Environmental co-benefits of carbon taxation on air pollution under a low-carbon pathway in Chile

Abstract

While many countries have declared strong commitments to addressing climate change, local air quality concerns—particularly in developing countries—are gaining prominence, putting pressure on governments to implement effective air pollution mitigation policies. Given the strong synergy between climate change drivers and major air contaminants, energy policy efforts that tackle both challenges simultaneously are becoming increasingly attractive to policymakers. Such integrated strategies not only advance long-term climate change mitigation goals but also improve air quality, thereby reducing adverse health effects that provide important incentives for their adoption. In this context, this study aims to assess the environmental co-benefits of implementing carbon taxation within a low-carbon pathway strategy, focusing on both the reductions in local air pollutants achieved through the low-carbon pathway itself and the additional reductions resulting from carbon taxation. Using a dynamic computable general equilibrium model (ECOGEM-Chile), the research assesses long-term emission trends and quantifies the potential co-benefits of reducing major air pollutants in Chile. The results indicate that adopting a low-carbon pathway leads to significant reductions in local air pollutants relative to the base year. Furthermore, the introduction of a carbon tax produces additional substantial reductions, reinforcing the positive environmental outcomes, and the important economic value of the resulting reduction in health effects. The study also highlights the pivotal role of key sectors—such as energy, manufacturing, construction, and transport—in achieving sustained improvements in air quality through 2050.