Who Will Be Hurt Most by Chile’s Carbon Tax?

As part of the tax reform put into law last month, Chile now has the “honor” of calling itself the first South American country to impose a carbon tax. Starting in 2018 Michelle Bachelet’s center-left government will attach a price tag of $5 to every ton of carbon emissions produced by the country’s large electricity generators. The law will apply to any thermal generators with a capacity of at least 50 megawatts – though biomass plants are exempt – and will reportedly extract $160 million out of the economy.

Coincidentally the year the new carbon tax takes effect is the same year Chile is expected to officially become the first developed nation on the continent. The adoption of free market policies in recent decades – the Fraser Institute now ranks the Chilean economy as the 10th freest in the world – has made Chile a model for other South American nations to emulate. Squarely in line with her socialist philosophy, though, Bachelet aims to mold Chilean society according to her wishes. Unfortunately for Chilean citizens, especially the poor whose lots Bachelet claims to want to improve, this includes taxing electricity.

Considering that some 30 percent of the country’s energy production stands to be affected, the carbon tax will likely have a serious impact on prices. Naturally those hit hardest by such price hikes are those spending the highest share of their income on energy, i.e. the poor. Enter the schizophrenia of left-environmentalism: advocating for forced wealth transfers to help the needy while simultaneously adopting policies that raise the prices those same people pay for some of the most basic necessities.

Besides the obvious truth that a tax levied on any product or service raises its price, there is empirical evidence on environmental taxes we can point to and learn lessons from. Studies estimate that the carbon tax burden may be as high as 3.5% for low-income households compared to less than 1 percent for the highest income range. In the UK, for instance, a carbon price floor introduced last year added $8 to household bills, and official estimates predict that surcharge rising to as much as $80 by 2020. More uplifting news comes from Australia, where the recent repeal of the carbon tax is estimated to save households on average between $175 and $230.

In addition, it seems fair to ask what method was used to arrive at the $5 amount. The same ton of carbon dioxide is taxed at some $9 in British Columbia, $15 in Britain, nearly $20 in Australia, and as much as $150 in Sweden. Such a wide range seems hardly scientific, and it begs the question if perhaps politicians are just making it up as they go along, hoping to strike the right balance between satisfying special interests while keeping their cushy government jobs. In the Chilean context it is worth noting that the mining industry, a vital part of the Chilean economy, represents approximately one third of the nation’s energy consumption. Saddling that industry with additional costs could result in job losses among (you guessed it!) lower-class workers.

Whether one subscribes to the theory of anthropogenic global warming or not, climate policies’ impact on our daily lives is undeniable. As with any kind of government intervention it is imperative for us honest skeptics of centralized power to represent the voices of reason, especially in a highly politicized debate. Chilean households have yet to see the likely devastating effects of such (over)ambitious policies, but there are still a few years left to stop it in its tracks.