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.