4 months ago

Climate Action 2014-2015


CLIMATE FINANCE PRICING CARBON IN CHILE: GREEN TAX REFORM By Pablo Badenier Martinez, Minister of the Environment, Chile Since ratifying the United Nations Framework Convention on Climate Change (UNFCCC) in 1994 and signing the Kyoto Protocol in 2002, Chile has actively engaged in the establishment of robust national policies in response to climate change. The recent ‘green’ legislation has many innovative aspects and is establishing Chile as a leader in equitable taxation. In 1996, the Government of Chile established a National Advisory Committee for Global Change, which played an important role in formulating initial national positions for international negotiations and creating national policy instruments for climate change. Fifteen years later, in 2010, the Climate Change Office (OCC) of the Ministry of the Environment was established and has continued with progress in relevant environmental legislation. Now Chile is committed to further positive action. Progress on climate change initiatives in Chile has been especially significant recently, and unique in the region. We have successfully established a permanent national greenhouse gases (GHG) inventory system, recursively updated as a result of the committed work of the ministries and agencies that manage critical data to support sectoral policies. We have advanced the implementation of Nationally Appropriate Mitigation Actions (NAMAs, as defined by the Convention). Finally, we have conducted a national survey to identify public needs and support – financial resources, capacity building, technical assistance and technology transfer – available from the international community and deployed in the country in the fight against climate change. CARBON TAX PROVISIONS This article particularly discusses an important milestone – our recently enacted carbon tax law, a cornerstone for mitigation actions in our country. Our ministry, in close collaboration with the Ministry of Finance and under the guidance of President Bachelet, has introduced a ‘green tax’ as a strong signal of our commitment to an equitable, sustainable, resilient and, above all, low carbon development path. "Today it is clear that climate change affects such aspects as national security, social development, competitiveness, job creation and equity." The Bill taxes emissions from stationary atmospheric CO 2 , SO 2 , NO X and particulate matter (PM) sources. It is aimed at facilities with boilers or turbines that, together, add up to a heat output of at least 50 megawatts thermal (MWt). Specifically, Chile’s CO 2 tax targets large factories and the electricity sector, covering about 55 per cent of the nation’s carbon emissions. In my view, pricing carbon is a crucial element in any attempt – local or international 30

CLIMATE FINANCE President Michelle Bachelet has noted that equity and justice should be central elements of Chile’s climate action – to cut emissions and to stabilise the atmosphere to secure GHG levels. This was one of our main drivers in the design of the green tax package. In 2009 Chile voluntarily announced its willingness to join a global effort to mitigate GHG emissions, pledging to take actions to reduce, by 2020, 20 per cent of projected emissions from 2007 through nationally appropriate mitigation actions. The challenge, in fact, goes beyond a national effort in the context of international negotiations. There is currently a growing conviction, which Chile shares, among UNFCCC parties and the international community that all countries must shift towards resilient low carbon development, especially in light of the dire consequences climate change has in store for the least advantaged. Today it is clear that climate change affects such aspects as national security, social development, competitiveness, job creation and equity. Therefore, as noted by President Michelle Bachelet, equity and justice should be central elements of our climate action. Hence, among other things, our tax reform aims to internalise a negative externality, at the same time as showing Chile’s political commitment to contribute. Chile is a highly vulnerable country, and despite our marginal "The design of the tax considers the social cost and recognises the differences in the carrying capacity of the local area." responsibility in global GHG emissions, we are ready to lead the way towards resilient low carbon development. APPLICATION OF GREEN TAXES Starting January 2017, a tax will be levied on global and local pollutants from vehicles and stationary sources. Consistent with Chile’s international commitments and the observed global trends in carbon pricing, Chile has set the CO 2 tax at US$5 per tonne of CO 2 emissions. For local pollutants (PM, NO X , SO 2 ), the design of the tax considers the social cost and recognises the differences in the carrying capacity of the local area where the polluting source is located (maximum people per surface area) and the exposed population, making it a pioneer tax instrument across the world. This translates into a tax per tonne that varies by pollutant and municipal commune (district). Green taxes are recognised internationally as a central policy instrument in environmental management, since they 31