $200-a-ton carbon price would actually help businesses and create jobs in the state, though it’s far higher than anything that has been tried yet.

There is currently no carbon tax in the United States, and any attempt to pass one would be extremely difficult, thanks in part to a pledge from the Koch-backed organization Americans For Prosperity that requires signers to “oppose any legislation relating to climate change that includes a net increase in government revenue.” A third of the U.S. House of Representatives and a quarter of Senators have signed the pledge.

Another point of comparison is how the revenue is used. In British Columbia, as in all successful real-world and simulated instances of a carbon tax, governments choose to give the tax revenue right back to the people, especially low-income people. That way, higher energy prices incentivize less carbon emission, but consumers get the money back, so they aren’t made poorer. Chile is expected to use most funds from the tax on education reform, which wouldn’t necessarily cancel out potential economic drag like giving the money directly back to consumers would.

Gariazzo Rodrigo Pizarro, head of the division of environmental economics in the Chilean government, said the tax could also help Chile invest in renewable energy. “We believe that changing the price allocation through taxes is enough to generate a greener economy,” he said.

Chile already has already started construction on South America’s first solar thermal plant in the Atacama Desert, which will provide heat to a mining company. Copper mining is a significant part of the country’s economy, and a big user of fossil fuel power. Chile currently produces little power inside the country, importing 70 percent. On the other hand, the Atacama Desert gets the highest levels of direct solar radiation in the world, and Chile hashuge potential for hydraulic, wind, and geothermal power as well.

The carbon tax appears to be a bid to encourage energy independence through renewables, as well as a move against climate change. Chile plans to cut its greenhouse gas emissions 20 percent by 2020, from 2007 levels.

Chilean President Michelle Bachelet, who took office in March, included the carbon tax and taxes on toxic chemicals like nitrogen oxide and sulfur dioxide in a wide-ranging reform plan intended to reduce inequality, protect workers, close tax loopholes for the wealthy, and fund education. Women’s health advocates are also hopeful Bachelet’s administration could bring an end to Chile’s total ban on abortion.

Source: Climate Progress. Reproduced with permission.

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  1. Rob G 6 years ago

    Chile, has a big role to play in the renewable world and a move to an ETS in a promising start. Lithium for future EV will most likely to come from Chile so by positioning itself as a country serious about climate action will place them strongly in the future. Australia on the other hand is going the wrong way.

  2. Ronald Brakels 6 years ago

    Andrew, Chile has the highest socioeconomic school segregation in the OECD. Reforming their education system looks like it will be particularly helpful to the poorer Chileans. So in one wonderful swoop they are aiding the poorer members of society, and assuming the reforms do improve education, setting Chile up for enhanced economic growth in the future as education is one of the best investments a country can make. And given Chile’s extremly low tax revenue as a percentage of GDP they could probably do with an increase in revenue. The last thing they need is inadequate taxation interfering with economic growth.

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