Chile’s Carbon Tax: An Ambitious Step towards Environmentally Friendly Policies and Significant Greenhouse Gas Emission Reductions

Chile, Latin America and Caribbean

In 2014, Chile passed a large tax reform which notably included the introduction of three new environmental taxes: A carbon tax, a tax for local pollutants and a tax for new vehicles. Chile’s environmental framework has been widely strengthened through the introduction of the new green tax regime, procuring additional, cost-effective instruments for the environmental authoritiest o fulfil their obligations. On January 1st 2017, the green taxes regime came into force. Revenues from green taxes amounted to over USD 298.3 million in 2018, with the greatest contribution from the power generation sector (94%).

The implementation of the carbon tax has involved the establishment of various associated laws, regulations and protocols. Chile has operationalised the carbon tax through a number of steps, including: i) the identification of establishments subject to taxation; ii) the quantification of emissions; iii) emissions declaration; iv) emissions consolidation; v) tax calculation and payment; and lastly, vi) payment prorating by the National Electricity Coordinator. In addition to these steps, the government has secured the establishment of a solid Measurement, Reporting and Verification (MRV) system fort he green taxes and built capacity and knowledge throughout these processes.

The case of Chile´s carbon tax constitutes a good practice as a result of several factors. The strong political buy-in by the government has ensured the successful implementation of the carbon tax.National capacities have been strengthened by involving multiple public actors in the development of the tax system and through international support. Furthermore, the process has been characterised by strong stakeholder involvement, e.g. by involving the private sector throughout the development of necessary regulations and laws.

Source details
Global Good Practice Analysis (GIZ UNDP)