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Challenge

The Chilean energy sector is the main contributor to greenhouse gas emissions (GHG) in the country, accounting for 78 percent of total national emissions. In 2014, the Chilean Government passed legislation for a carbon tax. The tax, which affects fixed installations of boilers and turbines with a capacity larger than 50 MWt, covering mainly the country¡¯s larger electricity generators, is equivalent to US$5 for each ton emitted, and covers about 40 percent of total GHG emissions in the country. Although the implementation of the carbon tax started in January 2017, its implementation design had not been developed by the government.

Approach

The Market Instruments for Climate Change Mitigation in Chile Project aimed to inform policy makers and stakeholders on the different potential scenarios involving carbon pricing instruments, their designs and options, associated implications and potential impacts. The objective of the project was to (i) help the Government of Chile to design and implement a monitoring, reporting and verification (MRV) system and registry for the energy sector; and (ii) design and prepare one or more carbon pricing instruments. To this end, the Project provided additional funds to Chile to help with the assessment of the viability of an Emission Trading System (ETS) and other carbon pricing frameworks (including a carbon tax) in the energy sector and to assist in the implementation of a Greenhouse Gases MRV system with a suitable registry system. Using a phased approach, the Project aimed to support research and analysis as the government contemplated multiple approaches to carbon mitigation.

Results

The Project was the first operation under the Partnership for Market Readiness (PMR) initiative PMR managed by the Bank to successfully deliver its activities between September 2015 and August 2019. Specifically, it has helped to support improvements in several key outcomes:

• The formation of a carbon tax-specific MRV scheme and registry, which is currently being used by facilities affected by the carbon tax;
• The development of the preliminary version of a Climate Policy Modelling and Simulation Tool to help identify the economic and environmental impacts of climate change-related policies and to assist decision makers by providing recommendations for the development of a cost-efficient climate policy mix;
• Design and preliminary implementation of a Mitigation Actions Certification Program and Registry for robust accounting of emission reductions from energy-related mitigation actions to help support achievement of Chile¡¯s Nationally Determined Contribution;
• Implementation of a pilot in ten public utilities that used blockchain technology in the certification and verification of mitigation results;
• Development of a Mitigation Action Plan for the Energy Sector, which includes a list of mitigation actions, including their mitigation potential and costs, for the energy sector.);
• Over 25 knowledge and disseminations activities, including workshops, training events and in-country visits creating capacities around carbon pricing instruments in key stakeholders from public, private and NGO sectors.

Bank Group Contribution

This project was financed with a grant in the amount of US$4.98 million from the Bank-administered Partnership for Market Readiness (PMR) Multi-Donor Trust Fund. The PMR initiative was created by the World Bank in 2010 Bank as a forum for innovation, collective work and capacity building to expand and strengthen action on climate change. The fund provides grants aimed at providing support to countries to prepare and implement climate change mitigation policies ¨C including carbon pricing instruments ¨C in order to scale up GHG mitigation. The PMR also serves as a platform that brings together more than 30 countries, various international organizations and technical experts to facilitate country-to-country exchanges and knowledge sharing.

Partners

The Project enhanced the interaction between the Ministries of Energy and Environment, as well as their collaboration with other climate/clean energy partners and initiatives, such as:

• Carbon Pricing Leadership Coalition (CPLC). The Chilean Ministry of Energy joined the CPLC, a voluntary initiative that catalyzes action towards the successful implementation of carbon pricing around the world, after some of the awareness-raising activities support by the Project. The Minister of Energy assumed a leading role as Co-Chair of CPLC¡¯s High-Level Assembly for the term 2019-2021.
• GIZ¡¯s Global Carbon Market program. This Program supported the development of the first phase of the Climate Policy Modelling and Simulation Tool, which helps identify the economic and environmental impacts of climate change-related policies and assists decision makers by providing recommendations for the development of a cost-efficient climate policy mix, in addition to collaboration on capacity building and outreach activities;
• The Swedish Energy Agency, which is supporting the Virtual Internationally Transferred Mitigation Outcomes (ITMO) pilot project, a continuation of the blockchain pilot started by the Project.
• The Pacific Alliance: To support the national commitments of climate change mitigation, the countries of the Alliance are considering different carbon pricing instruments and exploring a voluntary carbon market for the region in the future and established a working group on MRV harmonization. Thanks to the participation in this Project, Chile has taken the lead under the Pacific Alliance and proposed several alternatives for collaboration based on Chile¡¯s expertise under this Project; and
• PMR Policy Analysis Work Program (PAWP), a Bank-executed activity to support upstream policy analysis to help expand the use of carbon pricing instruments.

Beneficiaries

The main project beneficiary was the Ministry of Energy (MoE), as the lead Ministry for implementation of the PMR in Chile. The project also benefited other relevant Ministries and Government institutions, as well as policy makers, including the Council of Ministers for Sustainability, Ministry of the Environment, and Ministry of Finance. Other direct beneficiaries included stakeholders involved in the analysis and subsequent preparation of the carbon pricing instruments and implementation of an MRV framework.

Claudio Seebach, Executive President, Business Association of Chilean Electricity Generators, noted, ¡°the Partnership for Market Readiness initiative, managed by the World Bank, has been a space for dialogue and public-private-academic technical collaboration [and] has played a key role in building trust and helping achieve the ambitious climate objectives that Chile has at both national and international level¡±

Moving Forward

Chile was the first PMR recipient country to successfully complete its activities. The PMR Assembly is satisfied with the project outcomes, and the Chilean Government is now considering requesting support for continuing the engagement with the PMR successor, the Partnership for Market Implementation (PMI). The PMI is expected to become operational in early 2021 and support approximately 30 countries and jurisdictions in the development and implementation of carbon pricing instruments to meet their NDC targets and long-term decarbonization strategies.

Learn More

Multimedia

All related documents, graphics and videos can be found at the Project¡¯s website