A POST-COVID-19 ECONOMIC ASSESSMENT OF THE CHILEAN NDC REVISION

Abstract

Last year, Chile updated its Nationally Determined Contributions, moving from intensity-based emissions reductions to an effective emissions target. This paper aims to assess the economic and environmental impacts of this change in the current context of high uncertainty Chile faces with social protests and the COVID-19 pandemic. Using the computable general equilibrium model GEMINI-E3, we performed a sensitivity analysis assuming different levels of economic growth through 2030. Though at first glance the revised commitments appear more ambitious, we found that they could lead to higher emissions in low-growth scenarios. The results show that intensity-based emissions targets indeed become less stringent when assuming high levels of economic growth and thus may result in highly uncertain effective emissions in 2030. On the other hand, given the uncertainty surrounding Chilean economic growth, the updated commitments would be politically more amenable as it would lead to lower welfare losses. In addition, we analyze different redistribution schemes of a CO2 tax and we show that a per capita redistribution rule makes the CO2 tax more progressive and thus fiscally more acceptable.