Effectiveness of CO2 taxes on thermoelectric power plants and industrial plants

In 2017, a tax on CO2 emissions generated by stationary sources with thermal power ≥50 MW was introduced in Chile. In this context, the effectiveness of the tax application is analyzed with an optimization model, for which it is assumed that industrial plants have the option of replacing fuels in their production processes and that thermoelectric power plants could invest in carbon capture and storage technology (CCS) in order to reduce its CO2 emissions and tax burden. Additionally, the option of early shutdown of coal-fired thermoelectric power plants and their replacement by solar plants with the same electricity generation capacity is evaluated. The results of the simulations show that the current tax rate of 5 US$/tCO2 would reduce total emissions by 3.6%. This reduction is generated by the substitution of fuels, and also, it is explained because an old thermoelectric power plant decides to shut down early and install solar plants instead. On the other hand, thermoelectric power plants would only reduce their emissions with CCS technology if taxes of approximately 40 US$/tCO2 are set. Thus, it can be concluded that the tax applied in Chile must be substantially increased to be an effective measure for emissions reduction.