The Cost of Lower Emissions: An Appraisal for Five LAC Economies Using CGE Models

Abstract

Climate change mitigation policies have begun to be discussed in Latin American and Caribbean (LAC) countries in recent years. However, the economic effects of such policies - i. e. , winners and losers - may vary significantly across countries. This paper attempts to shed light on some of these differences for a set of five LAC countries that may in the future adopt or be forced to accept some form of carbon mitigation policy. To this end a single-country CGE model is used to simulate a set of domestic carbon taxes that the countries could adopt or face. The results show that the costs of reducing 1 percent of emissions are in a range of 0. 18 to 0. 32 percent of GDP. Although in all instances the primary objective of reducing emissions is achieved, the sectors that win/lose vary, making this type of analysis relevant for countries to use before adopting a given policy. There is evidence, however, that those costs could become benefits when carbon taxes are compensated with reductions in general taxes.