Chile: the Green Tax Emission Offset System
Authors: Micaela Passetti & Fundi Maphanga
The Chilean government announced the first 8 projects eligible for its national Green Tax Offsetting system. Leveraging our VCM/Compliance Tracker, we've identified an additional 13 projects highly eligible for the second round of Chile’s Emissions Compensation System. These projects boast a total of 822,000 credits, with vintage dating from 2021 onwards and an estimated price rate ranging from $2 to $6 per credit.
The Green Tax and the Green Tax Emission Offset System
Starting in October 2023 under Law 20780, the Government of Chile introduced an annual tax on emissions of particulate matter (PM), nitrogen oxides (NOx), sulphur dioxide (SO2), and carbon dioxide (CO2) into the atmosphere. This tax targets establishments emitting 100 tons or more per year of particulate matter (PM) or 25,000 tons or more per year of carbon dioxide (CO2).?
Annually, the Ministry of the Environment publishes a list of obligated establishments required to report their emissions. The most recent list features 87 facilities obliged to the compliance scheme.
Chile's current tax rate stands at $5 per ton, with projected increases in subsequent years. In their latest commissioned technical report, the International Monetary Fund (IMF) proposed four scenarios for increasing the tax burden:?
Taxpayers subject to this levy have the option to offset their taxed emissions, either wholly or partially, through the use of emission reduction certificates.
Latest Development
At the end of March this year, the Chilean government announced the first 8 projects eligible for its national Green Tax Offsetting system. These projects are from the renewable energy sector and were selected from three independent and international crediting programs: 4 Verra projects, 1 Gold Standard projects, and 3 Clean Development projects.
According to our database, the issued credits by the approved projects amount to 2.5 million, with 1.6 million still available in the market. The Ministry of the Environment of Chile stated 210,826 reductions were certified and used by four companies subject to the pricing scheme to offset their Green Tax obligations.?
The average estimated prices range from $1 to $5 per credit. However, we anticipate that the price of credits from newly approved projects will align towards the current compliance price of $5 per ton.
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Potentially Eligible Projects
Using our VCM/Compliance Tracker , we filtered for renewable energy sector projects eligible for the Green Tax Emission Offset System and located projects we expect to be included in the second round of the scheme.?
We identified 13 similar projects eligible for the second round of Chile’s Emissions Compensation System.
The 13 projects collectively have issued 1.9 million credits from vintages 2019 - 2023, with estimated prices ranging from $2 to $6 per credit.
Taxpayers will be able to use emissions reduction certificates listed in the National Registry of Emission Reduction Projects provided that such reductions have occurred within the 3 years prior to the offset issuance. Therefore, the issued credits breakdown by vintage are:
Conclusion
We expect to see the VCM/Compliance convergence continue throughout the year, as we add more compliance schemes? to our solution.?
Partner with us, and leverage the VCM/Compliance Tracker to identify various compliance-eligible credits to seize arbitrage opportunities: