Chilean President Michelle Bachelet enacted new environmental tax legislation on Friday making his nation the first in South America to tax carbon dioxide emissions.
Part of a broad tax reform, Chile’s carbon tax will target the power sector, particularly generators operating thermal plants with installed capacity equal to or larger than 50 megawatts.
The installations will be charged US$5 per tonne of carbon dioxide released. Thermal plants fueled by biomass and smaller installations will be exempt.
The new tax is meant to force power producers to gradually move to cleaner sources to help reduce the nation’s greenhouse gas emissions and meet its voluntary target of cutting these gases by 20 percent of 2007 levels by 2020.
Earlier this year, Mexico imposed a tax on the sale of several fossil fuels, based on their carbon content, averaging US$3 per tonne of carbon dioxide.
In Mexico, companies are able to use carbon credits to reduce their tax bills, a provision not considered in Chile.
Central-American nation Costa Rica also has an environmental tax, but it targets gasoline sales.
About 80 percent of Chile’s energy is based on fossil fuels, mostly imported oil and coal.
Chile’s government will start measuring carbon dioxide emissions from thermal power plants in 2017 and the new tax is set to be charged from 2018.
Four companies are expected to pay the bulk of the new tax: Endesa, AES Gener, Colbun and E.CL.
The companies have said that the tax will raise the price of electricity. They have also complained that other industrial sectors were not targeted.
The government said it expects to collect about US$160 million from the carbon tax, a relatively small share of the forecast US$8.3 billion in additional revenue the broader tax reform will bring in.
Carbon pricing, largely rejected by the US and struggling in Europe, is suddenly all the rage, with China leading the charge.
The world’s biggest greenhouse gas emitter plans to establish a national market for carbon permit trading in 2016 and has already launched seven regional pilot markets.
Boosters of carbon pricing policies say that once China sets a national price on carbon, others will follow.
“Once China goes live, that will establish a major price [signal] that will affect all the other markets and all other [carbon] prices,” said Christiana Figueres, executive secretary of the UN Framework Convention on Climate Change.
China’s top economic planning agency has announced that its proposed carbon trading scheme is set to cover 40 percent of its economy and be worth about US$65 billion.
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