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

Case Summary: 

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%).

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.

Latin America and Caribbean
Action Area 
Planning and Implementation Activity 
Governance and Stakeholder Engagement, Monitoring and Evaluation
Sectors and Themes 
Barriers overcome 
Capacity, Information, Institutional
Global Good Practice Analysis (GIZ UNDP)
Sign-up for the NDC Partnership monthly newsletter and receive updates on country work, upcoming events, resources, and more.