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Effects of the internalization of the social cost of global and local air pollutants in Chile

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  • Mardones, Cristian
  • Mena, Camilo

Abstract

In 2017, environmental taxes on global pollutants (CO2) and local air pollutants (SO2, NOX, and PM) began to be collected to reduce emissions in Chile. However, large emitting sources only are subject to environmental taxes and the tax rates are much lower than the social cost of these pollutants, which does not allow to fully internalize the generated damages. For the above, this study uses the environmental extension of the Leontief price model and microsimulations to estimate the economic, environmental, distributive, and poverty short-term effects associated with the application of Pigouvian taxes on all emissions generated by productive activities. The results show that currently there are too many resources allocated to activities that generate strong negative externalities, mainly in the electricity and transport sectors. Specifically, the emissions are reduced almost 10 times more than in the current tax scenario if environmental taxes equal to social costs are applied, but relevant negative indirect effects are generated that make the practical application of a tax of these characteristics unrealistic. For example, there is a fall between 1.2% and 2.9% in employment, slightly worsening the income distribution and increases the poverty rate between 0.9 and 2.3 percentage points.

Suggested Citation

  • Mardones, Cristian & Mena, Camilo, 2020. "Effects of the internalization of the social cost of global and local air pollutants in Chile," Energy Policy, Elsevier, vol. 147(C).
    • Handle: RePEc:eee:enepol:v:147:y:2020:i:c:s0301421520305917
    DOI: 10.1016/j.enpol.2020.111875
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