Chile to Implement Carbon Tax Complimenting the Latin American Trend of Environmental Reform

October 13, 2016

On September 26th, Chilean President Michelle Bachelet signed into law a new environmental tax on carbon emissions, making Chile the first South American country to enact such legislation. The tax is targeting the country’s power sector, which is dominated by nearly 80 percent by fossil fuels.1 It is aimed at thermal plants with installed capacities of 50 megawatts or more. Plants of this size will be charged USD $5 per ton of CO2 released, exempting smaller plants and those fueled by biomass.1

As part of a broad tax reform aimed to promote a “more cohesive, democratic and just society,” the goal of the carbon tax is to force power producers to move to cleaner production strategies and encourage research in renewable energy, reducing Chile's overall greenhouse emissions.3With miles of desert and coastline, Chile has much potential for solar, wind, ocean and geothermal energy sources. In fact, Chile will soon house South America’s first thermal energy plant currently under construction in the Atacama Desert.3 New developments of renewable energy could permit Chile to lessen its dependence on fuel imports which outnumber domestically produced energy 7 to 3.3 In addition to the effects on energy producers, the Chilean Senate broadened the bill to include both diesel and non-diesel powered vehicles under scrutiny of pollution based on carbon dioxide, sulfur dioxide and nitrogen oxide contents.3 In 2007, Chile voluntarily established a goal to reduce these gases by 20 percent by 2020.1

The Chilean government will start measuring and recording CO2 emissions in 2017 and begin taxation in 2018.1 When Bachelet leaves office, however, the new administration will be able to decide the fate of the tax; he/she could choose to maintain it, change the price on emissions or change to a voluntary system.3 It is expected that four major companies will pay the majority of the revenues: Endesa, AES Gener, Colbún and E.CL.1 Estimated revenues are around USD160 million a year, just a small portion of the USD 8.3 billion total that will be raised the broad tax reform as a whole.1 This new government income is proposed to be spent on education, working on indirectly narrowing the gap between the rich and poor.

Chile is not the only Latin American country instituting environmental reforms. In January of this year Mexico imposed a tax on the sale of various fossil fuels based on carbon content.1 The taxes average USD 3.50 per ton of CO2 released by the particular fuel in use. The tax applies to over 40 percent of Mexico’s total greenhouse gas emissions.3 In addition to these sales taxes, Mexico issued carbon credits to companies to help them reduce their tax bills as they adjust to new, cleaner techniques.1 Colombia has imposed rigorous standards for environmental licensing in various industries including oil, mining, energy and infrastructure. For example, fracking is at the highest environmental standards, requiring approval for not only extraction but also exploration.2Brazil, though yet to implement a national program discussed possible reforms and auctioned some allowances in March.

Costa Rica, too, has an environmental tax, theirs targeting sales of gasoline.1 In 2013 the Costa Rican government created a market for buying and selling carbon credits for businesses, individuals and organizations alike. Last year they also created an environmental bank, called BanC02, that focuses on mitigating climate change and promotes low carbon development.3These programs have allowed Costa Rica to “reverse” deforestation, expanding rainforest coverage by almost double since 1997. They have a goal to become carbon neutral by 2021.

Venezuela has initiated the People's Climate Process, building off of the mass Cochabamba meeting in 2010 in Bolivia. For “climate justice,” these programs seek to offer more robust analysis and strategies than before. Alliances for environmental conscious efforts have been growing. The BRICS nations agreed on voluntary emissions cuts and introduced domestic carbon markets in effort to “privatize the air.”5

Yet only 12 percent of the world’s annual greenhouse gas emissions are under some kind of legal regulation. The next round of UN climate talks are planned to take place in Peru, where the effects of global warming are particularly visible.4 Glaciers on Peruvian mountains are melting while rising mercury is causing the Amazon to wilt and release billions of tons of carbon into our atmosphere that was once stored in the trees.4 Lima has the worst air pollution of any Latin American city, possibly to due illegal gold mining that wreaks havoc in the rainforests. Only one environmental ministry exists there; it was created in 2008 as a conditionality clause of a trade agreement with the United States.4 Peru is a dangerous place to be an environmental activist, especially for indigenous leader such as Edwin Chota, who lost his life along with three others while attempting to defend his tribal lands from illegal logging.4 President Humala, who took office in 2011, has stripped the sole environmental ministry of its powers to set quality standards, lessened pollution penalties and has repeatedly denied nature reserve status to decide in favor of extractive industries.4 However, Peruvian green campaigners are hopeful and anxious to see the progression and effects of the UN talks to take place in November in Lima.5


Sources:

1. “Chile becomes the first South American country to tax carbon.” Reuters. Available at:http://in.reuters.com/article/2014/09/27/carbon-chile-tax-idINL6N0RR4V720140927

2. “Colombia to speed environmental licenses for energy, mining products.” Reuters. Available at:http://www.reuters.com/article/2014/09/25/colombia-oil-idUSL2N0RQ25W20140925

3. Dechert, Sandy. “Chile carbon tax coming up this week.” CleanTechnica. Available at:http://cleantechnica.com/2014/09/01/chile-carbon-tax-coming-week/

4. Tegel, Simeon. “With its green cred under fire, Peru prepares to host UN climate talks.” Daily News. Available at: http://www.dailynews.com/general-news/20140923/with-its-green-cred-under-fire-peru-prepares-to-host-un-climate-talks

5. “The BRICS remix climate damage and corporate collusion.” teleSUR. Available at:http://www.telesurtv.net/english/opinion/The-BRICS-Remix-Climate-Damage-and-Corporate-Collusion-20140830-0003.html

 
 

 

About Author(s)

Danielle Scalise
Danielle Scalise is a senior undergraduate at the University of Pittsburgh pursuing degrees in Economics and Political Science, with a minor Spanish and certificate in Latin American Studies. She took part in the Pitt in Cuba program in the spring of 2013 and is currently an intern for Panoramas. Danielle is attending Georgetown Law in the fall where she will study international economic law pursuing a career specializing in US/Latin American trade relations.