Executive summary

Institutional and policy reforms have not yet delivered the desired environmental outcomes

During the last decade, Chile has made remarkable progress in strengthening its environmental institutions and policy framework, as recommended by the 2005 Environmental Performance Review. In 2010, Chile established the Ministry of Environment, the Council of Ministers for Sustainability, an inspectorate and an environmental assessment agency. This has helped raise the profile of environmental policy and clarify environmental management and sustainable development responsibilities within the government. However, the environmental benefits of institutional reforms are lagging behind; rigorous implementation is needed to tackle environmental pressures as Chile’s income level continues to catch up with the OECD average.

Sustained economic growth and investment in environment-related infrastructure and services have helped improve the well-being of the Chilean population over the last 15 years, although income inequality remains the highest among OECD member countries. Nearly all the urban population is connected to drinking water supply and wastewater treatment infrastructure. Dwellers in the capital region have access to an integrated public transport system and the most extensive metro network in South America. Energy market reforms have enabled rapid growth in renewable electricity generation, without subsidies. Renewables cover nearly a third of Chile’s total energy needs, the fifth highest share in the OECD.

However, energy and material consumption, greenhouse gas (GHG) emissions and waste generation have continued to increase in line with economic growth. Chile is among the most resource-intensive OECD economies, which reflects the key role of copper mining and smelting, agriculture, forestry and fishery in the economy. Air pollution remains high, particularly in large urban and industrial areas. Over 95% of waste continues to be landfilled. Water scarcity and pollution are of concern in the regions where mining and agriculture concentrate (the north and central regions, respectively). Distortions in the allocation and trade of water-use rights and the lack of integrated water resource management result in overexploitation of some aquifers and exacerbate local conflicts.

Environmental laws need to be better enforced

The human and technical capacity of environmental institutions has grown remarkably, but not yet to the level required by their functions. Improving inter-institutional co-operation at national level and with local authorities is essential to ensure effective policy implementation and law enforcement. The environmental impact assessment is the backbone of Chile’s environmental regulation. It is closely linked to one‐window environmental permitting, but it should better guarantee public participation in its early stages and consider potential environmental impacts and suitable project alternatives. There is also a need to further strengthen the information base to support environmental decision making. Chile’s first comprehensive study on environmental expenditure indicated that 0.5% of total expenditure by central government agencies (equivalent to 0.1% of GDP) went to environmental protection in 2012. Chile should systematically review its environmental expenditure to better assess spending effectiveness and efficiency.

Greening the tax system is under way

The 2014 tax reform includes a tax on light motor vehicles (based on emissions of nitrogen oxides and fuel economy) and a tax on emissions of local air pollutants and carbon dioxide (CO₂) from large stationary sources. These new taxes are expected to increase revenue from environmentally related taxes, which, at 1.2% of GDP in 2014, was below the level observed in many OECD member countries. However, the emission tax primarily affects thermal electricity generation and leaves out other major emission sources such as copper smelters. The CO₂ tax rate (USD 5 per tonne of CO₂) is relatively low and should be progressively increased. In addition, due to the interactions between the tax and the electricity price-setting mechanisms, some power generators, small businesses and households will not bear the full cost of the tax. With the exception of the CO₂ tax, which will enter into force in 2017, fuel tax rates are not linked to fuels’ carbon content and do not apply to fuels used in sectors other than transport. In 2006, Chile introduced a specific tax on mining profits, but overall taxation of mineral resources appears relatively low in Chile compared to other resource-rich members of the OECD.

Investment in environment-related infrastructure has been high, but needs remain large

Chile has well-developed infrastructure, notably when compared to other Latin American countries. Extensive use of public-private partnerships has attracted private investment in water and transport infrastructure. User tariffs generally allow recovering operating and maintenance costs and partly reflect environmental and social costs such as water scarcity and road congestion. However, infrastructure needs remain large, particularly to upgrade wastewater treatment facilities, reduce water losses, and expand sanitary landfills and urban public transport systems. Major investment packages, including the 2014 National Infrastructure Plan, comprise investment in environment-related infrastructure, but most such plans lack systematic consideration of environmental and climate components.

Green markets are expanding and eco-innovation capacity is improving

Openness to international trade and a favourable investment environment have eased the penetration of advanced environmental technology. This has helped reduce industry’s environmental footprint and rapidly expand solar and wind energy generation. While domestic production capacity for green technology is limited, expenditure in research and development (R&D) targeting the environment grew to 9% of total R&D expenditure in 2012, one of the highest shares in Latin America. The number of patent applications in environment-related technologies, albeit small, increased almost twice as much as that in all other technology domains. Chile’s environmental goods and services sector has grown faster than the rest of the economy and was estimated at 1.7% of GDP in 2010. Ensuring consistent enforcement of environmental regulation and introducing fully-fledged green public procurement and eco-labelling procedures would further stimulate demand for green products. The National Programme on Sustainable Consumption and Production is expected to consolidate the multitude of support initiatives.

Chile needs a robust, coherent climate policy

Chile’s GHG emissions grew by 23% in 2000-10 and are projected to continue increasing in line with economic growth and energy use. Emissions from the transport sector are projected to grow by up to 95% by 2030, with increasing wealth and demand for travel, low‐density urban expansion and the shift from public to private transport. GHG emissions from agriculture have also been steadily rising and represent 15% of Chile’s total emissions. However, the integration of transport and agriculture into climate policy remains at an early stage.

In advance of the Paris climate change conference in December 2015, Chile committed to reducing GHG emissions intensity by 30% by 2030 relative to 2007 if economic growth is maintained at current rates; and by up to 45% if adequate international financial support is received. Such conditions leave some uncertainty about the ambition of the commitment, which implies slowing the increase in GHG emissions, rather than reducing them in absolute terms. Achieving the commitment will, nevertheless, require improved policy coherence and cost-effective mitigation policies across all emitting sectors. It will entail strengthening institutional arrangements and broadening the funding base to compensate for the likely reduction of international finance as Chile joins the circle of high-income economies. Infrastructure choices, notably in the energy and transport sectors, should be examined carefully to avoid locking in emissions.

Chile is vulnerable to the impacts of climate change, including increased flood risk, reduced availability of water for hydropower, reduced agricultural production and loss of biodiversity. Implementation of the sectoral adaptation plans will be essential in preparing for these changes, combined with robust monitoring and evaluation.

Biodiversity policy is advanced, but effectively managing protected areas is challenging

With growing economic activity, extraction and use of natural resources, and development and expansion of infrastructure, pressures on Chile’s biodiversity are increasing. High income inequality exacerbates environmental conflicts and fuels mistrust. Biodiversity objectives are progressively being mainstreamed into other policy areas such as agriculture, forestry and mining, but tangible results have not yet materialised.

Chile has made significant progress in developing strategies and policies to promote biodiversity conservation and sustainable use. Instruments, such as a market of water-use rights, a fishing quota system and entrance fees to protected areas, have long been in place. Nonetheless, there is scope to expand the use of economic instruments and explore innovative ways to raise revenue and leverage private sector investment, including payments for ecosystem services and biodiversity offsets.

Protected areas cover 19.5% of the land area, although important land-based ecoregions, such as the Chilean matorral, are not adequately represented. Once officially established, the new Nazca-Desventuradas Marine Park will bring Chile’s marine protected areas to 24% of its exclusive economic zone. However, many protected areas lack sufficient financial and human resources, and their management plans are only partially implemented, incomplete or outdated. Despite current efforts, it is likely that Chile will not have operational management and administration for all protected areas until 2050.

The governance systems for biodiversity and water management are highly complex and fragmented. Financing for biodiversity has grown considerably since the mid-2000s, but resources remain inadequate to attain biodiversity objectives or bring Chile in line with biodiversity funding provided in other South American countries. A dispersal of resources across many different institutions has also reduced expenditure effectiveness. In 2014, the government proposed a legislation establishing a new Biodiversity and Protected Areas Service and an integrated national protected areas system, with a view to addressing institutional fragmentation, improving policy coherence, increasing funding and better involving the private sector and local and indigenous communities.