Economic and environmental effects of a CO2 tax in Latin American countries

The environmental extension from the Leontief pricing model is used to simulate the economic and environmental effects of setting different CO2 tax rates in three Latin American countries (Brazil, Mexico and Chile). It considers a regulatory scenario in which the tax is applied only to emissions from the electricity sector and another scenario in which tax is applied to emissions from all economic sectors. The results show that the effects of a CO2 tax on sectoral prices and emissions in each country are very different for the same tax rate, but these effects are similar in each country when comparing both regulatory scenarios. This is explained by the composition (carbonization) of the electric generation (and energy matrix) of each of the countries, which significantly affects the effectiveness of CO2 taxes to reduce emissions. In addition, the economic sectors most affected by the different regulatory scenarios are similar in all countries.