Which Climate Change Mitigation Policy-mix to Latin American countries? A Computable General Equilibrium Analysis to Argentina

Abstract

Climate change (CC) has become a widespread global concern. Hence, governments have taken international commitments and begun to implement policies to reduce their national Green House Gases (GHG). Although the carbon tax appears as a generalized applied policy, structural socio-economic constraints of Latin American countries become this instrument costly and less effective than a tailor-made policy-mix. By developing a multi-sector recursive dynamic Computable General Equilibrium model which accounts for main structural characteristics of Latin American countries (inequality, unemployment, persistent macroeconomic deficits, etc.) and with a detailed modelling for GHG-intensive sectors (energy, agriculture and (de)forestry), we analyze the environmental, social and (macro- and sector) economic performance of a set of CC mitigation policies for thesecountries. We apply this analysis to Argentina whose results suggest that a policy-mix that combines the elimination of fossil fuels subsidies and a carbon tax on land-intensive sectors would be both, environmentally and socio-economic preferable than a generalized carbon tax which may be extremely damaging to the industrial sectors. CC policy recommendations also hold to other Latina American countries similar to Argentina.