Chapter 4. Climate change1

Chile’s emissions of greenhouse gases are below the OECD average, but are growing rapidly. Meanwhile, it is vulnerable to the effects of a changing climate. In addition to exploring the evolution of mitigation policies in Chile across a range of key sectors, including energy, this chapter analyses the country’s strategy for adapting to the impacts of climate change.

  

Introduction

Chile ratified the United Nations Framework Convention on Climate Change in 1994 and the Kyoto Protocol in 2002. It has made active use of the mechanisms under these treaties, with more than 100 Clean Development Mechanism (CDM) projects approved. Although not subject to quantitative limits on its emissions under Kyoto, it has now taken on international commitments: at Copenhagen in 2009, it pledged to reduce emissions by 20% in 2020, compared to business-as-usual. Chile’s Intended Nationally Determined Contribution (INDC) commits it to reduce its emissions intensity (greenhouse gas emissions per unit of GDP) by 30% in 2030, which could be enhanced to 45% contingent on receipt of adequate international financial support.

A strengthened, comprehensive policy response will be required to ensure that Chile meets its international commitments. Domestic climate policies provide a firm foundation for this, particularly through improvements to the evidence base and institutional reforms. Reforms to energy market policies have enabled rapid growth in renewable generation, without subsidies. The introduction of carbon pricing should help encourage low-carbon generation more generally. The challenge now is to build on these achievements to tackle emissions across all sectors, including transport and agriculture.

Climate policy is also tackling the challenge of adapting to climate change. These impacts will vary across Chile’s diverse geography, but will include: increased flood risk, reduced availability of water for hydropower, reduced agricultural production and impacts on biodiversity. Implementation of the sectoral adaptation plans will be essential in preparing for these changes, combined with robust monitoring and evaluation to ensure that vulnerability is being reduced.

1. State and trends

1.1. Trends in greenhouse gas emissions

Chile’s contribution to global greenhouse gas (GHG) emissions is small (0.2% in 2010), as is its share of OECD emissions (0.6%) (IEA, 2015). Its emissions have increased rapidly, however, due to its fast rate of economic growth (Figure 4.1). Chile’s latest national emissions inventory provides GHG data until 2010. Total GHG emissions were 91.6 million tonnes of carbon dioxide equivalent (Mt CO₂ eq) in 2010, excluding land use, land-use change and forestry (LULUCF) (Government of Chile, 2014a). This represents an increase of 23% from 2000 and compares to an average decrease of about 1.5% in the OECD over the same period (Annex 1.B).2 Net removals from LULUCF stayed largely constant at about 50 Mt CO₂ eq during this time.

Emissions from most sectors grew between 2000 and 2010, especially from energy production and use (Figure 4.1). Energy-related emissions rose by 31% during this period, reaching 75% of total GHG emissions. Increased use of coal and oil for power generation and of petrol and diesel for transport were the main driver of this growth. Rising nitrous oxide (N₂O) emissions from fertiliser use linked to increasing production sparked a growth in agricultural emissions (which accounted for 15% of total emissions in 2010; see Figure 4.1).

Figure 4.1. GHG emissions increased with economic growth

 https://doi.org/10.1787/888933388596

More recent International Energy Agency’s data indicate that electricity and heat production and transport are the major sources of carbon dioxide (CO₂) emissions from fuel combustion (IEA, 2015). CO₂ emissions from energy industries more than doubled between 2000 and 2013, and those from transport increased by 44%. Emissions from commercial and public services grew even faster, although they represent a minor share of total CO₂ emissions from fuel combustion (Figure 4.2).

Figure 4.2. Energy production and transport are the major sources of CO₂ emissions

 https://doi.org/10.1787/888933388601

CO₂ was the largest component of GHG emissions in Chile, accounting for 77% of total emissions in 2010 (IEA, 2015). Emissions of methane (CH₄) and N₂O, which both arise predominantly from agriculture and play a larger role in Chile than in the OECD as a whole, together accounted for 23% of GHG emissions in 2010 (Figure 4.1). Waste, which is mostly landfilled (Chapter 1), and energy are also major contributors to methane emissions. Emissions of fluorinated gases (F-gases) were negligible.

In 2010, Chile’s GHG emissions per capita were the lowest of all OECD member countries (Annex 1.B). Energy-related CO₂ emissions per capita were nearly half the OECD average (see Basic Statistics). This reflects the remaining difference in income levels (Chapter 1). However, as GDP per capita catches up with the OECD average, Chile’s emissions per capita are likely to follow the same trend.3

As of 2010, Chile’s GHG emissions intensity (GHG emissions per unit of GDP) was in line with the OECD average (see Basic Statistics). The carbon emissions intensity of economic activity has been decreasing over time, but there is still a positive correlation between growth in emissions, energy supply and GDP (Figure 1.8). Between 2000 and 2013, real GDP increased by 75%, while CO₂ emissions from fuel combustion rose by 69% (IEA, 2015).

The Mitigation Action Plans and Scenarios (MAPS) project has estimated emissions trajectories for Chile until 2030 (MAPS Chile, 2014). These projections estimate business-as-usual (BAU) emissions in the absence of any further mitigation policies beyond those approved by the end of 2012. According to the latest baseline projections, emissions could increase by 58% by 2020, compared to 2010.4 By 2030, GHG emissions could rise to 178.9 Mt CO₂ eq (an increase of 95% from 2010) and per capita emissions to 9.1 tCO₂e (excluding LULUCF). Removals from forestry would decline very slightly under all scenarios. These estimates do not include the effect of mitigation policies introduced in the past two years, which are likely to reduce emissions relative to that baseline.

1.2. Current and projected impacts of climate change

Given Chile’s diverse geography and topography, the impacts of climate change do not manifest equally throughout the country. Temperatures along the coast of Chile have declined by approximately 1°C since the 1960s as a result of more intense trade winds. There has been discernible warming, however, in the Central Valley and Andes mountains (Magrin et al., 2014).

Precipitation displays considerable variation between decades, driven by processes such as El Niño and La Niña5 (Magrin et al., 2014). It is also strongly affected by location, with the result that sub-national trends are more informative than average changes at the national level. The main changes that have occurred are the following (Government of Chile, 2011):

• Northern Chile: precipitation has decreased since the mid-1970s.

• North-Central: no clear trend.

• South-Central and Southern Chile: precipitation increased until the 1970s and has since declined.

The Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) summarises the latest results of climate modelling relevant to Chile (Magrin et al., 2014). Some of the variation in climate and geography along Chile’s 4 300 kilometres (km) length is reflected in projected changes in temperature and precipitation (Figures 4.3and 4.4). Warming is most pronounced in the north, declining towards the south of the country. Under a high emissions scenario (known as RCP 8.5), for example, temperatures are projected to increase by more than 2°C in the Atacama and 1°C in Patagonia. Chile’s 2014 National Climate Change Adaptation Plan notes that increase in average temperatures in Chile will be lower than average global increases (Government of Chile, 2014e).

Figure 4.3. Temperature increases are projected to be highest in northern regions

Projected changes in annual average temperature in South America

Figure 4.4. Climate change is projected to reduce precipitation in the central region

Average change in precipitation by Chilean region

Chile has detailed climate projections, but they need to be updated and extended. The country’s metrological institute developed geographically detailed simulations for 2030-60 for both low-emissions and high-emissions scenarios. However, these were created before some of the latest scientific developments in climate modelling in the IPPC’s Fifth Assessment Report. An official set of climate projections for Chile, including consistent scenarios for planning that cover periods relevant for long-lived infrastructure, would aid adaptation planning. Preferably, these projections would be based on – and consistent with – the latest IPCC science.

The National Climate Change Adaptation Plan (2014) summarises the latest information on how climate change will affect extreme weather events over the course of the century. The trend with temperatures is clearest: the frequency of hot days will increase. Temperatures experienced once every 20 years will occur every two years in most regions of Chile by the end of the century. The majority of climate model simulations predict that droughts, defined as two consecutive years of low precipitation, will become much more frequent. The combination of climate change and key socio-economic trends, such as more people and assets concentrated in vulnerable areas, is projected to increase global losses from extreme weather events. The May 2015 flooding and mudslide in northern Chile demonstrated the types of possible impacts: it led to 31 casualties and left 16 588 people homeless (ONEMI, 2015). The Chilean government estimated recovery costs of at least USD 1.5 billion for this incident (O’Brien and Esposito, 2015).

The national plan identifies a range of potential impacts arising from reductions in water availability, rising temperatures and extreme weather events (Government of Chile, 2014e):

• Lack of water could constrain hydropower, with CEPAL (2012) estimating potential reductions in electricity generation in the range of 10% to 22%. Less available water for cooling could also affect thermal generation. Patterns of consumption will shift, as demand for cooling increases and that of heating decreases.

• Increased soil erosion would negatively affect agricultural production. Pests are likely to increase, while some diseases could diminish. The zones of suitability for forestry, fruit and wine production will shift. Irrigated land could become more productive as temperatures rise, provided enough water is available.

• Negative impacts on biodiversity could arise as the pace of climate change exceeds species’ ability to adapt. It could take several centuries for ecosystems to find a new equilibrium, following disruption caused by climate change (Chapter 5).

• Risk of flooding could increase. For example, CEPAL (2015) estimates that coastal floods that now occur in Valparaíso once every 50 years will occur every 11 years by 2070.

CEPAL (2010) provided monetary estimates for some of these potential impacts from now until 2100. It found economic benefits for agriculture and forestry, but net costs for fruit growing, livestock, hydropower and drinking water provision. Overall, economic losses would amount to 1.1% of GDP under a higher-warming scenario (equivalent to a global temperature increase of 3.4 C). Moreover, reduced hydropower would increase emissions by 3 Mt CO₂ eq per year if thermal generation were used to fill the gap. A range of important impacts, however, were not considered. These include increased deaths in hot weather, either directly or as a result of interactions between temperatures and air quality; extreme weather; impacts on businesses; and biodiversity. As such, these monetary estimates only capture a fraction of the potential costs of climate change in Chile.

The evidence base on adaptation is improving, but risks and opportunities from a changing climate have not yet been analysed systematically. Such an analysis could build on the results of CEPAL (2010; 2012; 2015) to inform the planning of subsequent phases of the national adaptation plan. Decision making for adaptation could also be improved by making the results of climate projections more accessible to end users. A web portal, for example, could be created as proposed in the national adaptation plan.

2. Institutional framework

Since the 2005 OECD/ECLAC Environmental Performance Review, Chile has strengthened its institutional arrangements for climate policy development and implementation. Prior to 2010, the National Commission on the Environment (CONAMA) led climate policy, co‐ordinating activities across various sectors. In 2010, responsibility was moved to the newly-created Ministry of Environment (Chapter 2). Within the environment ministry, the Office of Climate Change (OCC) was established to co-ordinate and support climate policy across government. Its remit includes proposing and implanting climate-related policies, as well as generating and collating analysis to support policy development. In addition to monitoring Chile’s progress in implementing climate policies, the OCC serves as the focal point for international processes, including the CDM and Adaptation Fund.

The Council of Ministers for Sustainability oversees cross-government climate policy, bringing together most relevant ministries. The government plans to change the name of this group to Council of Ministers for Sustainability and Climate Change, which demonstrates the increasing importance given to climate change by the current administration. The government is also considering expanding the group’s mandate so it can influence climate policy, as well as expanding its membership to include the Ministry of Foreign Affairs (Chapter 2). However, this group already has a broad remit and meets only several times per year. As such, its role has predominantly been to approve policies, rather than inform their strategic direction.

The 2014 Biennial Update Report (Government of Chile, 2014a) notes the relevant ministries have taken some initial steps to build capacity for mainstreaming climate policy. This includes establishing focal points within these ministries for climate issues. The Ministry of Energy has a division for sustainable development, as well as agencies to support key mitigation activities: energy efficiency and renewable energy. Most ministries, however, have not moved to mainstream climate policy.

The national adaptation plan includes reforms to strengthen the institutional basis for climate adaptation, and support mitigation policy. Each relevant ministry will designate climate change focal points to enhance horizontal co-ordination. New regional climate change committees (Comités Regionales de Cambio Climático), will enhance vertical co‐ordination; they will bring together the local representatives of central government, as well as representatives of local government and regional consultative councils (Figure 4.5).

Figure 4.5. Institutional structure for climate change adaptation

There are, however, some underlying challenges with the current institutional arrangements. The environment ministry co-ordinates climate policy, but other ministries control policy levers and resources for implementation. The absence of a strong institutional mandate means that implementation of climate policy depends upon the willingness and capacity of the relevant ministries to take action. The final evaluation of the National Climate Change Action Plan 2008-12 (University of Chile et al., 2015) found this had resulted in uneven levels of engagement across sectors, as well as at the local and regional levels. The evaluation also highlighted the absence of sufficient and consistent funding for climate change as a barrier to action by ministries.

As in other OECD member countries, Chile finances climate policy through the usual budget process. In principle, this can help avoid distortions in spending decisions that can arise from “earmarked funds”. It can also support a more integrated approach, recognising that spending for climate concerns is often intertwined with other purposes. However, climate focal points perceived that more immediate spending priorities are squeezing out spending on climate. A particular challenge to date has been the limited engagement of the Ministry of Finance in institutional arrangements for climate policy.

3. Policy framework

3.1. Chile’s objectives and commitments

As a “non-Annex 1” country, Chile was not required to make quantitative emissions reductions under the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC). Under the 2015 Paris Agreement, however, all countries are now committed to peak emissions as soon as possible, and then achieve rapid reductions thereafter. Each country will have to communicate Nationally Determined Contributions (NDCs) every five years. These will need to become increasingly ambitious over time to meet the overall aim of the agreement of limiting temperature rise below 2°C. This aim will require achieving a global balance between emissions and removals by the end of this century. The ambition of these NDCs should reflect countries’ common but differentiated responsibilities, with developed countries taking the lead. Chile is also required to submit regular National Communications to the UNFCCC, including an inventory of anthropogenic emissions and measures taken to reduce emissions and tackle climate change.

At the Copenhagen climate conference in 2009, Chile made a voluntary commitment to take Nationally Appropriate Mitigation Actions (NAMAs) to achieve a 20% deviation below the business-as-usual emissions growth trajectory by 2020, as projected from year 2007. To accomplish this objective, Chile will need a relevant level of international support. Energy efficiency, renewable energy and LULUCF measures are the main focus of Chile’s NAMAs (Government of Chile, 2010).

In advance of the Paris climate change conference in December 2015, Chile submitted its INDC to complement its 2009 commitment (Government of Chile, 2015). Unlike many other countries, the government worked extensively to raise awareness and solicit public input. The Ministry of Environment led web-based public consultations on the draft INDC and held open meetings throughout the Chilean regions. The consultation led to separating reforestation from improved management in the forestry target. The final draft reduced the level of ambition for emissions intensity, but it is not clear if this was related to consultations.

Chile’s INDC commits it to reduce its intensity of emissions (relative to GDP) by 30% by 2030 (relative to 2007). This target is not directly comparable with those proposed by other Latin American countries, as they are expressed using a variety of metrics and use different approaches to key sectors such as LULUCF:

• Argentina: reduce 2030 emissions by 15% relative to business-as-usual, with the possibility of a 30% reduction conditional on international support.

• Brazil: reduce 2025 emissions by 37% below 2005 levels, with an indicative contribution of a 43% reduction by 2030 relative to 2005.

• Colombia: reduce 2030 emissions by 20% relative to business-as-usual, with a conditional offer of 30%.

• Costa Rica: reduce 2030 emissions by 25% compared to 2012 emissions.

• Mexico: reduce emissions of GHGs and short-lived climate pollutants by 25% in 2030 relative to business-as-usual, which could be strengthened to a 40% reduction conditional on international support.

Chile’s contribution is, however, contingent upon the achievement of sustained growth over the commitment period. The level of ambition could rise (35% to 45%) if international grants cover the additional costs of the necessary mitigation measures. This target covers all sectors of the economy except for LULUCF, which is subject to a separate target given that emissions from this sector are not directly linked to GDP. The commitment for forestry is expressed in absolute terms: to sustainably manage and restore 1 000 square kilometres (km²) and plant an additional 1 000 km² of predominantly native forest.

A key test of mitigation policies is their impact on the trajectory of absolute emissions over time. In the case of Chile, both the pace of economic growth and the timing of emissions reductions over the INDC period will affect that trajectory. These indicators are not known, but MAPS projects that proposed targets will slow the growth of emissions rather than reducing them in absolute terms. By 2030, Chile’s per capita emissions will rise to 9.1 tCO₂e under the baseline, which would be reduced to 8.1 tCO₂e with the 30% target (Table 4.1). By this date, Chile is projected to have GDP per capita similar to that of Spain and France now, but with higher per capita emissions: France emitted 7.8 tCO₂e/capita and Spain 7.3 tCO₂e/ capita in 2012, excluding LULUCF.

Table 4.1. Estimate of GHG emissions reduction from Chile’s INDC
In Mt CO2 eq, excluding LULUCF
	Low GDP growth scenario	Medium GDP growth scenario	High GDP growth scenario
1990 emissions	50 (3.8 t per capita)
2010 emissions	92 (5.4 t per capita)
Baseline emissions in 2030 (LB2013 excl. LULUCF)	163	179 (9.1 t per capita)	195
30% target	147	160 (8.1 t per capita)	175
35% to 45% target	116-137	127-149 (6.5 t-7.6 t per capita)	138-163
Source: Authors’ calculations based on MAPS Chile (2014) and Government of Chile (2015).

There are some ambiguities still with the INDC that could be usefully clarified in the forthcoming climate change action plan for the period 2016-21 (Section 3.2). The economic growth condition is open to interpretation in assessing what constitutes “similar rates of economic growth”. Given the rapid and sustained growth over the past decade (excluding 2008 and 2009) and the recent slowdown (Chapter 1), economic growth could prove a stringent criterion to maintain these rates until 2030. Clarifying how to assess if the economic growth condition holds, and then communicating results for the period to 2030, could be helpful. It would also be useful to clarify the consequences of not meeting the target for economic growth.

The target of 35% to 45% reduction in emissions, contingent upon international financial support, could also be clarified. There are no specific estimates of the level of funding needed to meet this target. In principle, international grants would cover the full costs of mitigating beyond 30%. In practice, this adds a further layer of uncertainty about the nature of the commitment due to inherent challenges in assessing the additional impact of international funding.

3.2. Strategies and programmes for climate change mitigation and adaptation

The 2006 National Climate Change Strategy set the broad outlines for domestic climate policy, which the National Climate Change Action Plan 2008-12 (Climate Action Plan) subsequently elaborated. This plan was designed to minimise the adverse impacts of climate change and mitigate GHG emissions through actions across three priority areas: adaptation, mitigation and capacity building. Its 22 “lines of action” had 103 specific actions and identified clear timelines for implementation, as well as the institution(s) responsible. The majority of actions have now been completed (Government of Chile, 2014a).

The Climate Action Plan was primarily intended to lay the foundation for future mitigation and adaptation actions. It does not include direct measures to strengthen resilience to climate change or reduce GHG emissions. Nor does it directly touch upon the question of how these climate measures should be financed. The plan focused on improving the evidence base, including trends, future vulnerabilities and analysis of potential mitigation options. There were also initial measures to strengthen the institutional basis of climate policy in Chile, including establishing the OCC.

For climate change adaptation, the Climate Action Plan called for a national adaptation plan and sectoral plans. These are intended to improve understanding of the main vulnerabilities and propose responses in some of the essential sectors for adaptation, including water, agriculture, biodiversity and energy. The Ministry of Environment, in collaboration with the relevant sectoral ministries, had overall responsibility for producing these plans.

At the end of 2014, the government approved the National Climate Change Adaptation Plan to strengthen the framework for adaptation at the national level. It aims to raise awareness, build capacity and mainstream adaptation into sectoral and local decision making. At the same time, the plan is meant to enhance co-ordination and provide an overall framework to support adaptation; concrete adaptation actions are to be elaborated in the sectoral plans. The actions in this plan include the creation of a web portal with information on adaptation, as well as creation of networks to help exchange information on climate change adaptation and the institutional reforms described in Section 2. Beyond this, the national plan includes actions to manage cross-sectoral risks. It adds the requirement to develop sectoral adaptation plans for two additional sectors: cities and tourism.

One of the challenges with having both a national plan and a series of sectoral plans is the treatment of cross-cutting risks between, for example, energy, infrastructure and water. Each sectoral plan has a lead ministry and co-responsible ministries, but its operation in practice will need to be evaluated. Thematic strategies, such as the one on cities, could be a potentially useful model for considering interactions across existing sectoral silos.

The government is finalising the climate change action plan for 2016-21, which will build on experiences gained from the national adaptation plan. According to the INDC, the new action plan will provide an integrated approach to mitigation, adaptation and capacity building, and assign responsibilities for implementation. In particular, it could outline concrete measures linked to a financing framework, as well as clear mechanisms for measuring progress.

3.3. Measuring progress and accountability

Emissions commitments play an important domestic and international role in supporting accountability. Internationally, commitments must encourage mutual trust and increasing levels of ambition over time. Domestically, clear and credible targets can reinforce mitigation activity by shaping expectations and investment decisions, within the public and private sector. The INDC commitment builds on the 2009 commitment, but there is still room for improvement.

Chile’s 2020 voluntary commitment needs further clarification before it can be used as a benchmark for measuring progress and achieving accountability. In particular, there is a need to specify the absolute level of emissions that would be consistent with meeting that relative goal. Phase 1 of the MAPS project has helped fill a key gap by estimating baselines for 2020 for a range of different emissions trajectories (MAPS Chile, 2014). The size of reductions required to meet the target will depend upon the scenario used to assess the target.6 At present, Chile’s growth is tracking the “PIB Medio Alto [GDP medium high]” scenario. This would mean a target for total emissions of 126.9 Mt CO₂ eq (excluding LULUCF), which is an increase of 39% compared to emissions in 2010.

The updated projections from MAPS Phase 2 suggest that announced policies will be sufficient for Chile to meet its voluntary commitment. The treatment of emissions from LULUCF in relation to this target, however, will be critical. Given that LULUCF policies will be used to achieve this target, it is clear that LULUCF will be included in some form. However, there are different methodologies for doing so and the choice of approach used for this sector has significant implications for the stringency of the target (Briner and Prag, 2013). Chile has yet to specify which approach will be used to account for LULUCF for its voluntary commitment to 2020.

The INDC addresses some challenges of monitoring progress against the voluntary commitment, in particular with regards to transparency. Specifically, it sidesteps debates about the realism of the BAU projections by adopting a target using readily available data: GHG emissions and GDP. LULUCF is treated separately, with a target expressed in absolute terms. As Section 3.1 discusses, however, the forthcoming climate change action plan could still clarify ambiguities in the INDC.

As a non-Annex 1 country, Chile complies with the international monitoring requirements established under the UNFCCC process:

• National Communications: these include an inventory of emissions and descriptions of measures to reduce emissions and adapt to climate change. These are required to be produced every four years, with the most recent one being released in 2011.

• Biennial Update Reports (BUR): these are intended to update the information provided in the national communications. Chile was one of the first non-Annex 1 countries to submit a BUR in 2014.

• Monitoring, Reporting and Verification for CDM and NAMAs: the UNFCCC process has established these methodologies to ensure projects deliver the intended reductions in emissions.

Chile has established a comprehensive system for generating GHG emissions inventories based on the latest IPCC methodology (IPCC, 2006). This improves the assessment of emissions from land-use compared to the approach used for the 2006 inventory. The OCC produces national inventories, building on sectoral inventories by the relevant ministries. International exports review these inventories to ensure they are robust and consistent with the relevant IPCC guidelines. These inventories rely upon data provided from a range of other sectors, which are then processed and analysed by the Ministry of Environment.

Due to delays in acquiring the relevant data, alongside resource constraints, the most recent set of comprehensive statistics date from 2010. Emissions data are important for identifying a need to change course, and emerging trends that could have policy implications. Alternative data sources, such as the International Energy Agency’s statistics on CO₂ emissions from fuel combustion (IEA, 2015), can partially fill these gaps by providing more recent estimates of major trends in CO₂ emissions. However, reinforcement of capacity in this area would assist with the transition to biennial reporting to the UNFCCC.

In contrast to mitigation, no single metric can assess progress in relation to climate change adaptation. Moreover, the effectiveness of adaptation measures may only become clear over long time horizons, or if an extreme weather event occurs. To address this, and other methodological challenges, OECD (2015c) recommends a pragmatic combination of four tools: climate change risk and vulnerability assessments; indicators; evaluations and national audits; and climate change expenditure reviews.

The Chilean approach to monitoring and evaluation for adaptation has yet to be implemented, but some constituent elements are in place. The final evaluation of the Climate Action Plan examined progress across the range of actions complemented with qualitative analysis (University of Chile et al., 2015). The plan, however, had no specified targets or indicators. The evaluation thus focused on the extent to which actions had been implemented, but not their effectiveness.

Climate change risks and vulnerability assessments have been developed, which can provide a baseline for understanding the evolution of risks over time. The national adaptation plan commits to developing a monitoring framework for each sectoral plan. These will inform the development of an annual national monitoring report, which will be submitted to the Council of Ministers on Sustainability and Climate Change. The plan also contains a commitment to perform an independent mid-term evaluation and final evaluation. Importantly, it emphasises that the results of this evaluation will inform subsequent phases of national adaptation planning.

3.4. International co-operation, climate finance and official development assistance

Chile was an attractive location for hosting projects under the CDM due to its strong institutional environment, political stability and streamlined permitting process (Sanhueza and de Guevara, 2014).7 As such, it has made extensive use of the CDM for reducing domestic emissions. Chile has registered 102 projects with the UNFCCC (with emissions reductions equal to 11.3 Mt CO₂ eq), ranking it third among Latin American countries. Most reductions have been realised from utility-scale renewable energy projects. The most recent project was registered in December 2014; there are no more projects in the pipeline in part due to uncertainty about the future of the CDM. A case study on low-carbon technology transfer to Chile found that carbon credits from the CDM provide supplementary revenue to renewables projects; project developers, however, did not consider them when assessing the economic feasibility of new projects, as the CDM registration process is too long, costly and uncertain (Pueyo, 2013).

Chile has benefited from international support for achieving its climate goals. More than half of official development assistance (ODA) received by Chile is now linked to climate change objectives. OECD Development Assistance Committee (DAC) statistics show that USD 251 million was committed in 2014 for mitigation and USD 3.1 million for adaptation (OECD, 2015e). These figures do not include non-concessional finance supporting climate objectives, such as the USD 200 million loan from the Inter-American Development Bank (IDB) to support the Alto Maipo hydropower plant. These figures reflect the total sums for projects where climate change was a principal or significant objective, rather than an attempt to calculate the marginal additional resources for climate change.

Chile’s most recent BUR provides a detailed breakdown of funding sources to support research, reporting, mitigation and adaptation (Table 4.2). Based on amounts pledged, multilateral funds and institutions have been the largest contributors to climate action in Chile. The differing definitions used to assess finance flows mean these two sets of estimates are not directly comparable. The estimates of funding received consider only those projects directly linked to achievement of climate outcomes, while OECD Development Assistance Committee (DAC) statistics also help identify the extent to which climate considerations are being mainstreamed in existing aid flows.

Table 4.2. International finance for climate change, 2011-14
Type of financial support	Received (USD)	To be received (USD)	Field					Sector
			R	M	I	A	N
Bilateral (countries)	3 116 298	-		•	•		•	Cross-cutting, energy, transport, farming, forest, water resources, waste
Funds and multilateral institutions	2 480 089	29 010 269	•			•		Cross-cutting, energy, forest, fishery and agriculture, biodiversity
International financial institutions	350 000	7 630 000		•				Energy, financial instruments, transport, forest
Other multilateral contributions	3 999 643	728 000		•	•			Cross-cutting
Total	9 874 030	37 368 269
Note: R = Reporting; M = Mitigation; I = GHG Inventory; A = Adaptation; N= International negotiations.
Source: Government of Chile (2014a), Chile’s First Biennial Update Report to the United Nations Framework Convention on Climate Change.

In 2017, Chile will most likely graduate from the OECD-DAC list of countries eligible to receive ODA. Consequently, as public climate finance would no longer count as ODA, Chile will be a less attractive destination for bilateral donors. Non-concessional funding will still be available from multilateral development banks. Climate finance available through UNFCCC mechanisms remains opaque. Although finance is restricted to “developing countries”, it is not clear which countries are included in this category. As a result, Chile will have to expand its use of alternative funding sources, including domestic resources and private climate finance.

4. Instruments and financing for climate change mitigation and adaptation

4.1. Policy instruments for reducing GHG emissions

Chile has relied upon voluntary mechanisms, subsidies and projects funded by international climate finance to support mitigation of GHG emissions. It is, however, starting to move to a “polluter pays” approach with approval of taxes on both new vehicles and carbon. While primarily intended to improve air quality, the vehicle tax should also encourage the purchase of more fuel-efficient models (Chapter 3). The carbon tax aims to internalise the costs of CO₂ emissions by charging USD 5 per tonne of CO₂ emitted; it would be levied on large stationary sources of emissions, including power plants, beginning in 2018 (Section 5.1). This tax will affect about 27% of total CO₂ emissions (Government of Chile, 2014a). For an optimal pricing scheme, the tax rate should be equal to the marginal damage caused by each unit of emissions. The estimated values are contentious, but commonly accepted values in OECD member countries are significantly higher. Policies to reduce sectoral emissions are discussed in more detail in Section 5.

Chile has developed a set of NAMAs to help it meet its 2009 mitigation commitment (Table 4.3). Under the international climate convention, NAMAs can communicate mitigation actions and help connect opportunities to funding sources. Any action that reduces emissions under the umbrella of a national government initiative is eligible for a central registry hosted by the UNFCCC. Funders can then use the registry to identify projects for support.

Table 4.3. Chile’s Nationally Appropriate Mitigation Actions
Name	Institution	Status	Reduction goal to 2020
NAMAs registered with the UNFCCC
Expanding Self-Supply Renewable Energy Systems in Chile	MINENERGIA – CER	Under implementation	2 Mt CO2 eq
National Programme for Catalysing Industrial and Commercial Organic Waste Management in Chile	MMA	Seeking support for implementation	12 Mt CO2 eq
Design and Implementation of a National Forestry and Climate Change Strategy (ENCCRV)	CONAF	Seeking support for implementation	42 Mt CO2 eq
Clean Production Agreements in Chile	CPL	Under implementation	18.4 Mt CO2 eq
Santiago Transport Green Zone (ZVTS)	Municipality of Santiago		1.4 Mt CO2 eq
NAMAs in preparation
Carbon sequestration through the Sustainable Soil Management	National Agriculture Research Institute and Agricultural and Livestock Service	Design stage	65 to 80 Mt CO2 eq
Mitigation of GHG emissions from Industrial, Commercial and Institutional Boilers	MINENERGIA	Design stage	1.25 Mt CO2 eq
National Sustainable Construction Strategy	MINVU	Design stage	ND
Assisted Phytostabilisation of Mining Tailings in Chile	MMA	Design stage	ND
Source: Government of Chile (2014), Chile’s First Biennial Update Report to the United Nations Framework Convention on Climate Change.

Clean Production Agreements are both the largest potential source of reduced emissions and the only NAMA to be funded domestically. They are negotiated between the government and industry associations, setting goals and targets for emissions that are usually based on the best available technology (Chapter 2). The costs of technical studies for identifying emissions reduction opportunities are split 70-30 between the government and beneficiaries. The private sector covers the cost of any necessary investments for implementation (Government of Chile, 2012).

Table 4.3 indicates the main potential for mitigation from NAMAs arises from LULUCF, which accounts for more than half of the total emissions reduction potential. Increasing sequestration through sustainable soil management could double the total volume of mitigation achieved. Most measures listed in the NAMAs attempt to pick off the “low‐hanging fruit” and are, therefore, relatively cost effective, with an average cost of less than USD 5/tCO₂e. There will be some overlap with reductions that are likely to be realised following introduction of a carbon tax. More expensive (per tonne of CO₂e) measures may need to be explored to achieve higher emissions reductions.

If implemented, the emissions reductions in individual NAMAs would be sufficient to meet Chile’s commitment to reduce emissions by 2020. Two NAMAs (the Clean Production Agreements and Self-Supply of Renewable Energy Systems), with estimated total emissions reductions of 20.4 Mt CO₂ eq, are funded and being implemented. However, other NAMAs have substantial funding gaps. For example, a national forestry strategy has received USD 12.6 million in external support, but still requires USD 120 million to meet the required objectives. If those resources are not forthcoming, alternative funding streams and/or revisions to programme design will be needed.

In addition to the specific need to fund measures contained within the NAMAs, there is the wider challenge of securing sufficient finance for the transition to a low-carbon and climate-resilient economy. OECD guidance emphasises setting clear goals to shape investors’ expectations, and ensuring that policies are aligned in support of the low-carbon transition (Corfee-Morlot et al., 2012).

The government has encouraged private investment, but some areas are further advanced than others. Long-term goals, such as the INDC, play a useful role in shaping investment decisions by setting private sector expectations. However, enabling policies and incentives for investment need to be strengthened. In keeping with its wider economic policy, Chile has a free-market approach to investment. This reduces the risk of policy-induced distortions, but also means that market failures can block investment in low-carbon technology. In particular, as noted in Chapter 3, Chile has some of the lowest effective carbon prices among OECD member countries. This means that carbon costs do not consistently inform investment decisions; this is starting to change with the introduction of a carbon tax for the energy sector. Increasing the rate and coverage of this instrument would support low-carbon investment.

4.2. Policy instruments to facilitate adaptation to climate change

Although the Ministry of Environment is considering whether to include adaptation within the strategic environmental assessment process, adaptation is not yet mainstreamed in public sector decision making. Its integration into standard tools such as project appraisal guidance would help ensure that benefits of climate resilience are reflected in information provided to decision makers. Sectoral strategies can facilitate this process by providing information on the range of potential impacts and risks arising from a changing climate. Identifying concrete adaptation options also raises awareness within ministries.

Public funding will be an essential component of Chile’s adaptation response, but the scale of needs and how they will be met are not clear. The national adaptation plan identifies a range of potential funding mechanisms, but without specifics. Consistent with approaches by other OECD member countries, domestic funding for adaptation is likely to be mainstreamed in existing sectoral budgets. According to the plan, each sector needs to allocate resources to climate change within its budget; the extent of follow-through is unclear.

Most expenditure is likely to occur for concrete measures within the sectoral plans rather than for capacity building in the national plan. Some measures may have been taken ahead of the sectoral plans, and so may not reflect “additional” resource requirements. Sectoral plans vary in the level of financing detail. The forestry and agriculture plan estimates resources required for each action, as well as the funding source. The biodiversity plan identifies available funding sources in general terms, but not the level of resources required (Chapter 5).

Even with investment in risk reduction, the consequences of extreme climate events must still be addressed. The national adaptation plan identifies disaster risk management as a priority area, but without providing details. The 2014 disaster risk management plan is intended to contribute to this goal by identifying and characterising underlying drivers of risk, including climate change (Government of Chile, 2014d).

Chile has a robust system for the financial management of extreme events, which puts it in a strong position to handle projected increases in losses from climate change. Although unrelated to climate change, the 2010 Chilean earthquake provided a strong test of these arrangements. Total economic losses from this event were estimated at USD 30 billion, equivalent to 18% of GDP; this made it proportionately one of the costliest natural disasters to ever affect an OECD member country (SVS, 2012). Despite the scale of these losses, there were no apparent lasting negative fiscal consequences: GDP growth actually rose to 6% the following year (Useem et al., 2015).

A central pillar of Chile’s approach to risk financing is the wide uptake of private insurance. Chile has the highest penetration of insurance of any country in South America, partly because catastrophic risk coverage is a precondition for a mortgage. Private insurers paid out USD 8 billion during the 2010 earthquake, thereby reducing losses incurred by households and businesses, as well as the need for recourse to public funds. Crucially, the extensive use of international reinsurance for catastrophic risk meant that policies could be honoured without risking the solvency of insurance companies (IMF, 2014). Large companies widely use insurance against natural catastrophes, which is mandatory for infrastructure concessionaires (OECD, 2013e).

5. Mainstreaming climate change in sectoral policies

5.1. Energy

Mitigation in Chile’s energy sector will be vital for meeting overall climate objectives. It will also bring important co-benefits, such as improving energy security and reducing local air pollution (Chapter 3). Under its traditionally laissez-faire approach to energy policy, Chile has relied heavily upon hydropower and coal. High energy prices and concerns about security of supply have led the government to take a more active role in this sector. Through the 2014 Energy Agenda and the development of an Energy Policy to 2050, Chile has the opportunity to embed climate change within the energy sector.

Fossil fuels account for nearly 60% of electricity generation, with coal and oil playing an increasingly large role. As a result, CO₂ emissions in the energy industry are large and have more than doubled since 2000 (Figures 4.1and 4.2). While energy generation from renewable sources has grown, it has not kept pace with the increasing energy demand of a growing economy. In 2014, renewables accounted for 32% of primary energy supply, among the highest shares in the OECD, and 41% of electricity generation (Annex 1.A). Yet the carbon intensity of electricity generation is higher than the OECD average and close to that of Germany and United States (Figure 4.6).

Figure 4.6. Electricity production from fossil fuel sources increased twice as much as from renewables

 https://doi.org/10.1787/888933388641

The energy sector is also vulnerable to the effects of climate change, particularly as changes in water availability will affect electricity supply from hydropower. Patterns of energy consumption may change, due to increased demand for cooling in the summer and reduced needs for heating in winter. Energy infrastructure will also be vulnerable to extreme weather events. The sectoral adaptation plan for the energy sector is not due for completion until 2017, alongside the plan for water resources.

In addition, the energy sector in Chile faces a number of major challenges. With few domestic fossil fuel resources, it relies on imports for 60% of total primary energy needs (Government of Chile, 2014c). Electricity prices are volatile, with Chile facing some of the highest prices in Latin America. Supplies are also vulnerable to disruption, as happened with gas imports from Argentina since 2004. Chile has invested heavily to develop capacity to import liquefied natural gas (LNG) with the aim of a more secure supply and less reliance on more polluting forms of generation, such as coal and diesel.

Chile has four separate electricity systems with varying characteristics rather than a unified national electricity grid. The northern system (SING) and the central system (SIC) account for 99.2% of Chile’s generation capacity. The Aysén and Magallanes systems in the far south account for the remaining 0.8%. The SING covers the sparsely populated north, with the bulk of energy demand arising from the mining industry. It relies heavily upon conventional generation, predominantly coal and natural gas; the SIC benefits from Chile’s extensive hydroelectric potential;8 Aysén uses diesel, hydro and some wind power; and Magallanes relies upon natural gas and diesel.

The 2014 Energy Agenda was developed to address the main challenges Chile’s energy sector is facing. It does not contain an overall mitigation target for this sector, but has measures likely to help reduce emissions relative to business-as-usual. The Agenda recommits to the goal of generating 20% of energy from non-conventional renewable energy sources (i.e. excluding large hydro), or NCREs, by 2025. To that end, it targets the generation of 45% of new capacity between 2014 and 2025 from non-conventional renewables. The project pipeline is consistent with that goal, mainly due to the significant contribution of wind and, more recently, solar (see below). The Agenda also aims to reduce energy use by 20% compared to business-as-usual by 2025, as well as to increase the competitiveness of LNG so it can substitute for diesel generation. It does not, however, directly tackle the future role of coal-fired generation within Chile’s energy mix.

Chile does not tax most energy use (Chapter 3), including electricity and fuels for generation. The main exception is a Specific Excise Tax levied on transport fuels, which includes a variable component to moderate the effect of fluctuations in international oil prices. Diesel is subject to lower taxes than petrol, with Chile having the second-lowest rate of diesel taxation of all OECD member countries (OECD, 2015a, 2015b). Chile will introduce a carbon tax of USD 5/tCO₂ for the energy sector beginning in 2018 after rejecting a cap‐and-trade mechanism (Section 4.1; Chapter 3).9

Renewable energy

Chile’s geography and the challenges with conventional generation make it a promising candidate for renewable energy. The Andes provide extensive hydroelectric potential, only a fraction of which is exploited, while the north is well suited to solar generation. Renewable energy is now commercially competitive with conventional sources in Chile, thanks to the continuing decline in renewable technology costs and access to international markets (Chapter 3),10 lack of domestic fossil fuel resources and favourable geography. It is projected that most renewable technologies will be cheaper than or competitive with fossil thermal technologies by 2030 (BNEF, 2011; IRENA, 2014). However, further efforts are needed to fully tap this potential.

The government supports renewable-based electricity through regulatory measures, financial incentives and investment in research and development (Box 4.1). The main policy instrument is a quota obligation, established by the 2008 Non-Conventional Renewable Energy Law (Law 20.257). The quota system requires generators to source a rising proportion of their electricity sales from non-conventional renewables – from 5% in 2010 to 10% in 2024 – either directly or indirectly through bilateral purchases from other generators.11 Companies failing to fulfil this obligation would pay a penalty, initially set at approximately USD 25 per megawatt hour (MWh), rising over time. The quota, however, did not spark significant growth of renewables projects beyond small hydropower. This has been attributed to a relatively low target and lack of a transparent trading system for renewables certificates, among other reasons (Pueyo, 2013).12

Box 4.1. Selected measures to promote renewable energy sources

In 2001, the Rural Electrification Programme with Renewables was launched in co‐operation with the Global Environment Facility (GEF) and the United Nations Development Programme (UNDP) with a budget of USD 32.4 million. By its conclusion in 2012, the programme had resulted in the installation of more than 6 000 individual solar photovoltaic systems. It also helped build the capacity of small businesses and co‐operatives for operating and maintaining renewable energy systems. The more recent, smaller-scale programme provided USD 2.4 million in 2014 to expand energy provision for public services and productive uses. It gave priority to renewable sources (mainly solar in northern and central Chile and small hydro and wind in the central-south regions). Subsidies and co-financing for rural energy supply through renewables is also provided by the Ministry of Agriculture (e.g. for solar photovoltaic pumps for farmers) and the Ministry of Energy (e.g. for electricity supply for indigenous communities and the substitution of diesel generators on islands) (IRENA, 2015).

The 2004 Short Law I (Law 19.940) set conditions for connecting small-scale generators (i.e. plants with less than 9 megawatts (MW) installed capacity, the size of many energy plants for renewables) to trunks transmission and distribution networks; it exempted small-scale (< 9 MW) and partially medium-scale producers (9 MW to 20 MW) from transmission fees (IRENA, 2015).

In 2009, Chile created the Renewable Energy Centre, now the National Sustainable Energy Innovation and Promotion Centre (CIFES). It aims to promote and facilitate new renewables projects, better co-ordinate public and private initiatives, and develop skills. Each month, CIFES publishes an update regarding NCRE project status and installed capacity in Chile. It also runs an online platform on the renewable resources per region, which includes environmental recommendations (e.g. consideration of local biodiversity and protected areas in each region). Chile plans to expand the platform to provide comprehensive, geo-referenced data on potential resources for each region, as well as state-owned land available for development and information on local energy demand and land-use planning. CIFES also promotes renewable energy technologies through the InnovaChile programme and the recent establishment of International Centres of Excellence in this area (Chapter 3).

In 2012, Chile introduced the legal framework for net metering, enabling generators to feed excess renewable electricity to the grid in return for credit on their electricity bill (IEA/IRENA, 2015).

In 2013, the Budget Law approved USD 85.5 million for the Ministry of Energy to provide soft loans for pilot projects in the area of renewables. These resources have been used, among other things, for public contests to support pilot projects for energy self-sufficiency and concentrated solar power plants, as well as for implementation of a Centre of Excellence for Research and Development on solar energy (IEA, 2013b).

In December 2014, the National Energy Commission adopted new rules for the power auction to simplify long-term contracts. The new design allowed developers to offer to supply electricity in blocks (i.e. at certain times of the day rather than around the clock), which better suits intermittent technologies such as solar and wind. This helped maintain strong demand for renewables even as demand from mining industry began weakening (Dezem, 2015).

In response, the quota obligation was strengthened in 2013 (Law 20.698), with the target raised to 20% of generation by 2025. In addition, the reform established an NCRE certificates system, facilitating the purchase of credits from developers or power producers that generate excess NCRE. Reforms also introduced the possibility of public auctions for technology-neutral renewables energy capacity in years when the quota will not likely be filled. By complementing the renewables quota system with a market-based mechanism, Chile differs from many emerging economies, which have opted for feed-in tariffs. In parallel, the government, partly through agencies such as the Economic Development Agency has provided various forms of support to investment in renewable energy development (Box 4.1; see also Box 3.3).

The increasingly supportive regulatory framework and the decline in technology costs have contributed to a steady increase in renewable generation (Figure 4.7). Electricity production from renewables has systematically exceeded the targets; in 2014-15, targets were exceeded by a factor of two (CIFES, 2015). The share of NCRE in total generation rose from 5% in 2008 to nearly 12% in October 2015 (US EIA, 2015; CIFES, 2015). The mining industry drove much of this growth: facing high energy prices and longer lead times for the approval of conventional energy projects, several mining companies opted for bilateral agreements with wind and solar developers to supply their energy-intensive mines

Figure 4.7. Energy generated from renewable sources is increasing steadily

Analysis of new construction presages an even stronger shift to renewables. Of the USD 11 billion in electricity generation projects under construction, 44% are NCRE, with a further 26% for hydropower. Solar and wind projects together account for more than 90% of NCRE projects under construction or planned (Table 4.4). Overall, the International Energy Agency (IEA) estimates that Chile’s renewable energy capacity will surpass 15% in 2020 (OECD, 2015d).

Table 4.4. Capacity of non-conventional renewable energy sources in Chile
Installed and planned renewables capacity, in megawatts, November 2015
	In operation	Under construction	With environmental approval (not yet under construction)	Without environmental approval
Biomass	417	0	73	86
Biogas	44	0	8	0
Wind	901	224	5 820	1 439
Geothermal	0	48	120	0
Small hydro	394	67	429	104
Solar photovoltaic	747	2 206	10 350	3 938
Solar CSP	0	110	980	105
Total	2 504	2 655	17 780	5 672
Source: CIFES (2015), “Reporte ERNC. Estado de proyectos ERNC en Chile” (November 2015).

While investment and growth outlook in the sector are impressive, renewable generation has not kept pace with growth in total energy demand (Figure 4.7). Use of NCRE is still far from matching its potential, as various financial, technical and regulatory barriers persist. The sites with the greatest generation potential are far from existing grid infrastructure;13 grid capacity constraints prevent renewable generators from supplying all the electricity they generate. This constraint is compounded by a concentrated market structure that favours incumbent generators; the difficulty of securing long-term generation contracts; the failure to fully internalise the environmental and social costs of alternative forms of generation; and permitting delays. Access to finance also remains a barrier for Chile’s renewables sectors (Chapter 3). Disputes about environmental impacts, and the need to address the concerns of affected communities, have slowed exploitation of renewables, especially large-scale hydro generation.14 For example, the 2 750 megawatts (MW) HidroAysén dam project was rejected by the government in 2014 following concerns about its environmental and social impacts. Recent policy changes, such as adjustments in bidding conditions for power auctions (Box 4.1), aim to overcome some of these barriers.

Energy efficiency

Chile ranks in the middle of OECD member countries in terms of energy intensity of GDP (a measure of efficiency; see Annex 1.A). This standing is despite comparatively high energy prices faced by domestic and industrial consumers. Barriers that hinder uptake of technically cost-effective measures include lack of information, split incentives,15 upfront costs and perceived “hassle” arising from installation.

The government is strengthening its policy response to overcome these barriers. The 2005-10 Energy Efficiency Programme, for example, aimed to gather information on potential areas for energy savings within the Chilean economy; the Chilean Agency for Energy Efficiency was created in 2006. The Energy Efficiency Action Plan 2012-20, adopted in 2013 after five years of discussion, set a target of reducing energy use by 12% compared to a projected baseline by 2020. It contains measures for the building sector, mining and other industries; passenger and freight transport; and home appliances (Ministry of Energy, 2013). The annual budget was set at CLP 28 billion (USD 50 million) in 2014. A baseline study commissioned for the elaboration of the plan estimated direct and indirect economic benefits at USD 12 to USD 23 billion; the cost of implementing measures would not exceed USD 2 billion, even in the most pessimistic scenario (NRDC, 2014). Box 4.2 presents examples of public investment in energy efficiency in Chile.

Box 4.2. Selected public investment in energy efficiency

In the residential sector, public investment has focused on improving efficiency of heating systems (which are largely based on firewood) with a view to reducing air pollution and associated health impacts (Chapter 1). Between 2011 and 2015, more than 10 000 heaters were replaced through CLP 5.4 billion (about USD 10 million) of investment, with preference for low-income households. This may have important social benefits, given that poorer households spend a much larger share of their income on energy bills. The government plans to significantly upscale the programme, investing CLP 26 billion per year over 2016-20 including in public institutions, multi-building and district heating. The increased funding for these measures is welcome and will help expand the coverage to a larger part of the housing stock. In parallel, the government is subsidising the retrofitting of houses to improve thermal insulation and reduce energy leakages, with about USD 70 million of annual investment for 2016-18, as well as the installation of solar thermal systems for public, commercial, household and industrial buildings. A residential street lighting programme aims to accelerate the deployment of efficient lighting technologies in the residential and public sectors. Following the programme’s first public call, it is estimated that more than 125 000 lamps will be exchanged through investment of USD 80 million (Ministry of Energy, 2015).

The 2014 Energy Agenda revised the Action Plan’s target to reduce energy use by 20% by 2025. It estimates this would save 20 000 gigawatt hours (GWh) per year from 2025. The Agenda also commits to a range of initiatives, including energy efficient street lighting, energy labelling and subsidies to retrofit existing dwellings. Targeted investment programmes have already been launched and implemented (Box 4.2). The Agenda also proposes the creation of an energy efficiency law, including the following strands (Government of Chile, 2014c):

• Commercial energy users: requirement for large energy users to develop energy management systems and develop medium- and long-term plans for energy conservation.

• Households and small businesses: decouple income of energy companies from their sales of electricity. Encourage distributors to work with customers to implement energy efficiency measures.

• Public sector: clear allocation of responsibility for energy use. If appropriate, develop energy plans for increasing energy efficiency.

The Energy Agenda addresses some limitations of the 2013 Action Plan identified by NRDC (2014): it strengthens efforts to understand and improve energy efficiency by industrial users and the public sector. It also provides clear timelines for the implementation of measures. However, more needs to be done to improve transparency and accountability with established targets. How measures are expected to contribute to the overall target is not clear. In addition, given the number of factors driving energy consumption, a 20% reduction in energy use by 2025 may be unrelated to the effectiveness of energy efficiency policy.

5.2. Transport

Transport is the second largest contributor to CO₂ emissions in Chile, accounting for 30% of total CO₂ emissions from fuel use (Figure 4.2). Public transport by road, including collective taxis, plays a large role, both within and between cities (Table 4.5). An extensive network of long-distance coaches provides the dominant mode of transport between cities. The railway network is predominantly used for freight transport. Valparaíso, Concepción and Santiago have metro or urban rail networks, but otherwise public transport is via bus and collective taxis.

Table 4.5. Modal split for passenger transport in selected regions
Mode	Region II – Antofagasta			Region V – Valparaíso			Santiago Metropolitan Region			Region VIII – Bío Bío
	2013	2020	2030	2013	2020	2030	2013	2020	2030	2013	2020	2030
Private transport	42.2	52.5	60.3	37.3	45.7	51.8	50.9	60.6	69.1	27.0	30.5	34.6
Taxi / collective taxi	35.1	28.6	24.6	30.7	26.7	24.6	7.3	5.3	3.9	28.3	22.8	18.3
Bus	22.6	18.3	15.0	29.3	25.2	22.2	28.5	19.1	13.8	41.5	43.6	45.3
Metro	0	0	0	2.6	2.0	1.4	6.3	9.2	8.6	0.5	0.4	0.3
Not motorised	0.1	0.7	0	0.1	0.4	0	7.1	5.8	4.7	2.7	2.7	1.4
Source: MAPS Chile (2014), Opciones de Mitigacion para Enfrentar el Cambio Climatico.

Transport-related CO₂ emissions, 90% of which are from road transport, increased by 44% between 2000 and 2013. Increased car ownership, and rising demand for travel, are the main reasons for these increases. Car ownership is strongly correlated with GDP per capita. Rising incomes have led to a doubling of car ownership in 2000-14 (Figure 1.10), but levels remain less than half the average for OECD member countries (see Basic Statistics). The average efficiency of the vehicle fleet is improving, but not enough to offset the effects of increasing demand for travel and the shift from public to private transport. The fuel efficiency of passenger vehicles is projected to be below the Latin American average in 2025 (IEA, 2013a). Under business-as-usual, the MAPS 2013-30 baseline projects an increase of GHG emissions from the transport sector by 61% to 95% by 2030, depending on GDP growth. Transport, particularly road, represents a key challenge for the achievement of Chile’s GHG emission reduction targets.

The integration of transport into climate policy remains at an early stage. The 2008-12 Climate Action Plan focuses on building capacity rather than implementing specific transport policies. Similarly, climate policy has received limited attention to date in transport planning. The 2014 tax reform introduced a tax on new cars, which is assessed on the basis of nitrogen oxides (NO_x) emissions and fuel economy (Chapter 3). Although primarily an air quality measure, this will have some ancillary benefits with respect to climate change.

The national policy framework, set by the National Transport Policy (2013), does not explicitly cover climate change. Instead, it sets out two overarching objectives: supporting economic development and social inclusion. These objectives are underpinned by the aims of increasing the quality, efficiency and capacity of the transport network. The plan would be implemented using various regulatory levers of the transport ministry.

Although climate change has not been a primary influence on transport policy to date, other policies will nonetheless influence emissions from this sector. This is generally achieved through a combination of avoiding, shifting and improving transport methods:

• Avoid – reduce the need for travel.

• Shift – encourage travel via less polluting modes of transport, such as cycling or public transport.

• Improve – reduce emissions from motorised transport, for example by improving fuel efficiency or using lower-carbon fuel sources (such as electric mobility).

Urban planning, the primary tool for reducing travel lies outside the mandate of the national transport ministry; responsibilities are also split at the municipal level. Although Chile is a heavily urbanised country with a stable population, urban development continues, driven in part by the need to improve the quality of the housing stock. The National Transport Policy (2013) notes the prevailing trend for low-density urban expansion, which both increases the need for travel and also the costs of providing public transport for new developments. Moreover, housing for poorer populations has concentrated on the peripheries of urban areas, which tend not to be well served by public transport.

As noted above, increasing wealth is shifting demand away from public transport towards higher-emitting cars. Transport policy seeks to make public transport more attractive through expanded service, and improved service quality and reliability. In line with these objectives, Santiago promoted an integrated public transport system (Box 4.3). The National Transport Policy (2013) also aims to support cycling and walking through improved infrastructure such as dedicated lanes for cyclists. Despite these policies, the modal split is projected to continue moving towards higher emission transport modes. MAPS estimates the share of private cars will continue to increase (Table 4.5), while the use of buses and non-motorised transport will decline (MAPS Chile, 2014).

Box 4.3. Investment in public transport in Metropolitan Santiago

The Santiago Urban Transport Plan 2000-10 laid the ground for the development of Transantiago, an integrated public transport system. The system, which is financed through concessions to private entities, modernised the bus fleet, restructured routes and developed specialised infrastructure (e.g. dedicated bus lanes and intermodal transfer stations). Ultimately, it centralised a vast informal network of public, private and semi-informal bus services into one large public scheme, integrating fares and services with the metro network. The Santiago underground network expanded from 40 km to more than 100 km over 2000-12. It is the most extensive in South America, with good service quality and administrative and financial management. The metro will reach about 140 km when two additional lines are completed in 2017/18. Government transfers have largely financed investment in the metro system, while a consortium of private investors is financing extensions.

However, the expansion of Santiago’s transport system has not kept pace with the rapid rate of urbanisation and the steep rise of the vehicle fleet in the Metropolitan Region (+40% over the 2000s). Consequently, the roads and metro are persistently congested, especially in peak hours and air pollution from traffic densities is high, with severe impacts on human health (Chapter 1). Santiago has recently announced restrictions on the circulation of vehicles when air pollution levels are high. The vehicle fleet is projected to continue growing in the Santiago Metropolitan Region, from 1.3 million to 2.7 million vehicles between 2012 and 2025 (MTT, 2013). Capacity bottlenecks are expected, particularly in the periphery where urban roads lack capacity to absorb the increased number of cars in 2030. Congestion is also expected to worsen in most of the centre and eastern districts, where financial and commercial activities are concentrated (UFZ et al., 2010).

In response, in 2013, the Ministry of Transport and Telecommunication launched the Santiago 2025 Master Plan, which foresees investing USD 22.8 billion until 2025. The plan aims to increase sustainable mobility, including through an expanded metro network, new mass transit corridors, new suburban commuter trains and a large expansion of bicycle paths (MTT, 2013).

In late 2014, the government announced a Plan for Public Transport Infrastructure, which foresees investment of USD 1.9 billion mobilised through concessions and USD 2.2 billion of public investment. Most of this volume (70%) is foreseen to benefit the Metropolitan Region, financing construction of new suburban trains and the expansion of the metro network, among others (Government of Chile, 2014f). Outside the Metropolitan Region, concessions are planned for several cable car lines (e.g. in Valparaíso and between Iquique and Antofagasta), as well as feasibility studies for diesel-powered trains in two of Chile’s southern cities.

The 2014 National Infrastructure Plan outlines USD 28 billion of investment until 2012, much of which was related to improved transport links (Chapter 3). The majority of transport expenditure is intended to improve connectivity through building roads and enhancing airports. Although USD 116 million was allocated for two cable car links, the investment programme aims to accommodate demand for transport rather than explicitly aiming to reduce emissions.

The government tried to improve the quality of the vehicle fleet with respect to both air quality and energy efficiency. Initiatives included the 2009 “Change your truck” programme, which took some 350 old trucks off the road; and the 2011 “Change your bus” programme, which allocated CLP 20 billion (about USD 40 million) to replace outdated vehicles (Chapter 3). Mandatory emissions labelling for vehicles below 2.7 tonnes, introduced in 2013, complement these measures. In practice, the labelling programme captures new commercial vehicles, but not new cars. In addition, an education and outreach programme has encouraged more efficient driving practices. Pilot studies found that working with companies to improve fleet management practices could reduce emissions by 4.7%. Working with drivers to encourage efficient driving practices had the potential to reduce emissions by between 5% to 17% (Government of Chile, 2014a).

The CDM was not used much for reducing transport emissions in Chile, but one project has been proposed as a NAMA: the Santiago Clean Transport Zone (Table 4.3). This proposal, registered under the UNFCCC and seeking support for implementation, includes measures to encourage use of electric vehicles, improved facilities for cyclists and improved traffic management systems. The NAMA proposal estimates these measures would save 13 800 tonnes of CO₂ (over 10 years) at a cost of USD 17.7 million. This equates to USD 1 283 per tonne of CO₂ saved, which is expensive compared to other mitigation options being pursued in Chile. However, there would also be some potential co-benefits (such as improved air quality) that would arise from the switch from conventional to electric vehicles, public transport and biking. In 2011, Santiago became the first Latin American city to install publicly accessible infrastructure for the charging of electric vehicles. However, charging stations remain largely underutilized (Beeton and Meyer, 2015).

The MAPS project analysed a range of technically feasible mitigation options in the transport sector. These included improving fleet efficiency, improving bicycle facilities and encouraging the use of electric cars. MAPS estimated a technical mitigation potential of 4.2 Mt CO₂ eq per year, which would be enough to slow rather than offset the projected rise in emissions from this sector (up to 95% by 2030). Additional measures, such as increased use of biofuels, would be expensive relative to the scale of potential emissions reductions.

Climate change will also affect the transport sector, mainly through the impact of extreme events on roads and railway lines. It will also strengthen the case for action to reduce air quality impacts from transport, as rising temperatures magnify the negative health consequences of local air pollution. The Ministry of Transport will help develop the adaptation strategy for infrastructure; it should also be formally engaged in the health strategy.

5.3. Agriculture and forestry

Agriculture and forestry are a significant source of export earnings and employment for Chile (Chapter 1). Forestry is a major carbon sink in Chile, with removals from LULUCF (almost entirely forestry) being about 50 Mt CO₂ eq in 2010. The emissions removed from LULUCF declined over 2000-07, but an increase in forest areas through tree plantations and a reduction in forest harvesting has brought the absorbed volume back towards 2000 levels by 2010. Meanwhile, GHG emissions from agriculture have been steadily rising, reaching 13.8 Mt CO₂ eq (15% of total emissions, excluding LULUCF) in 2010 (Figure 4.1). More than half of these emissions were due to releases from agricultural soils, while 4.8 Mt CO₂ eq were the result of CH₄ emissions from livestock.

Forestry has long been encouraged within Chile, with the Decree Law 701 established in 1974 to subsidise afforestation activities. More recently, the focus has broadened to support co-benefits (including carbon sequestration and watershed management) through reforms such as the 1998 amendment to Decree Law 701 and the Native Forest Law (2008). The effectiveness of these measures in supporting climate policy has not been formally evaluated. Chile is at the early stages of a National Climate Change and Vegetation Resource Strategy. This strategy is intended to help the country meet its NAMA commitment to restore 1 000 km² of degraded and deforested land through afforestation and measures to combat forest fires.

There are no policies or measures designed to address emissions of GHG emissions specifically from agriculture, despite its significant share of Chile’s total emissions. The Agricultural Soil Environmental Sustainability Incentive System (SIRDS-S), however, is a long-standing policy to improve degraded land. It is primarily aimed at improving productivity and ecosystem health, but some measures could improve the soil’s ability to sequester carbon. The MAPS project identified a further eight potential options for reducing emissions from this sector. If all were implemented, they would reduce total emissions by about 6% of 2010 emissions (or 0.8 Mt CO₂ eq).

Box 4.4 shows some potential impacts of climate change on agricultural production. Chile published a sectoral adaptation plan for agriculture in 2013, which preceded the release of the national plan. This plan outlines 21 specific actions to prepare the sector for the effects of climate change. Improving water use remains a major focus of adaptation activities for this sector. Many of these actions, such as improving the management of water for agriculture, would be beneficial even in the absence of climate change. Research and monitoring have complemented these actions to identify and prepare for the impact of longer-term trends. Each action specifies the time horizons and responsibility for implementation, and estimates of the required budget. They also specify the indicators to measure success.

Box 4.4. Potential impact of climate change on agricultural production

Chile’s agriculture has been dealing with warmer temperatures and extreme climate events that are likely to be more frequent and severe. A severe drought, which Chile has been facing for the last seven years, has resulted in significant land-use change driven by substantial reductions in wheat cultivation. In 2010-15, the mean of the total cultivated agricultural land was 14% lower than during 2000-05 (INE, 2015).

Climate change will affect the Chilean economy via a decreased supply of many agricultural commodities for both domestic and foreign markets. Yields of wheat and other cereals, which are important commodities for the domestic market, are likely to be hindered by climate change (Figure 4.8). The production of wheat and other cereals is particularly vulnerable to variation in rainfall because it is located primarily in rain-fed areas.

Production of grapes and wine, which together represent the most important export commodity for Chile, relies heavily on water supply; 81% of land used for grapes production is irrigated (INE, 2007). If the recharge and storage capacity of the water reservoirs decrease, the production could fall and Chile would lose its competitive position on the international wine market. Some wineries have been moving in the direction of more sustainable practices to adapt to climate change and reduce the impact on biodiversity (Box 5.9).

Figure 4.8. Change in Chile’s crop yields of wheat and other cereals will be lower as a consequence of climate change in Chile in 2050

Recommendations on climate change

Governance and financing

• Strengthen and formalise the institutional basis for climate change policy to provide clear responsibilities for implementation, in line with Chile’s national circumstances and international commitments.

• Identify likely resource requirements, and financing sources, to implement the forthcoming climate change action plan 2016-21, including resources needed for core functions (e.g. co-ordination and monitoring progress); adopt a funding strategy at the earliest opportunity; develop a strategic approach to facilitate private sector investment in climate change, including energy production.

Policy development, monitoring and evaluation

• Establish and implement the suite of domestic climate policies to achieve Chile’s Intended Nationally Determined Contribution (INDC) for 2030; implement the NAMAs or adopt alternative measures to ensure that the 2020 target is achieved.

• Identify the long-term trajectory consistent with zero net emissions by the second half of the 2050s; communicate long-term commitment to climate policy, whether through legislative or other means.

• Continue improving the evidence base and capacity for mainstreaming climate change adaptation into public sector decision making; make the results of climate projections more accessible to end users (through a web portal, for example) to encourage adaptation by the private sector and other stakeholders.

• Implement a monitoring and evaluation framework for climate change adaptation and mitigation policies, including clear accountability mechanisms; reinforce capacity to produce timely emissions inventories; consider using intermediate milestones for longer-term emissions goals; undertake a national climate risk and vulnerability assessment, evaluate the climate resilience of large projects and develop indicators to monitor progress towards adaptation objectives.

Mainstreaming

• Analyse the consistency of current policy choices with decarbonisation in the longer term, particularly in the transport and energy sectors, and ensure that the necessary adjustments are made; design climate policy measures to ensure a coherent, aligned and integrated policy mix across key sectors responsible for emissions (e.g. energy and transport) and removals (e.g. land sector).

• Mainstream climate change adaptation in public sector appraisal systems, such as strategic environmental assessment, the National System of Public Investment and project appraisals; integrate climate resilience in the development of relevant regulations, norms and standards, such as those for infrastructure and building design.

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Notes

← 1. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

← 2. The increase for Chile refers to 2000-10, while increases for other OECD member countries in Annex 1.B refer to 2000-12.

← 3. Chile has the third-lowest gross domestic product (GDP) per capita (purchasing power parity) of all OECD member countries, but is also sustaining more rapid growth than the OECD average (Chapter 1).

← 4. The baseline is LB2013 medium GDP projection. Under this scenario, total emissions rise to 144.3 Mt CO₂ eq by 2020, excluding LULUCF. Per capita emissions would be 7.7 tCO₂e in 2020, excluding LULUCF.

← 5. El Niño and La Niña are two phases of the El Niño Southern Oscillation. During El Niño, sea surface temperatures are unusually high in the equatorial Pacific, leading to increased precipitation in Chile. Temperatures are unusually low during La Niña, leading to reduced precipitation.

← 6. The absolute size of reductions ranges from 24.9 to 35.6 Mt CO₂ eq and total emissions ranging from 99.4 to 142.4 Mt CO₂ eq.

← 7. The CDM allows countries to meet their commitments under the Kyoto Protocol by supporting mitigation projects in developing countries.

← 8. In April 2015, conventional sources accountedfor 97% of electricity generated in the SING and 58% of that generated in the SIC. Hydropower made up 30% of the SIC electricity, while other renewable energy sources made up the remaining 12%.

← 9. Both carbon pricing and cap-and-trade encourage producers to consider the environmental costs of their activities when making investment and operational decisions. The key difference is that carbon pricing provides certainty about the marginal cost of abatement, but offers no guarantee about the resulting volume of emissions reductions, while cap-and-trade does the converse.

← 10. Many renewable energy technologies (including biogas, small hydro, wind and geothermal) were already cost-competitive with conventional sources in 2011; some solar photovoltaic plants reached grid parity in 2014, although to different extents in diverse locations of the country (BNEF, 2011; IRENA, 2014).

← 11. The law targets electricity companies that are connected to one of the two main electricity grids (SIC and SING) and operate over 200 megawatts (MW) installed capacity.

← 12. The targets only affected electricity supply contracts signed after 31 August 2007, a minority of total commercialised electricity. The 5% target starting in 2010 has been exceeded in three consecutive years.

← 13. Connection delays reach up to 1.5 years.

← 14. More than 75% of the megawatts from new energy projects (renewable and conventional) whose construction had already been approved by the Environmental Authority (SEA) are paralysed due to legal or administrative claims againstthem (Borregaard et al., 2015).

← 15. Split incentives exist, for example, in rented properties where the landlords have less incentive to invest in retrofits to enhance energy efficiency because tenants pay the energy bills.