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The Impact of a Carbon Tax on the Chilean Electricity Generation Sector

Author

Listed:
  • Carlos Benavides

    (Department of Electrical Engineering, Energy Center, Faculty of Physical and Mathematical Sciences, University of Chile, Santiago 8370451, Chile)

  • Luis Gonzales

    (Latin American Center for Economic and Social Policy, Pontifical Catholic University of Chile, Santiago 8331010, Chile)

  • Manuel Diaz

    (Department of Electrical Engineering, Energy Center, Faculty of Physical and Mathematical Sciences, University of Chile, Santiago 8370451, Chile
    These authors contributed equally to this work.)

  • Rodrigo Fuentes

    (Institute of Economics, Pontifical Catholic University of Chile, Santiago 7820436, Chile
    These authors contributed equally to this work.)

  • Gonzalo García

    (Institute of Economics, Pontifical Catholic University of Chile, Santiago 7820436, Chile
    These authors contributed equally to this work.)

  • Rodrigo Palma-Behnke

    (Department of Electrical Engineering, Energy Center, Faculty of Physical and Mathematical Sciences, University of Chile, Santiago 8370451, Chile
    These authors contributed equally to this work.)

  • Catalina Ravizza

    (Institute of Economics, Pontifical Catholic University of Chile, Santiago 7820436, Chile
    These authors contributed equally to this work.)

Abstract

This paper aims to analyse the economy-wide implications of a carbon tax applied on the Chilean electricity generation sector. In order to analyse the macroeconomic impacts, both an energy sectorial model and a Dynamic Stochastic General Equilibrium model have been used. During the year 2014 a carbon tax of 5 US$/tCO 2 e was approved in Chile. This tax and its increases (10, 20, 30, 40 and 50 US$/tCO 2 e) are evaluated in this article. The results show that the effectiveness of this policy depends on some variables which are not controlled by policy makers, for example, non-conventional renewable energy investment cost projections, natural gas prices, and the feasibility of exploiting hydroelectric resources. For a carbon tax of 20 US$/tCO 2 e, the average annual emission reduction would be between 1.1 and 9.1 million tCO 2 e. However, the price of the electricity would increase between 8.3 and 9.6 US$/MWh. This price shock would decrease the annual GDP growth rate by a maximum amount of 0.13%. This article compares this energy policy with others such as the introduction of non-conventional renewable energy sources and a sectorial cap. The results show that the same global greenhouse gas (GHG) emission reduction can be obtained with these policies, but the impact on the electricity price and GDP are lower than that of the carbon tax.

Suggested Citation

  • Carlos Benavides & Luis Gonzales & Manuel Diaz & Rodrigo Fuentes & Gonzalo García & Rodrigo Palma-Behnke & Catalina Ravizza, 2015. "The Impact of a Carbon Tax on the Chilean Electricity Generation Sector," Energies, MDPI, vol. 8(4), pages 1-27, April.
    • Handle: RePEc:gam:jeners:v:8:y:2015:i:4:p:2674-2700:d:47735
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