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

Carlos Benavides, Luis Edwin Gonzales Carrasco, Manuel Diaz, Rodrigo Fuentes, Gonzalo García Trujillo, Rodrigo Palma-Behnke and Catalina Ravizza
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Carlos Benavides: Department of Electrical Engineering, Energy Center, Faculty of Physical and Mathematical Sciences, University of Chile, Santiago 8370451, Chile
Manuel Diaz: Department of Electrical Engineering, Energy Center, Faculty of Physical and Mathematical Sciences, University of Chile, Santiago 8370451, Chile
Rodrigo Palma-Behnke: Department of Electrical Engineering, Energy Center, Faculty of Physical and Mathematical Sciences, University of Chile, Santiago 8370451, Chile
Catalina Ravizza: Institute of Economics, Pontifical Catholic University of Chile, Santiago 7820436, Chile

Energies, 2015, vol. 8, issue 4, 1-27

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.

Keywords: energy policy; climate change; carbon tax; macroeconomic models; Dynamic Stochastic General Equilibrium (DSGE); generation expansion planning; non-conventional renewable energy (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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