Chile 97
established, we used a macroeconomic model that has a minimal minor representation of the energy sector as part of the inputs of the production function of
the economy (together with capital investment and employment) – in other words
the total added value. When introducing those equilibrium prices we estimate the
output where feedback leads the demand side in the electric model. As outcomes
of the interaction between both models, we can see the consumption and investment of a representative household, the deviation of output during the price
increase, and the GHG emissions associated with each scenario in the electric
model.
Energy poverty as a consequence of the carbon dioxide tax
The current Chilean carbon dioxide tax will give raise to fuel poverty under all
scenarios conceived by experts (Figure 6.1). Around 15.7% of households in
Chile are in energy poverty in the baseline scenario without the change in
prices. Under the four mitigation scenarios this number could increase to
16.19% of the population, controlling for the change in the mix of electricity
generation and the different levels of carbon tax simulated.
At the same time an estimated monetary compensation amount for those
households could provide each vulnerable household with the amount of money
that satisfies their utility function and maintains their level of wellbeing at the
level they experienced before the introduction of each mitigation scenario.
Public spending of between US$9.3 and US$15.5 million is required to alleviate the impact of the mitigation scenarios.
Thus energy poverty can be considered a consequential risk resulting from
Chile’s low- carbon pathway as manifested in this case as carbon pricing in the
form of a tax to increase renewable energy in the electricity sector. This risk is
observed in two dimensions: (1) the quantitative dimension, resulting from the
exercise presented above, using simulations and calculating the monetary compensation required to restore at least at the same level of utility vulnerable
households after the carbon tax; and (2) the qualitative dimension where negative impacts in the wellbeing of households further than monetary ones are
observed and could affect the comfort of people that in extreme could provoke
death.
For the quantitative dimension, it is important to consider that the rich discussion with stakeholders allowed us to work with realistic scenarios of technology penetration and to draw a possible evolution of the carbon tax rate in the
midterm. One of the main points to consider was how future increases to the
actual rate of carbon tax were to cope with the negative externality and the rate
of emissions that Chile will face in the following years.
Certainly, and like the definition of risk in the literature has done, the
energy- poverty negative consequential risk depends on the context of
the assumptions made in each scenario. A good example of this dependency is
the exogenous performance of prices in liquified natural gas (LNG); given that
established, we used a macroeconomic model that has a minimal minor representation of the energy sector as part of the inputs of the production function of
the economy (together with capital investment and employment) – in other words
the total added value. When introducing those equilibrium prices we estimate the
output where feedback leads the demand side in the electric model. As outcomes
of the interaction between both models, we can see the consumption and investment of a representative household, the deviation of output during the price
increase, and the GHG emissions associated with each scenario in the electric
model.
Energy poverty as a consequence of the carbon dioxide tax
The current Chilean carbon dioxide tax will give raise to fuel poverty under all
scenarios conceived by experts (Figure 6.1). Around 15.7% of households in
Chile are in energy poverty in the baseline scenario without the change in
prices. Under the four mitigation scenarios this number could increase to
16.19% of the population, controlling for the change in the mix of electricity
generation and the different levels of carbon tax simulated.
At the same time an estimated monetary compensation amount for those
households could provide each vulnerable household with the amount of money
that satisfies their utility function and maintains their level of wellbeing at the
level they experienced before the introduction of each mitigation scenario.
Public spending of between US$9.3 and US$15.5 million is required to alleviate the impact of the mitigation scenarios.
Thus energy poverty can be considered a consequential risk resulting from
Chile’s low- carbon pathway as manifested in this case as carbon pricing in the
form of a tax to increase renewable energy in the electricity sector. This risk is
observed in two dimensions: (1) the quantitative dimension, resulting from the
exercise presented above, using simulations and calculating the monetary compensation required to restore at least at the same level of utility vulnerable
households after the carbon tax; and (2) the qualitative dimension where negative impacts in the wellbeing of households further than monetary ones are
observed and could affect the comfort of people that in extreme could provoke
death.
For the quantitative dimension, it is important to consider that the rich discussion with stakeholders allowed us to work with realistic scenarios of technology penetration and to draw a possible evolution of the carbon tax rate in the
midterm. One of the main points to consider was how future increases to the
actual rate of carbon tax were to cope with the negative externality and the rate
of emissions that Chile will face in the following years.
Certainly, and like the definition of risk in the literature has done, the
energy- poverty negative consequential risk depends on the context of
the assumptions made in each scenario. A good example of this dependency is
the exogenous performance of prices in liquified natural gas (LNG); given that