Carbon tax reduces power sector emissions ‘significantly’ - study

A carbon tax is an effective tool to significantly reduce power sector emissions, according to a study published by the UN Economic Commission for Latin America and the Caribbean (Eclac).

The research looks at the tax’s impact on the development and future operation of generation systems in Chile, Costa Rica, Honduras, Nicaragua and Panama based on nationally determined contributions as part of the Paris Agreement, among other variables.

Regarding Chile, the study concludes that even amid decarbonization, the implementation of a low carbon tax has had an observable impact, mainly in the displacement of new fossil projects, mainly gas, for a combination of renewable energy projects.

In the case of Costa Rica, sector emissions are very low and a further reduction would mean substituting specific generation blocks, which would result in costly investments such as the installation of natural gas-fired plants to replace diesel generation.

The tax would provide an additional incentive for the installation of wind farms in Honduras that would displace part of diesel-fired production during the hours that solar parks do not operate.

For Nicaragua, a carbon tax is not necessary as pledges are fulfilled, but its use could play a relevant role for more ambitious future commitments.

And in Panama and for all tax scenarios, a higher proportion of gas-based generation is expected, explained by the need to cover the demand in blocks where there is less availability of wind and solar energy.

The 100-page study, in Spanish, is available here.

“We believe the most significant catalyst in promoting the deployment of CCUS [carbon capture, utilization and storage] is progressive carbon taxes and carbon prices, with resulting tax and offset credits,” Richard Hares, the carbon management principal at global energy consultancy firm Sproule, told BNamericas previously.

Also read Snapshot: The LatAm countries with carbon pricing instruments in place