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

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$/tCO2e was approved in Chile. This tax and its increases (10, 20, 30, 40 and 50 US$/tCO2e) 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$/tCO2e, the average annual emission reduction would be between 1.1 and 9.1 million tCO2e. However, the price of the electricity would increase between 8.3 and 9.6 US$/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 OPEN ACCESSEnergies 2015, 8 2675 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.

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