Global Carbon Market – Chile

Project description

Title: Global Carbon Market
Commissioned by: German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU)
Country: Chile
Lead executing agency: Ministerio de Energía
Overall term: 2018 to 2021

Context

Since 2008, the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH has been supporting partner countries in using market mechanisms for reducing greenhouse gas emissions. Above all, it aims to link activities in the carbon market with the respective national climate protection policy in the partner countries. 

Chile is taking on a proactive role in greenhouse gas mitigation and adaptation to climate change, acknowledging its vulnerability and the need to fight environmental, social and economic impacts associated with climate change. To do so, in early 2017, Chile ratified the country’s commitment under the Paris Agreement and pledged a 30 per cent reduction of its CO2 emissions per unit of Gross Domestic Product (GDP) by 2030 compared to the levels of 2007. With international financial support, a reduction of up to 45 per cent is possible.

To achieve its goals, Chile is exploring and implementing different policies for emission reductions, among which carbon pricing instruments play an important role.

In the context of a comprehensive tax reform, the introduction of a green tax in Chilean environmental policy has allowed for the construction of institutional infrastructure that may help expand the scope of the tax in the future or move towards more sophisticated carbon pricing instruments, including offsets and/or tradable emission permits both of which are currently under development and discussion at a political level.

GIZ is implementing the project Global Carbon Market (GCM) in collaboration with the Chilean Ministry of Energy as the official counterpart. 

Objective

The Chilean government is developing carbon pricing instruments and exploring climate financing mechanisms that can contribute to fulfilling the Chilean commitment regarding greenhouse gas reduction as stated in the Paris Agreement.

Approach

The GCM project strengthens the capacities of decision makers in the public and private sector in order to prepare them for the implementation of mitigation actions suited for the Chilean context, especially activities related to carbon pricing and climate finance. Policy design is supported by the project as well as the assessment of impacts and opportunities that carbon markets present to the private sector. Finally, the project aims at presenting Chile as an active participant in the international discussions and supports the development of regional initiatives like the Carbon Pricing of the Americas (CPA) Platform or working groups in the framework of the Pacific Alliance (Mexico, Colombia, Peru, Chile). 

Besides its official counterpart, other important partners include the Ministry of the Environment and the Ministry of Finance. Strategic alliances have been formed with other key stakeholders on carbon markets and climate finance in Chile, like the World Bank’s Partnership for Market Readiness (PMR), the Corporate Leaders Group (CLG), the Finance Initiative of the United Nations Environmental Programme (UNEP-FI), and the International Emissions Trading Association (IETA), among others.

Results

The project has strengthened the capacities of key stakeholders in the public and private sector and contributed to an integral debate on the development of carbon pricing instruments in Chile. The proposal of an emissions trading scheme for Chile as well as the incorporation of offsets into the current CO2 tax are being developed with support of the project. Dialogue with the private sector forms part of all design processes. In addition, possible impacts on the competitiveness of Chilean industries are being analysed to minimise or mitigate those effects. Furthermore, options and opportunities for climate finance in the Chilean context have been explored with the finance and private sector. 

On an international scale, Chile actively participates in international exchanges regarding carbon pricing instruments and workshops to support the exposure were executed. Chile’s role in working groups of regional dialogue were supported with background studies and international knowledge exchange, especially with German experts.