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Effectiveness of a CO2 tax on industrial emissions

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  • Mardones, Cristian
  • Flores, Belén

Abstract

This study quantifies the amount of taxes collected and the reduction in emissions that implementing a CO2 tax on industrial sources in Chile would generate. An optimization problem is used to simulate the situation that each source faces (of choosing the technology and fuel) in order to reduce the cost of the new tax. For this process, investments in boilers or dual burners have been considered, that allow for a change in fuel. The results indicate that taxes up to US$10/ton CO2 do not greatly modify the use of fuels in industrial sources. If taxes between US$10/ton CO2 and US$30/ton CO2 are implemented, then emissions are reduced rapidly. With taxes higher than US$30/ton CO2, emission reductions stagnate. It can be concluded that taxes that are too low or too high are effective in raising revenue but not in reducing emissions.

Suggested Citation

  • Mardones, Cristian & Flores, Belén, 2018. "Effectiveness of a CO2 tax on industrial emissions," Energy Economics, Elsevier, vol. 71(C), pages 370-382.
    • Handle: RePEc:eee:eneeco:v:71:y:2018:i:c:p:370-382
    DOI: 10.1016/j.eneco.2018.03.018
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    More about this item

    Keywords

    Taxes; Emissions; CO2;
    All these keywords.

    JEL classification:

    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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