Impact of a carbon tax on the Chilean economy: A computable general equilibrium analysis |
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| Affiliation: | 1. School of Statistics, Shanxi University of Finance and Economics, Taiyuan, Shanxi 030006, PR China;2. Collaborative Innovation Center for Energy Economics and Energy Policy, China Institute for Studies in Energy Policy, School of Management, Xiamen University, Fujian 361005, PR China;1. Curtin University, School of Economics and Finance, GPO Box U1987, Perth, Western Australia 6845, Australia;2. Curtin University, The John Curtin Institute of Public Policy, GPO Box U1987, Perth, Western Australia 6845, Australia;3. Purdue University, Center for Global Trade Analysis Project, Department of Agricultural Economics, 403 West State Street, Krannert Building, West Lafayette, IN 47907, United States;4. University of the Philippines, Los Baños, College of Economics and Management, Los Baños, Laguna, Philippines;1. Balsillie School of International Affairs, 67 Erb Street West, Waterloo, ON N2L 6C2, Canada;2. Graduate School of Public and International Affairs, University of Ottawa, 120 University, Ottawa, ON K1N 6N5, Canada;3. Institute of the Environment, University of Ottawa, 555 King Edward Avenue, Ottawa, ON K1N 6N5, Canada;4. School of Business and Economics, Wilfrid Laurier University, 75 University Avenue West, Waterloo, ON N2L 3C5, Canada;5. Center for Economic Research at ETH (CER-ETH), Department of Management, Technology and Economics, ETH Zurich, Zürichbergstrasse 18, 8032 Zürich, Switzerland;1. French Economic Observatory (OFCE), 69 quai d’Orsay, 75340 Paris Cedex 07, France;2. Netherlands Organisation for Applied Scientific Research (TNO), Behavioral and Societal Sciences Strategy and Policy – Economics, Van Mourik Broekmanweg 6, Postbus 49, 2600 AA Delft, The Netherlands;3. National Institute of Ecology and Climate Change (INECC), Periferico Sur 5000. Col. Insurgentes Cuicuilco, Delegacion Coyoacan, 04530 Mexico City, Mexico;4. Agence Française de Développement (AFD), 5 Rue Roland Barthes, 75598 Paris Cedex 12, France;1. Center for Energy and Environmental Policy Research, Beijing Institute of Technology, Beijing 100081, PR China;2. School of Management and Economics, Beijing Institute of Technology, Beijing 100081, PR China;3. Collaborative Innovation Center of Electric Vehicles in Beijing, Beijing 100081, PR China |
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| Abstract: | In 2009, the government of Chile announced their official commitment to reduce national greenhouse gas emissions by 20% below a business-as-usual projection by 2020. Due to the fact that an effective way to reduce emissions is to implement a national carbon tax, the goal of this article is to quantify the value of a carbon tax that will allow the achievement of the emission reduction target and to assess its impact on the economy.The approach used in this work is to compare the economy before and after the implementation of the carbon tax by creating a static computable general equilibrium model of the Chilean economy. The model developed here disaggregates the economy in 23 industries and 23 commodities, and it uses four consumer agents (households, government, investment, and the rest of the world). By setting specific production and consumptions functions, the model can assess the variation in commodity prices, industrial production, and agent consumption, allowing a cross-sectoral analysis of the impact of the carbon tax. The benchmark of the economy, upon which the analysis is based, came from a social accounting matrix specially constructed for this model, based on the year 2010.The carbon tax was modeled as an ad valorem tax under two scenarios: tax on emissions from fossil fuels burned only by producers and tax on emissions from fossil fuels burned by producers and households. The abatement cost curve has shown that it is more cost-effective to tax only producers, rather than to tax both producers and households. This is due to the fact that when compared to the emission level observed in 2010, a 20% emission reduction will cause a loss in GDP of 2% and 2.3% respectively. Under the two scenarios, the tax value that could lead to that emission reduction is around 26 US dollars per ton of CO2-equivalent. The most affected productive sectors are oil refinery, transport, and electricity — having a contraction between 7% and 9%. Analyzing the electricity sector by energy source, the production of electricity from fossil fuels will decrease by 11%, but electricity from renewables will increase by 43%. Electricity producers will pass the cost of the carbon tax to the consumer by increasing the price of electricity by 8%.The findings of this paper will allow policy makers to take better and more informed decisions, by providing a cross-sectoral analysis of the impact on the economy of reducing emissions by 20% by implementing a national carbon tax. |
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