Introduction

In the last 15 years, the Chilean government has adopted several actions and measures regarding climate change in Chile and worldwide. These measures have been implemented in different regulations, targeting different economic sectors. Regulatory modifications that have promoted measures to address climate change are, among others, the Framework Law on Climate Change, the creation of “green” taxes and bonds and the incorporation of climate change within the elements to be assessed in the environmental assessment process, each of which will be explained further below.

In relation to the measures directly implemented in certain sectors of the Chilean economy, the energy and mining industries stand out. For example, the changing process in the Chilean energy matrix, which began with legal modifications for its promotion in the early 2000s, encouraged the development of non-conventional renewable energy generation sources (NCREs), and is currently focused on the development of green hydrogen, which is being promoted by the state. Another example, in the mining sector, is the enactment of the National Lithium Strategy, which incentivises its use. These measures have led to significant promotion of investment in these areas, making them a focus for growth, support and development. By 2015, investment in energy exceeded investment in the mining sector for the first time, which is of significance in Chile. 

General Regulatory Changes

Framework Law on Climate Change

One of the actions most directly aimed to fight against climate change can be seen in the enactment of the Framework Law on Climate Change (LMCC) in 2022. This law, in addition to establishing several duties to be adopted by the Chilean State, included the ambitious goal of achieving neutrality of greenhouse gas emissions by 2050. This goal has also been confirmed in other instruments and strategies adopted by the country. Examples of this are the Nationally Determined Contribution (NDC) – updated in 2020 and reinforced in 2022 – and the Long-Term Climate Strategy. 

The LMCC seeks to face the challenges presented by climate change; to move towards lowering greenhouse gas emissions and other factors affecting climate change, until reaching and maintaining neutrality of greenhouse gas emissions by the year 2050, reducing vulnerability and increasing resilience to the adverse effects of climate change, and to comply with the international commitments assumed by the Chilean state in this matter.

As its name indicates, the LMCC establishes the general framework for regulation of climate change, incorporating a series of definitions, guiding principles and public policy tools to be used at the national, regional and local levels, known as climate change management instruments. It also contemplates control and financial mechanisms to implement these instruments. To this end, this law grants specific functions and attributes to various bodies of the administration of the state of Chile.

Additionally, other measures included in the LMCC are the following.

• The incorporation of climate change as an element to be considered in projects or activities that require environmental assessment, including the option to review environmental authorisations due to the climate change variable.
• The duty of the Ministry of the Environment to issue regulations to state new emission limits to combat climate change, limiting, for example, the greenhouse gases and/or short-lived emissions from industrial activities or other sources.
• The creation of a national carbon market. The LMCC allows compliance with emission standards through the acquisition of certificates that verify the reduction or absorption of greenhouse gas emissions. These certificates will be generated by the (i) implementation of emission-reduction or absorption projects, or (ii) verification of surpluses in compliance with emission standards. For this purpose, a public registry shall be created to record, among other thing, the transfers, purchases and values of these certificates.
• The creation of a system that provides access to the information and citizen participation in the climate change area, including various mechanisms to promote and facilitate citizen participation in the development and updating of climate change management instruments.

All these measures require the issue of several regulations, which are still in their drafting process by the different governmental agencies.

Changes introduced in the environmental impact assessment system in light of climate change

As noted, the LMCC established climate change as an element to be considered in the environmental assessment of every project or activity that requires it. In this sense, projects or activities that are required to be environmentally assessed before their development shall consider the climate change variable within their relevant environmental components and describe how they will relate to climate change management instruments. 

To comply with the above, in 2023, the Environmental Assessment Service issued the Methodological Guide for the consideration of Climate Change in the Environmental Impact Assessment System. The purpose of this guide is to provide a general methodology for analysing the adverse effects of a project on climate change components. 

Tax reform including the creation of “green” taxes

In addition to the laws and guides indicated above, there are other regulations and initiatives that have been implemented to address climate change in Chile, such as an amendment to Chilean tax regulations, which created the “green” taxes.

Green taxes are tax duties levied on the emission of certain pollutants, such as particulate matter, nitrogen oxide (NOx), sulfur dioxide (SO₂) and carbon dioxide (CO₂), with the purpose of correcting or compensating for the undesired effects produced by their emission into the atmosphere. 

This tax is levied on the emissions produced by establishments whose emitting sources, individually or as a whole, issue 100 or more tons per year of particulate matter, or 25,000 or more tons per year of CO₂. The tax amount is calculated by applying a formula, established by law, considering the type of pollutant, the population of the sector in which the sources are located, the existence of atmospheric prevention and decontamination plans, among other factors. In this sense, the owners or holders of these sources have the obligation to report and declare the emissions of these pollutants and their amount to the Ministry of the Environment.

This law establishes the possibility for taxpayers subject to the green tax to offset all or part of their taxable emissions, for purposes of determining the amount of payable tax, through the implementation of projects to reduce emissions of the respective pollutants, complying with the requirements established by law and its regulation.

“Green” bonds

Another mechanism implemented by the state of Chile to achieve the transition to a low-carbon, climate-resilient and environmentally sustainable economy is the issue of “green” bonds. 

Green bonds are financial debt instruments used to finance projects, companies and, in general, economic activities that have a positive impact on the environment or that contribute to addressing or adapting to climate change.

Pursuant to the “Green Bond Framework”, issued in 2019, funds were destined for the development of certain eligible green expenditures in various sectors that benefit the environment. Some examples of these sectors are clean transportation, energy efficiency, renewable energy, natural resources, land use and marine protected areas, water management and “green” buildings.

The Chilean state issued its first sovereign green bonds in 2019, for a total amount of USD2,377 million. As a result, Chile was the first country on the American continent to issue green bonds. This money was mostly destined for clean transportation projects (eg, subway lines).

Subsequently, in November 2020, the Chilean Sustainable Bond Framework was enacted, under which several thematic bonds were issued. This Framework established that the government, through its Public Debt Office, shall comply with several obligations when issuing these thematic bonds, among which are green bonds. 

Later in February 2022, a Sustainability-Linked Bond Framework was published, under which Chile became the first country to issue sustainability-linked bonds. These bonds are a particular type of financial instrument, designed to encourage their issuer to comply with ambitious and predetermined sustainable objectives, measured through key performance indicators. Unlike the rest of the bonds mentioned above, these instruments are not linked to specific projects or expenditure, but rather the bonds’ coupons are linked to specific target achievement. If a target is not achieved, a financial penalty will be applied to the issuer of the bond. 

To date, Chile has issued approximately USD39 billion in thematic bonds since 2019, of which USD20.6 billion corresponds to social bonds, USD7.3 billion to green bonds, USD6.7 billion to sustainable bonds and USD4.25 billion to sustainability-linked bonds. Currently, thematic bonds correspond to approximately 30% of the Chilean public debt, a percentage which is among the largest in the world. 

Climate Change Trends in the Energy Sector

As indicated previously, since the beginning of the 2000s, several laws have been passed to modify the Chilean General Law of Electrical Services. These laws have sought to improve the tariff system in transmission, and later in the generation sector, and introduced some comparative advantages to NCRE in order to promote this type of energy in the electricity market. Later, with the enactment of Law No 20,257, some amendments were introduced that helped to address climate change by promoting the generation of NCRE, which accelerated the changes in the Chilean energy matrix, favouring the fight against climate change.

This change in the energy matrix was driven by the enactment and development of several public policies. For example, in 2013 the “Energy Efficiency Action Plan 2020” was published with the goal that the public and private sector could carry out actions to increase energy efficiency in their respective areas, achieving a 9% reduction in energy demand to 2019. Additionally, in 2015, the Chilean government issued the Chilean Energy Policy, which established a goal that, by 2050, at least 70% of the generated energy should be produced by NCRE means. This goal was updated and deepened in 2022, imposing an even more challenging one; aiming for the electric power generation matrix to contain at least 80% NCRE by 2030 and 100% by 2050.

In line with the above, agreements have been entered into with different energy generation companies in Chile, to achieve the decarbonisation of the energy matrix, some of which have committed to close some or all of their coal-fired power generation plants, establishing deadlines for adopting this measure, with the final goal of closing all the coal-fired power plants prior to 2040.

This accelerated change in the energy matrix has the result that in a period of six years, NCRE generation capacity has quintupled. In May 2023, the installed capacity in Chile was provided by the following technologies: 24% solar, 21.4% hydro, 13.7% natural gas, 13.5% wind, 12.9% coal, 8.6% diesel, 0.3% solar thermal, 0.3% geothermal and others (biogas, biomass, fuel oil, pet coke and co-generation) 5.2%.

Energy Efficiency Law

To achieve carbon neutrality in Chile, in addition to the change in the energy matrix, progress shall be made in optimising the energy consumption. This optimisation process has been called energy efficiency. According to the Ministry of Energy, this line of work will contribute more than 35% of the reduction of greenhouse effect gases needed to achieve carbon neutrality by 2050. To this end, the Energy Efficiency Law (EEL) was enacted in 2021.

This law incorporates the concept of “energy intensity”, which is the way in which energy efficiency is measured, establishing a relationship between the amount of energy required to generate the gross domestic product (GDP).

In turn, the EEL establishes the duty to prepare a National Energy Efficiency Plan, which shall be updated every five years; an obligation that was fulfilled in February 2022 with the enactment of the “National Energy Efficiency Plan 2022-2026”. This plan seeks to reduce energy intensity by 4.5% by 2026 (ie, 4.5% less energy required to generate the same GDP), 13% by 2030, and 30% by 2050. This goal is more ambitious than the one established in the EEL itself, which required a 10% energy intensity reduction by 2030, based on the consumption corresponding to 2019.

Law on electrical energy storage systems and electromobility

In November 2022, the law promoting electric energy storage and electromobility was enacted. This law came to promote the implementation of energy storage systems in Chile, and thus, help to reduce the exposure of NCRE to climatic circumstances and the intermittency that these sources may present in power generation. 

Also, this law is one of the public policies of the National Electromobility Strategy (NES). The NES has the long-term target of making 40% of private vehicles and 100% of urban public transportation electric by 2050.

Green hydrogen

The change in the energy matrix linked to the conditions of our national territory (in the north of Chile we have the highest solar radiation exposure on the planet while the winds of the south of Chile blow with the same energy on land as offshore), has made Chile one of the countries with the greatest “green” potential in the region. An example of this is the boom that the country has experienced in the generation of green hydrogen. According to a study commissioned by the Ministry of Energy, green hydrogen produced in the Atacama Desert and the Magallanes Region would have the lowest levelised production costs in the world by 2030.

These conditions make Chile one of the best countries to develop the green hydrogen industry. Therefore, in 2020, the National Green Hydrogen Strategy was published, laying the foundation towards consolidating this industry in the country. Also, in 2021, the National Plan for Promotion of Green Hydrogen Production in National Territory was issued, granting facilities to those interested in the development of hydrogen projects, the right to use fiscal land for the generation of energy and its consequent production of green hydrogen, during a determined period. 

Then, in March 2023, the Environmental Assessment Service, in charge of the environmental assessment of projects and activities, issued the technical document titled “Assessment Criteria in the SEIA: Integrated description of projects for the generation of green hydrogen in the SEIA”. This document facilitates and provides guidelines for the assessment of hydrogen projects submitted to the Environmental Impact Assessment System. 

As a consequence of the potential of Chile to produce green hydrogen, and the impulse and encouragement given by the state for its development, there are currently more than 40 green hydrogen projects being developed in the country. 

Mining Industry Trends in Climate Change

The mining industry is directly related to climate change, since the use of certain minerals is required to better address the fight against climate change, helping to reduce greenhouse effect gases and the use of fossil fuels. An example of these strategic minerals is lithium. This mineral is a fundamental pillar for the development of electromobility and energy storage (which helps to promote the use of NCRE). Indeed, electromobility currently requires lithium-ion batteries and similar instruments are required for energy storage systems. 

Although lithium is essential for electromobility and energy storage systems, other minerals are also required for the development of these new technologies. For example, a car or a lithium battery requires a large amount of lithium, and also four times more copper than what is required for an internal combustion car; the same applies for rare earths and cobalt, minerals that are also found in Chile. 

Lithium

Chile is the country with the largest lithium reserves in the world, currently representing between 36% and 40% of the estimated total globally, and is also one of the world’s largest producers. As a matter of fact, in 2022 Chile generated 30% of the world’s lithium production after Australia, with 46.9%, followed by China with 14%. However, Chile has certain obstacles that need to be addressed to increase production.

In Chile, lithium has been a “non-concessionable” mineral since 1979, different to the majority of the minerals existing in Chile. This limits and makes it more difficult for individuals or companies wishing to explore and exploit the mineral. The ways that lithium can be currently explored or exploited are: (i) directly by the Chilean state; (ii) through state-owned companies; (iii) by private companies that own administrative concessions (granted before the restriction was enacted); and (iv) by private companies that enter into a special operation contract with the state of Chile to exploit lithium (CEOL).

Currently, there are only two lithium mining operations, both in the Atacama salt flat, located in the Northern Antofagasta Region. Exploitation is carried out by SQM Salar (a subsidiary of the Chilean SQM) and by Albemarle S.A. (a subsidiary of Albermarle Corporation, a major US company). In addition to the Atacama salt flat, there are at least three other salt flats where lithium has been proven to exist (Maricunga, Pedernales and Surire salt flats), which do not yet have exploitation projects in operation. 

In order to take advantage of its potential to exploit lithium and boost this industry, Chile has been actively discussing the need to promote the development of lithium exploitation projects. In this sense, in June 2023, the Ministry of Energy issued the National Lithium Strategy, which considers among its objectives the:

• sustainable development of productive potential – to increase the extractive potential by incorporating technologies that minimise environmental impacts on the salt flats;
• technological and chain of production development – promoting more sophisticated exploitation and production processes to generate more jobs and to create a robust lithium industry; and
• diversification of actors, introducing a more competitive, open and transparent market.

The National Lithium Strategy is already in operation, with the first adopted measure being the creation of the Lithium and Salt Flats Committee, which has the purpose of leading the implementation of this public policy.

Conclusion

Chile is currently addressing the fight against climate change in multiple, focused ways. An accelerated change has been generated in the composition of its energy matrix with the aim of its decarbonisation in 2050; incentives have been put in place for energy consumption optimisation and for the development of energy storage systems; the green hydrogen and lithium industries are being eagerly promoted by the state of Chile. All of these measures are contributing to the creation of a cleaner economy and responsibility towards climate change. 

These regulations and public policies show the impetus and interest of the country in the fight against climate change, insofar as it has permeated its legislation and guides the development of different economic sectors. All indications are that Chile will continue on this path for a long time, deepening its commitment in the pursuit of reducing the effect of its activities on climate change and helping to reduce the pollutants that cause this phenomenon.