Chile is pushing ahead with a carbon tax, whether the US likes it or not



Chile's Northern Patagonian Ice Field, located in the Laguna San Rafael National Park, a UNESCO World Biosphere Reserve.


Martin Bernetti

UPDATE: Chilean President Michelle Bachelet enacted legislation on Friday making Chile the first South American country to tax carbon dioxide emissions.

SANTIAGO, Chile — The United States government is taking a strong public position on climate change.

By now everybody's heard it: The White House has recognized that climate change is already being felt in many corners of the US, and the worst is yet to come. One of Barack Obama's major plans for cutting America's greenhouse gas emissions is to wean the country off oil. The president even flew to California to get people revved up about renewable energy.

But the US had a very different message down in Chile, where a diplomat's comments on a local carbon tax created a huge controversy — one largely ignored by the superpower way up north.

The US ambassador in Santiago, Michael Hammer, publicly commented in a meeting with Chilean lawmakers and business owners earlier this month on a planned fiscal overhaul that includes a carbon tax: “In order to continue contributing to the economy and society, US companies need, in fact all companies need, political and economic stability, in addition to clear rules.”

Some brushed it off. But others called it an attempt at meddling in Chilean politics, which remains a sore spot here even two decades after Chile transitioned from the Pinochet dictatorship the CIA helped install.

His divisive plea could be too late, anyway.

Backed by President Michelle Bachelet, the levy known locally as the “green tax” is expected to cruise through congress to become law later this year. That would make this the first South American country to put a price on pollution.

The US ambassador would not be alone in viewing the tax as a big deal for investors in Chile. It would force business owners here and abroad to pay up on their emission-spewing operations in this picturesque Andean nation.

Here’s a closer look at what Chile has in store and why that worries some global industry titans.

What does Chile plan to do specifically?

According to the bill, three things:

1. Charge thermal power plants with a capacity of more than 50 megawatts $5 for every ton of carbon dioxide they emit.

2. Charge polluters that emit sulfur oxides (SOx), used in gas processing, coal combustion, ore refining, and chemical manufacturing; atmospheric particulate matter (PM), or aerosols; and NOx (nitrous oxide, basically what’s in car fumes) based on the risk of respiratory illness posed to local communities. Details about how to gauge and collect all this are still in the planning stage and the actual price of these types of pollution remains a mystery, says Ricardo Katz, environmental researcher with the Chilean nonprofit Center for Public Studies.

3. Consumers who purchase new diesel vehicles will also have to pay 2-3 million Chilean pesos (about $3,500-$5,300) extra per automobile.

The hope is this will help wean the country off fossil fuels. Right now, 7 percent of Chile’s energy is considered “renewable” — the jargon for alternative fuel sources like solar, wind and geothermal — and that number is rising quickly. The government’s aiming to reach 20 percent by 2025 and 30 percent by 2030.

Why Chile? What makes this South American country so special?

Many aspects. But here are two big ones:

1. Enormous renewable energy potential. Chile’s geography and landscape have experts eyeing it as a future leader in clean energy production.

Here’s why: The Atacama Desert in northern Chile is the driest spot on the planet, and solar irradiance in this place is intense. Chile’s vast coastline stretches nearly 4,000 miles — just under the distance from Chicago to Hawaii — so, no shortage of wind, either. Geothermal power, generated by heat trapped beneath the Earth’s surface, is limited to regions near tectonic plates. Again, no problem whatsoever. Chile has one of the highest rates of seismic activity on the planet.

Center-left Sen. Guido Girardi summed it up like this: “Chile is truly a Saudi Arabia of renewable energy, but it lacks vision, policies, and decision making.”

2. The mining industry. Chile is the world’s No. 1 copper producer. Revenue from this industry contributes nearly 20 percent of the country’s GDP. That being said, mining and refining copper suck up tons of energy, and many mines are powered by coal-fired thermoelectric plants that run on imported oil and gas. Naturally, the energy sectors are threatened by the carbon tax because it would raise production costs. The mining sector, on the other hand, has been more muted on this issue. That’s because experts estimate the green taxes would take a smaller cut out of their profits than the wallop that energy firms are expecting.

What’s the big deal? Nobody would oppose a law that could slow down climate change, right?

Ice blocks in the lake Cachet II in Aysen, Chilean Patagonia. The lake disappeared completely due to rising temperatures. (STR/AFP/Getty Images)


While a lot of people support the carbon tax, especially environmentalists, others have criticized it for supposedly being inefficient, costly, and a pretext for government profit.

This is where America comes in. Among the corporations that President Bachelet’s tax reform could affect most is US-based AES Energy, one of the world’s biggest power companies.

In fact, the poster boy for trying to shut the law down is Luis Felipe Ceron, general manager of AES Energy in Chile.

He recently told congress that it’s not Chile’s place to lead on the issue of limiting emissions. He argues that no other South American country has adopted legislation like this, so why should Chile? According to Ceron, thermoelectric power is already regulated, so a new levy would have no additional impact on the environment. One impact it would have, he warns, is to ultimately send Chileans’ electrical bills soaring by more than 20 percent.

Chilean environmentalist and politician Sara Larrain called the idea “absurd.”

What’s more, the government projects that the green tax will create $162 million more in federal revenue. Boston Consulting Group posits more, and says that beginning in 2018, energy companies in Chile will get an annual bill for $350 million for their CO2 emissions.

More from GlobalPost: Calamity Calling, an investigation into global climate change

“The fundamental idea that I gather from our legislators and the government, is that this is a way to raise money,” said Gonzalo Polanco, head of the University of Chile’s Center for Taxation Studies. “If it ends up reducing pollution, then that’s good too. But I don’t see it as the main point.”

A government trying to make money? There's a shocker! So what?

Chile’s carbon tax may not be a stunningly altruistic effort by Bachelet’s administration to green the planet. But it does send a message to other countries in the region and the world that governments with prosperous economies are prepared to challenge profitable industries on taxing greenhouse gas emissions.

President Bachelet did have something to say back to US Ambassador Hammer, by the way. “Chile is a well-known and respected country because we have always had important political and institutional stability. We are also a country recognized for our society and our clear rules, and that’s why, I want to say that none of that is going to change.”

The nation's tax take could change, though, and soon.

The lower house of congress passed the tax reform package, including the carbon tax, on Wednesday, just in time for Chile’s version of the State of the Union address on May 21. The senate is expected to make a final decision on the bill before September 2014.