Chile is first South American Country to Tax Carbon

President Michelle Bachelet of Chile enacted new environmental tax legislation on Friday making the country the first in South America to tax carbon dioxide (CO2) emissions.

Part of a broad tax reform, Chile's carbon tax will target the power sector, particularly generators operating thermal plants with installed capacity equal or larger than 50 megawatts (MW).

These installations will be charged $5 per tonne of carbon dioxide (CO2) released. Thermal plants fueled by biomass and smaller installations will be exempt.

The new tax is meant to force power producers to gradually move to cleaner sources to help reduce the country's greenhouse gas emissions and meet its voluntary target of cutting these gases 20 percent from 2007 levels by 2020.

Earlier this year, Mexico imposed a tax on the sale of several fossil fuels, based on their carbon content, averaging $3 per tonne of CO2.

In Mexico, companies are able to use carbon credits to reduce their tax bills, a provision not considered in Chile.

Central-American country Costa Rica also has an environmental tax, but it targets gasoline sales.

Around 80 percent of Chile's energy is based on fossil fuels, mostly imported oil and coal.

Chile's government will start measuring carbon dioxide emissions from thermal power plants in 2017 and the new tax would be charged from 2018.

Four companies are expected to pay the bulk of the new tax: Endesa (ELE.MC), AES Gener, Colbún and E.CL.

The companies have said that the tax will raise the price of electricity. They have also complained that other industrial sectors were not targeted.

The government said it expects to collect about $160 million from the carbon tax, a relatively small share of the forecast $8.3 billion in additional revenue the broader tax reform will bring in.

(Reporting by Marcelo Teixeira. Editing by Andre Grenon)