Executive summary

Chile significantly raised its climate ambition with the enactment of the Framework Law on Climate Change (FLCC) in 2022. The law sets a binding national target to reach net zero by 2050. However, greenhouse gas (GHG) emissions rose significantly in 2010-19 and are not projected to peak before 2025. Ambitious actions to reduce GHG emissions are required. These include clarifying sectoral and regional plans, pursuing the plan to close all coal-fired plants by 2040 and boosting renewable energy generation. The transport and building sectors need more stringent climate targets to spur further investments in sustainable public transportation as well as electrification of vehicles and building heating systems.

Chile is highly exposed and vulnerable to the impacts of climate change. The country has made great strides in developing localised climate risk mapping and analysing socio-economic vulnerability. However, lack of financial resources and capacity impedes progress on climate adaptation. The successful implementation of adaptation measures requires strengthening co-ordination across administrative levels and building capacity.

Major air pollutant emissions declined, but PM2.5 concentrations remain among the highest in the OECD and far exceed World Health Organisation guidelines, posing significant health risks to 98.6% of the population. Regional disparities in air pollution levels are stark, with northern regions experiencing the highest levels of SO2 and NOx emissions from industrial sources, while central and southern regions suffer from concerningly elevated PM2.5 concentrations, largely due to residential wood burning for heating and road transport. Improved monitoring of air quality has enabled the creation of effective decontamination plans. However, the country needs to transition to a more proactive approach, prioritising preventive and abatement-driven policies.

Chile made progress in waste management by implementing several extended producer responsibility schemes and enacting the Single-use Plastics Law. Still, the waste management system remains inefficient, with over 90% of municipal waste landfilled. Significant challenges remain in diverting organic waste from landfills and improving recycling, which stands at a mere 1%. Long-term investment in waste management infrastructure and decisive actions to discourage landfilling are needed. Approving the bill for the valorisation of organic waste would be a positive step forward.

The Law for Nature and the Biodiversity and Protected Areas Service (SBAP) approved in 2023 represent major breakthroughs. With 44% of its exclusive economic zone and 22% of its land area protected, the country is on track to meet it 30x30 targets. It is one of the few countries in the Latin America and Caribbean (LAC) region that has increased its forest cover. Still, pressures from invasive species, land-use change, and unsustainable fishing practices persist. By strengthening natural capital valuation and establishing biodiversity baselines, Chile can effectively scale up payment for ecosystem services schemes. Achieving biodiversity goals requires prioritising investment in research and data collection, securing adequate funding, and establishing a dedicated workforce.

Major developments include the ratification of the Escazú Agreement, enactment of the FLCC and creation of the SBAP. At the same time, the government faces acute capacity challenges in terms of human and financial resources to reach environmental objectives. There is significant room to improve Environmental Impact Assessment by strengthening the technical quality of assessments and ensuring safeguards against political influence. This is increasingly important in the context of major new projects, such as green hydrogen and lithium production.

Compliance monitoring expanded with new technology, but is still under-resourced. The Environmental Superintendence’s (SMA’s) use of remote compliance checks has effectively increased the coverage of checks at low cost and improved compliance through behavioural change. However, to the extent environmental impact mitigation measures concern the competence of sectoral ministries, the SMA does not monitor compliance directly in some cases. The SMA should be further strengthened towards integrated compliance monitoring, with sufficient resources to conduct it.

Chile made progress in using economic instruments for environmental objectives through the green tax reform, including the establishment of the carbon tax (USD 5 per tonne of CO2) and the carbon offsetting system. While Chile ranks among the highest in LAC countries for average effective carbon rates, it is well below other OECD countries. An increase in the carbon tax rate would better reflect the social costs of pollution. There are further opportunities to consider environmentally related taxes and charges, such as a landfill levy. Transportation-related taxes need to be rationalised by eliminating exemptions (e.g., cargo transport). Revenue generated from mining royalties could be secured for environmental purposes, in particular to address legacy pollution (e.g., abandoned mines).

Pressure on freshwater resources has intensified over time. The country has been facing a “megadrought” for the past 14 years. Demand for groundwater exceeds sustainable supply in most regions. Water quality is a major concern, with urban and industrial wastewater, fish farming, agriculture and mining the main sources of water pollution. Emergency measures are inadequate to manage water resources sustainably. Expanding new sources of supply, such as desalination and wastewater reuse, has considerable potential. However, Chile should also introduce demand management measures, improve water use efficiency, and ensure a robust and flexible water allocation system, including to address the impacts of climate change.

The 2022 reform to the Water Code was a positive step forward by enshrining the priority of water supply for human use and introducing time-bound concessions for new water rights. However, issues related to existing water rights (defined as private property, allocated free of charge and granted in perpetuity) and over-allocation are unresolved and environmental flows are not secured. More comprehensive reforms of water allocation should be pursued to provide more flexibility to adjust the amount of water abstracted in line with sustainable supply.

Water quality standards are incomplete and wastewater discharge standards should be more stringent. Environmental water quality standards cover only a fraction of Chile’s water bodies. Their development should be accelerated with a focus on priority basins. The coverage of wastewater discharge standards remains patchy and outdated. There are no specific standards and regulations for agricultural wastewater sources, including aquaculture. Requiring nutrient removal in wastewater treatment would reduce excessive nutrient discharge into receiving water bodies, and thus eutrophication.

The use of economic instruments for water management is limited. There are no abstraction charges for use of water resources. Wastewater effluents, pesticides and fertilisers are not taxed or charged. Introducing abstraction charges and taxes on water pollutants would better reflect the value of water and apply the polluter pays and beneficiary pays principles. Chile could also explore a broader suite of approaches to scale up financing for water-related investments, such as use of proceeds bonds, payments for ecosystem services and public-private partnerships.

The institutional landscape for water management in Chile is one of the fragmented in the OECD. The establishment of pilot organisations for river basin governance in 16 basins seeks to redress this fragmentation by anchoring activities at the basin scale. Chile is also making important progress on river basin planning with Strategic Water Resources Management Plans for all basins. Strengthening co-ordination and establishing a central governmental authority for water management would help align of all agents intervening in water management, across all levels, as well as stakeholders.

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