Effectiveness of local air pollution and GHG taxes: The case of Chilean industrial sources

• Published in: Energy economics 2019-09, Vol.83, p.491-500
• Main Authors: Mardones, Cristian, Cabello, Martin
• Format: Article
• Language: English
• Subjects: Air pollution; Air pollution effects; Alternative fuels; Carbon dioxide; Computer simulation; Economic models; Electricity; Emissions; Energy economics; Environmental aspects; Environmental effects; Environmental impact; Environmental tax; Environmental taxes; Fossil fuels; Green taxes; Greenhouse gases; Installation; Optimization; Pollutants; Pollution effects; Power; Sulfur dioxide; Tax rates; Taxation; Taxes; Thermal power; Thermoelectricity
• ISSN: 0140-9883; 1873-6181
• DOI: 10.1016/j.eneco.2019.08.007

In 2017, environmental taxes began to be applied to CO2, PM, NOx and SO2 emissions in Chile to reduce the negative environmental effects of fossil fuels burned in industrial and thermoelectric sources with a thermal power greater than or equal to 50 MW. In this context, the present study generates an economic optimization model to simulate how different tax scenarios would modify the behavior of regulated industrial sources considering the alternatives they have to minimize their costs (tax payment, fuel change and/or installation of abatement technologies). The main results show that, under the current tax scenario, CO2, PM and SO2 emissions would decrease by 11%, 48% and 49% respectively, while NOX emissions would increase by 5%. By extending the tax to all industrial sources regardless of their thermal power, CO2, PM and SO2 emissions would decrease respectively by 14%, 98% and 66%, while NOX emissions would increase by 7.1%. Finally, it is determined that modifying the tax rate of a single pollutant while maintaining the rest of the constant rates generates a low impact on the other pollutants emissions. •The economic optimization model allows simulating different tax scenarios.•The current tax scenario would reduce CO2 emissions by 11%.•Environmental taxes should be extended to all industrial sources to reduce more emissions.•The tax rate should be equivalent to the social cost of each pollutant to reduce more emissions.•Changes in the tax rate of a single pollutant generate a low impact on the other pollutants emissions.