Environmental taxation for reducing greenhouse gases emissions in Chile: an input–output analysis

Abstract

This study uses an environmental extension of the Leontief price model to analyse various tax rates on the carbon dioxide (CO2) and other greenhouse gases (GHGs) emissions that are generated by the most polluting sectors of the Chilean economy. By using this methodology, it is possible to obtain a counterfactual scenario for the prices, levels of production and emissions of each economic sector, as well as, for tax collection, consumer spending and the consumer price index. This analysis is important because Chile is internationally committed to reducing its emissions by 30% by 2030. According to the results, to meet the target CO2 emissions only using tax policies, tax should be approximately 20 times higher than their current levels in the electricity sector. Alternatively, a lower tax of US $30/ton of CO2 and other GHGs applied to all sectors of the economy could reduce CO2 and other GHGs emissions by up to 25.7% with less of a negative impact on the economy.