In 2017, Chile introduced a tax on carbon emissions, which has been levied at a rate of US$5 per ton of CO2. In Colombia and South Africa, two other countries that have implemented a tax on carbon, tax-liable entities are able to satisfy all or some of their tax obligations by purchasing offsets; and in both countries, Greenhouse Gas (GHG)-crediting programs such as Verra’s Verified Carbon Standard (VCS) Program play an important role by providing ready-to-use carbon offset standards to jump start the domestic markets.
The scenarios in Colombia and South Africa could serve as a model for Chile. Implementing an offset mechanism such as in these two countries could drive much-needed finance to domestic forestry and land-based projects. Given the country’s large expanses of forests and natural ecosystem, integrating an offset mechanism into Chile’s carbon tax regulation could significantly scale up the protection of these areas through carbon offset projects while also supporting local communities and their well-being.
After reaching a record-high in 2016, VCU issuances dropped in 2017, the year when the carbon tax was implemented, and have since then rebounded with 2018 and 2019 VCU issuances being close to tying with the 2016 record.
While AFOLU projects to date only make up 12% of all projects, they have issued 32% of all VCUs so far.
With COVID-19 having slowed down the global economy, it comes as no surprise that as of the end of Q3 2020, total VCU issuances for 2020 are projected to be lower than for 2019. As of the 30 September, Chilean projects had issued about half of the total VCUs issued in 2019.
*One VCU represents one tonne of carbon dioxide equivalent that was removed from the atmosphere or not emitted.
Greenhouse gas equivalencies for emission reductions and removals were calculated using the EPA Greenhouse Gas Equivalencies Calculator