Climate Change

Chile becomes first South American country to enforce carbon tax

At $5 per tonne of carbon emitted, tax law will target big power plants

By DTE Staff
Published: Wednesday 01 October 2014

Caption: Chile hopes the tax will persuade power companies to gradually shift to renewable sources of energy (Photo courtesy: UNEP

Chile has set a major precedent by becoming the first country in South America to introduce a tax on carbon emissions. The legislation was ratified by the Chilean government last week, bringing big power companies into the fold.

Tax will now be imposed on all fossil fuel-based power plants with an installed capacity of at least 50 megawatts. At $5 per tonne of carbon emitted, the move will affect four energy companies, Endesa, AES Gener, Colbún and E.CL, in the country. Together, these companies are expected to contribute almost $160 million in carbon taxes to government revenues.

Smaller facilities as well as renewably powered plants will be exempt from the tax.

Around 80 per cent of Chile’s energy needs are met by fossil fuels like imported oil and coal, according to a Reuters report. With this legislation, the government hopes power producers will move to renewable sources of energy, helping the country meet its voluntary target of cutting 20 per cent of its greenhouse gas emissions of 2007, by 2020.

Around 30 other countries have already imposed or plan to impose a carbon price. In January this year, Mexico in Central America also introduced a tax on the use of fossil fuels in the country.

Meanwhile, another report  says that Chile plants to invest most of the revenues collected from the carbon tax in the country’s education system.

The economic, climate, fiscal, power, and demographic impact of a national fee-and-dividend carbon tax

The impact of carbon taxes on growth emissions and welfare in India: a CGE analysis

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