Green fiscal reforms would contribute to climate change mitigation, increase the economic efficiency of national tax systems and provide additional public revenues. Some countries in Latin America have already taken first steps towards green fiscal reforms. This outlook article provides an overview of the major challenges for the successful implementation of such reforms and discusses how they could be overcome.

This study analyzes climate change mitigation policies focused on light-duty electric vehicles (LDEVs) in the transportation sector in Rio de Janeiro state, Brazil, in the 2016–2050 period. We use the Open Source Energy Modeling System (OSeMOSYS) to analyze scenarios that consider greater uptake of LDEVs in different time frames, implementation of a CO₂ emission restriction policy, exclusion of fossil fuels from the power mix, and a combination of these policies. We find that carbon pricing, along with higher rates of LDEVs adoption, causes the highest emission reductions (up to 47%), albeit at higher costs. LDEVs become the preferred vehicle technology as soon as they reach cost parity with internal combustion engine vehicles in different scenarios. Greater LDEVs uptake, however, leads to increased electricity consumption (up to 3%), which is provided by fossil fuels when there is no emission restriction policy. If restrictions are placed on the expansion of fossil fuel power plants, fewer LDEVs are adopted (up to less than 26%) because there is not enough electricity to supply the demand. Given the state’s power mix in 2016 (58% provided by fossil fuels), investment in zero-carbon energy is necessary for mitigation policies in the transportation sector to be effective.

After COP 21, with the adoption of the Paris Agreement in December 2015, the outlook for carbon pricing policies has been widened. While the agreement does not directly establish a global carbon pricing, the provisions accounted for in Article 6 have the potential to increase international cooperation in favor of greenhouse gas (GHG) mitigation through market mechanisms. The Brazilian Nationally Determined Contribution (NDC) considers the use of such mechanisms, though the configuration of the Brazilian climate policy does not specify the economic instruments for carbon pricing. When examining the recent evolution of GHG emissions in Brazil, the already achieved reduction in deforestation sheds light on the need to address GHG mitigation in other sectors, such as industry. Therefore, this paper analyzes the impacts of carbon pricing on the Brazilian industry in terms of sectorial value added (VA), emissions intensity, international trade exposure, and the risk of carbon leakage. Results indicate that, considering a price of carbon of US$10/tCO₂, the cost of reducing emissions from 35% to 45% (same range of the Brazilian NDC) could represent an impact of 0.3% to 3.7% on sectorial VA. However, results for emissions intensity and international trade reveal medium to high carbon leakage risks for all analyzed industrial sectors.

Energy-intensive industries play an important role in low-carbon development, being particularly exposed to climate policies. Concern over possible carbon leakage in this sector poses a major challenge for designing effective carbon pricing instruments (CPI). Different methodologies for assessing carbon leakage exposure are currently used by different jurisdictions, each of them based on different approaches and indicators. This paper aims to analyse the extent to which the use of different methodologies leads to different results in terms of exposure to the risk of carbon leakage, using the Brazilian industry sector as a case study. Results indicate that carbon leakage exposure is an expected outcome of eventual CPI implementation in Brazilian industry. However, results vary according to the chosen methodology, so the definition of the criteria is paramount for assessing sectoral exposure to the risk of carbon leakage. Key policy insights