1. Towards sustainable development

Chile is a medium-sized country with an open, export-oriented economy. Except for the period of the COVID-19 pandemic, the country showed continuous economic growth over the last decade. Over 2010-19, gross domestic product (GDP) grew on average by 3.0% annually (Figure 1.1). This has helped improve citizens’ well-being and reduce poverty, but inequality remains high (section 1.3.3). GDP per capita reached USD 30 000 current PPPs in 2022. This is well below the OECD average (USD 54 000 current PPPs) but highest in the region of Latin America and the Caribbean (LAC) (OECD, 2023[1]).

Chile’s economic growth is anticipated to slow. The economic downturn caused by the pandemic resulted in a GDP contraction of -6.2% in 2020. In 2021, the economy recovered (+11.9%) more rapidly than in most OECD countries (+5.6%), buoyed by exceptionally strong policy support and a well-organised vaccination roll-out. Expansionary fiscal policy in 2021, global supply constraints and the Russian war of aggression in Ukraine have fuelled price inflation. After tighter fiscal and monetary policies to rebalance the economy, data suggest that GDP did not grow in 2023 but is projected to grow by 1.8% in 2024 and pick up to 2.1% in 2025 (OECD, 2023[2]).

Natural resources, such as extraction and processing of minerals, forestry and fisheries, have been a pillar of the economy. Chile has one of the largest reserves in the world of the critical minerals necessary for the energy transition, such as copper and lithium. The population is increasing by around 1.3% each year, faster than the OECD average. While population density is relatively low, more than 80% of Chile's population is concentrated in urban areas (OECD, 2023[1]). Chile's unique geography, with desert in the north, mountainous terrain throughout the country and glaciers in the south, results in high demographic and economic concentrations.

Chile has not decoupled a number of environmental pressures from economic growth since 2010, except in 2021 when the country had an exceptional economic recovery (Figure 1.1). Nitrogen oxide (NOx) emissions declined until 2018, but then increased, mainly driven by industrial combustion. Greenhouse gas (GHG) emissions, total energy supply and domestic material consumption (DMC) have risen at the same pace as the economy. This highlights the need for further efforts to decouple these pressures from economic growth. Water abstractions for public water supply continue to rise, albeit more slowly than economic growth. Emissions of sulphur oxide (SOx) and fine particulate matter (PM2.5) declined significantly since 2010, a positive development (section 1.1.2).

Chile is highly exposed and vulnerable to the impacts of climate change (Ministry of Finance and Green Climate Fund, 2021[3]). Nearly one-third of the territory is exposed to at least two climate-related hazards, mainly heat stress and flooding.1 A quarter of the population was exposed to extreme heat over 2018-22 on average. Higher risk of heatwaves exists in the north (Figure 1.2), while flood risk is dispersed across the country, notably along the central coast. Cropland soil moisture declined by 2.1% in 2022, while Chile has experienced a drastic decrease in average annual precipitation (the second largest decrease in OECD LAC countries), compared to 1981-2010 (Maes et al., 2022[4]). The country is also severely affected by drought and wildfire risk, with wide-ranging impacts on water supply, agriculture and ecosystems. For example, following the 2017 wildfires, nearly 40% of critically endangered habitats in Chile were significantly damaged (OECD, 2023[5]).

Progress on climate change adaptation varies significantly by sector. The National Plan for Adaptation to Climate Change (PNACC) of 2014 established adaptation plans for nine relevant sectors.2 The PNACC set guidelines for monitoring and evaluation in each sector. The adaptation plan for fishery and aquaculture adopts a systemic approach to increase resilience of marine ecosystems and coastal communities (OECD et al., 2022[6]); almost 80% of planned actions were achieved by 2021. Progress was slowest in the tourism sector at 25%, mainly due to limited financial resources and capacity for vulnerability assessment studies.

Lack of a clear financing strategy impedes progress on planned adaptation actions (Ministry of Finance and Green Climate Fund, 2021[3]). Chile recognises the need for climate adaptation financing instruments but has not responded with commensurate resources. The PNACC will be updated by 2024, covering additional sectors (mining, coastal zones and transport). The updated plan needs to strengthen governance and institutional co-ordination for adaptation planning and develop financing strategies. It should also promote a participatory process for vulnerable stakeholders and adaptation strategies for different climate scenarios in territorial planning (section 1.2.2).

Chile has made great strides towards developing localised climate risk mapping. The Climate Risk Atlas (ARCLIM) platform launched in 2020 provides climate-risk indicators and visualisation of current and projected climate risks at the communal scale3 (MMA, 2020[7]). Unlike many other OECD countries, the country also analyses socio-economic vulnerability of different population groups to relevant climate risks. Moreover, the country is developing further tools to monitor and assess progress on adaptation. The development of vulnerability and adaptation indicators is expected to be completed by 2030.

Chile’s GHG emissions rose significantly in 2010-19 (Figure 1.3), mainly driven by CO2 emissions generated by fossil fuel burning (MMA, 2022[8]). GHG emissions decreased in 2020 due to the COVID-19 pandemic, which enabled the country to meet its 2020 target.4 Land use, land-use change and forestry (LULUCF) has consistently contributed to sequester carbon except for 2017, when Chile experienced devastating wildfires.

Since the last review in 2016, Chile has made substantial progress on the legal and policy framework for climate change through a joint effort across ministries. Most prominently, the Framework Law on Climate Change (FLCC) was promulgated in 2022 by the president and 15 ministries.5 It creates the legal framework to address climate change mitigation and adaptation, consistent with international commitments under the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement. The law establishes a binding national goal to reach net zero by 2050, which implies the need to reduce gross GHG emissions by approximately 40% from 2020 to 2050.

Chile also set long-term and increasingly ambitious climate change mitigation objectives. The Long-Term Climate Strategy (ECLP) was submitted to the UNFCCC in 2021 (Chile was the first LAC country to present such a strategy). It functions as a roadmap to achieve net zero by 2050, comprising more than 400 transition goals to reduce emissions (Government of Chile, 2021[9]). The strategy defines a national GHG emissions budget for 2030 and 2050 and emission budgets for seven ministries. Sectoral and regional plans are under development.6 These will support achievement of the ECLP horizontally (across ministries) and vertically (across levels of government).

For the strategy and plans, Chile established a requirement to review progress and update ambition, which will allow it to course-correct efforts to achieve the net-zero goal by 2050. The ECLP must be fully updated every ten years and partially every five years to incorporate the new Nationally Determined Contribution (NDC). Sectoral plans will be reviewed and updated every five years.

Although the legal framework has been strengthened, important challenges remain in its implementation. Chile is not on track to achieve national targets for GHG emissions. There is a lack of clarity about concrete measures in sectoral and regional plans to peak GHG emissions before 2025, and to meet the NDC target of 20307 and the net-zero goal by 2050. Analyses suggest that ambitious actions will be needed to ensure achievement of both 2030 and 2050 targets (Benavides et al., 2021[10]; Valdés et al., 2023[11]). Implementation of the climate law requires a whole-of-government approach with each relevant sector designing and implementing the necessary policy instruments to achieve climate targets. The government needs to swiftly clarify a coherent policy mix (e.g. economic, regulatory and information-based instruments) and concrete measures to meet targets. At the same time, measures defined in sectoral and regional plans must be supported by a portfolio of investments with sufficient financing, to ensure measures yield expected impacts.

Moreover, the successful implementation of the climate law requires strengthened technical capacity at national and subnational levels. There is a need for increased collection and analysis of data, development of indicators, and improved monitoring, reporting and verification systems to track and evaluate policies and course-correct plans as needed. Implementation also requires deployment of professionals with relevant expertise in both national and regional institutions.

Energy industries are the largest source of GHG emissions followed by transport, accounting for 28% and 25% of emissions in 2020, respectively (Figure 1.4). Electricity supply accounted for more than 90% of GHG emissions from energy industries over 2010-20. Reduction of GHG emissions from electricity supply is crucial to meet national goals, notably the 2030 NDC target, while the contribution of other sectors to emissions reduction is expected to be limited by 2030. The Ministry of Energy has the largest role in design and implementation of climate change mitigation measures. Measures are integrated into the National Energy Policy (PEN).

The coal phase-out plan, established in 2019 as a key sectoral mitigation policy, aims to close all coal-fired plants in Chile by 2040. This original timetable has been modified several times and brought forward, with the aim to close more than half of coal-fired plants by 2025. As of November 2023, 8 out of 28 plants operating in 2019 were closed (22.5% reduction in terms of total capacity8). The phase-out of coal-fired plants is essential to reduce energy-related GHG emissions. The Just and Sustainable Transition Strategy for the energy sector focuses on challenges related to the coal phase-out, such as the impact on employment, but will later serve as a basis for other transitions (MMA, 2022[8]).

The other key policy is the promotion of renewable energy. The ECLP set an ambitious goal of converting 70% of total energy supply to renewables by 2030. In 2022, the share of renewables was 27% (Figure 1.5), which is higher than the OECD average (12%). Biomass is broadly used (mainly for heating), accounting for 57.6% of renewables in total energy supply in 2022 (section 1.1.2). Still, Chile’s dependency on coal, peat and oil shale (11%) is highest among OECD LAC countries.

For electricity generation, the share of renewables rose from 40% in 2010 to 55% in 2022 (Figure 1.5). This was driven chiefly by increases in wind and solar (26% share of electricity generation in 2022), which are relatively cost competitive compared to other sources. Chile achieved the 2025 target of 20% of its electricity generation to come from non-conventional renewable energy sources9 ahead of schedule. The updated PEN aims to achieve 80% of electricity generation from renewables in 2030 and 100% from renewables and other energy sources with the carbon capture10 by 2050 (Government of Chile, 2021[12]). However, unlike the previous 2025 target, these targets are not legally binding.

A major bottleneck for greater uptake of renewables is the lack of transmission lines, notably in the north, but these are under development. Green hydrogen is also expected to contribute as a means of transmission and storage of electricity (section 1.3.2). Energy efficiency is expected to contribute to 7% of cumulative reductions in GHG emission by 2050 (Figure 1.4), backed by the 2021 Energy Efficiency Law as the main legal framework.

Transport is the second largest contributor to GHG emissions in Chile with an increasing trend, dropping only in 2020 due to the pandemic (Figure 1.4). Up to 90% of sectoral GHG emissions came from land transport in 2019, where trucks and buses contributed more than 60% in 2019 (MMA, 2023[13]). The sector accounted for about one-third of Chile’s total final energy consumption in 2020, with consumption rising 35% over 2010-19 (IEA, 2021[14]). This increasing trend makes it challenging to reach the sectoral target of reducing transport-related GHG emissions by 40% by 2050 compared to 2018 levels. Moreover, the GHG emissions scenarios based on sectoral budgets allow emissions to increase the most in the transport sector compared to other sectors from 2020 to 2030.

The most prominent actions include investment in public transportation to improve accessibility, efficiency and coverage in urban areas (section 1.3.2), as well as electrification of taxis, buses and commercial vehicles. Santiago made progress in the electrification of buses, and the country intends to electrify all its buses by 2040 and all public transport by 2050. The Green Hydrogen Strategy emphasises decarbonisation in the transport sector to replace diesel in motor uses of industry and mining, as well as cargo vehicles. Comprehensive green tax reform is critical to incentivise the transition towards low-carbon transportation, notably for those off-road and cargo vehicles. However, it remains incomplete despite recommendations in the last review (section 1.3.1).

The other key measure is the ban of sales of combustion engine vehicles by 2035, announced by the National Electromobility Strategy in 2021 (Government of Chile, 2021[15]). The strategy sets out a goal and action plan to achieve a 40% share of electric passenger vehicles by 2050. These measures will accelerate the transition towards low-carbon transportation, complementing the minimum energy efficiency standards for light-duty vehicles starting in 2024.11 The share of electric vehicles (EVs) in new sales increased only marginally, moving from less than 0.1% in 2016 to 0.5% in 2022, and their share on the road was below 0.1% in 2022 (IEA, 2023[16]). EV uptake is impeded by both its high price and limited public charging infrastructure, with only up to 750 public charging units as of November 2023. The Electromobility Roadmap presented in 2023 commits to develop a master plan to address this infrastructure gap. Local authorities should have a greater role in transport decisions, in collaboration with the national government.

Industry and mining are the largest consumers of energy, accounting for 38% of all use in 2020, with levels rising by 18% over 2010-20 (IEA, 2021[14]). The country sets the ambitious target of reducing GHG emissions from industry and mining by 70% by 2050 compared to 2018 levels. To that end, its most prominent policy is the use of solar energy for heat generation in industry. According to the PEN, at least 90% of energy for heating in industry must come from low-carbon sources,12 such as solar, by 2050. Electrification of machine drives in industry and mining is expected to help this transition, further incentivised by the carbon tax (section 1.3.1).

Various initiatives support decarbonisation of the mining sector, such as the incorporation of renewable energy. These are especially encouraged in areas not yet connected to the grid, where renewables-based electricity would otherwise be wasted, such as the north (section 1.3.2). Chilean mining is making significant progress in the use of renewable energy, such as solar. Already in 2021, renewable energy13 accounted for 44% of mining electricity consumption, and by 2025 it is expected to exceed 60% (MMA, 2022[8]). The National Mining Policy 2050 sets various goals for the industry.14 In line with a recommendation in the last review, energy management is incorporated into medium-sized mining operations through co-operation agreements. The Energy Efficiency in Mining Project, implemented in 2019, includes technical advice to companies, development of events and training, and a learning network.

GHG emissions from the building sector have not changed much over 2016-20. Buildings accounted for almost a quarter of final energy consumption in 2020 (IEA, 2021[14]), with a significant share from heating. Electrification of heating for residential, public and commercial building is a key sectoral mitigation measure. Chile targets to increase the share of electricity-based heating systems to more than 57% in houses and to 70% in apartment buildings by 2050 (Government of Chile, 2020[17]). Other key measures include establishing solar thermal systems, energy rating of existing homes and thermal overhaul in vulnerable homes (section 1.3.3).

There has been some progress in the construction sector, such as the update of the National Sustainable Construction Strategy and completion of the National Strategy for Carbon Footprint in Construction (MMA, 2022[8]). The Energy Efficiency Law established that buildings must have an energy rating before they are commercialised. The PEN established targets for all new buildings to be “zero net energy consumption” by 2050 (by 2030 for new public buildings); the timeframe to reach targets could be reconsidered with the aim to accelerate progress. The target for existing building is even weaker, aiming for 10% of existing homes to have a specific standard for thermal regulation by 2050. Increasing ambition in energy efficiency along with distributed power generation would help reduce GHG emissions, as well as energy poverty, which also contributes to air pollution (section 1.1.2).

Agriculture represented 11% of total GHG emissions in 2020 (Figure 1.4). This is the only sector that has reduced its GHG emission over the last decade (14% decrease over 2010-20). Chile has among the lowest GHG emissions intensity of agricultural output across OECD countries and has no agricultural-specific mitigation target (OECD, 2022[18]). Agricultural emissions in Chile were mainly driven by emissions from enteric fermentation and soil. In line with the ECLP, the Ministry of Agriculture implemented mitigation initiatives such as the efficient use of fertilisers and sustainability standards with mitigation actions for three agri-food subsectors (dairy, poultry and pork). The initiatives also include soil management practices that capture carbon (OECD, 2022[18]).

In Chile, the LULUCF sector absorbed 47% of gross GHG emissions in 2020 (Figure 1.3). Forest land represented 24.7% of Chile's land area in 2021; this increased by 3.5% since 2016. One of the instruments developed to meet the NDC goal is the National Strategy for Climate Change and Vegetation Resources (ENCCRV). It is led by the Ministry of Agriculture through the National Forest Corporation (CONAF). Since 2016, the ENCCRV has been the main tool to contribute to climate targets, leveraging international support (Ministry of Agriculture and CONAF, 2019[19]).

The ECLP further aims to restore 200 000 hectares (ha) of forests by 2030.15 Wildfire risk poses challenges for climate mitigation, with 12% of forests (average over 2016-20) in areas at risk of burning. In summer 2023, the worst period in history, more than 400 000 ha burned. By 2025, a part of the ENCCRV, CONAF plans to establish the results-based payment schemes for environmental services, contributing to GHG emissions reduction or capture.

Despite some improvements in the last decade, air pollution remains a significant public health challenge, particularly in the northern and central regions. Chile has made progress in reducing emissions of fine particulates (PM10) and sulphur dioxide (SO2), declining by 3% and 80%, respectively, between 2016 and 2021. However, despite an overall decoupling from economic growth since 2010, other pollutants, such as PM2.5, nitrogen oxides (NOx), non-methane volatile organic compounds and carbon monoxide (CO), increased between 2016 and 2021 (by 8%, 17%, 21% and 25%, respectively) (Figure 1.6). This is due to a combination of factors, including continued reliance on fossil fuels for electricity generation, carbon-based transportation and growing industrial activity.

Regional disparities in air pollution levels are evident across the country. Northern regions experience the highest levels of SO2 and NOx emissions from industrial sources (e.g. copper smelters, thermoelectric power plants). Meanwhile, central and southern regions suffer from concerningly elevated PM2.5 concentrations, largely due to residential wood burning for heating and road transport.

Chile has made significant progress in regulating air pollutants through Law 20.780, which established taxes (the “green tax”) on emissions from mobile (NOx) and stationary sources (PM, SO2, and CO2). This has led to a 22% decrease in taxable PM emissions since 2017. Technological challenges, however, have limited the decline of NOx and SO2 emissions, particularly from thermoelectric power plants (MMA, 2021[20]). To address this, the tax adopted an emissions-intensity criterion in 2020 with a threshold of 25 kilotonnes (kt) of CO2 or 100 t of PM per year (section 1.3.1). Expanding the green tax to CO emissions is also advisable, as they represent three-fifths of total air pollutant emissions in the country.

Chile is the first country in the LAC region to incorporate the EURO VI emissions standards for new light-duty vehicles, which is expected to reduce PM2.5 and NOx emissions by 51% and 55%, respectively, by 2030. However, it may lead to a slower fleet renewal rate (4.4% in 2021), mainly in northern regions with high average vehicle age (13.4 year in 2021) and a prevalence to buy used vehicles (De Vicente, 2022[21]). To address this and reduce emissions from vehicles in circulation (5.98 million in 2021), Chile should introduce a comprehensive fleet-renewal strategy that enforces mandatory periodic emissions testing, while providing incentives (e.g. higher registration fees for older and more polluting vehicles) and support for transitioning to vehicles with lower impact on the environment. At the same time, it should invest in public transportation (mass and active), while enhancing accessibility, coverage, efficiency and affordability. This would help alleviate the potentially adverse effect of tighter standards and higher fees on low-income households and avoid exacerbating inequality.

Chile has implemented Environmental Regulation Programmes (PRAs) since 2016. However, its annual average PM2.5 concentrations – 23 microgrammes per cubic metre (μg/m³) – remain among the highest in the OECD and considerably above the 5 μg/m³ World Health Organisation (WHO) guideline (OECD, 2020[22]). This exposure to harmful PM2.5 levels affect 98.6% of the population, higher than the LAC average of 95.4% and the OECD average of 61% (OECD, 2022[23]), posing substantial health risks and costing 3.4% of GDP (IHME, 2022[24]). The number of critical air pollution episodes16 has declined. However, they remain common, especially in southern regions (SINIA, 2022[25]) where wood burning is exacerbated by multidimensional poverty (MDSF, 2023[26]), thermally inefficient housing and weak electricity accessibility (MinEnergia, 2023[27]). Additionally, by aligning air quality standards17 with WHO guidelines and concurrently increasing funding for PPDAs, Chile can facilitate timely declaration of saturated or latent zones.18 It could also enable implementation of mitigation measures such as diesel bans in urban areas and declaration of low-emission zones for densely populated centres.

In a welcome step, the Ministry of Environment (MMA) and Ministry of Housing and Urbanism (MINVU) have made efforts to enhance energy efficiency upgrades to curb air pollution from residential wood burning, along with building thermal retrofitting and housing energy performance labelling. The Heater Replacement Program (PRC) is a promising solution, subsidising replacement of outdated heaters with more efficient models. In 2015-21, this programme delivered 62 000 devices; it is expected to replace 198 000 by 2030 (MMA, 2021[20]). However, resources should be allocated to more efficient pellet, kerosene vented or electric heaters (Mardones, 2021[28]).

Chile should expand retrofitting efforts to major public and commercial buildings and further encourage implementation of renewable energy technologies and electric heating systems. This will help reduce energy demand and air emissions (section 1.1.1). Providing financial assistance to building owners, especially low-income households, is also encouraged. This could include extending eligibility for PPDA grants, preferential loans and tax incentives for energy-efficient building materials and technologies (Simon et al., 2023[29]) to make affordable and sustainable energy for heating more accessible. Cultural barriers impede the widespread adoption of cleaner cooking and heating systems, which could be addressed effectively through intensified environmental awareness campaigns.

Additionally, Chile has made progress in the generation of higher quality information on air pollution with the National Air Quality Information System (SINCA) and the Pollutant Release and Transfer Register (RETC). SINCA is a network of air quality monitoring stations (84 in 2020) used for real-time monitoring of atmospheric pollutants. However, regulations are advancing faster than the generation and availability of information. This jeopardises the design of effective public policies as lack of data impedes understanding of the full impact of different measures to reduce air pollution.

Chile is a biodiverse country with around 30 000 species. Of these, 25% are endemic, including more than 40% of plants. The central and southern zones are considered a global biodiversity hotspot and among the most threatened. Approximately 4% of known native species are classified as threatened. This is lower than Costa Rica (7%) and Mexico (5%) but higher than Colombia (2%) (OECD, 2023[30]). Amphibians are the most threatened species (68%), followed by reptiles (37%) and mammals (19.5%) (Figure 1.7). Over half (14 of 27) of fisheries or fishing operations face overexploitation, which represents 58% of the 19 species that make up these fisheries (SINIA, 2022[25]). Without additional control measures, invasive alien species (Figure 1.7) could cost the country USD 90 million a year and up to USD 2 billion over the next decades by harming biodiversity and productive sectors (Araos et al., 2020[31]).19

Salmon farming has posed a persistent threat to biodiversity and ecosystems within and near protected areas. In response, Chile recently required management plans of all concessions within protected areas to align with conservation objectives. Additionally, it prohibited sectoral concessions for the commercial exploitation of natural resources in virgin region reserves, national parks and natural monuments. To mitigate aquaculture's impact on marine protected areas effectively, Chile should enhance hydrobiological data collection and establish a rigorous monitoring and reporting framework to assess concession compliance (Schönsteiner et al., 2021[32]). Furthermore, a phase-out approach to salmon farming within protected areas is recommended.

Chile has emerged as a leading example in the LAC region, among the few countries (along with Costa Rica and Uruguay) to increase its forest cover, mainly through privately owned plantations (EFI, 2019[33]; OECD, 2022[23]) but at the expense of native forests (LIttle C., 2023[34]), creating trade-offs between afforestation and biodiversity objectives. Land-use change, such as the conversion of forest lands to agricultural use, mining, urban and infrastructure development, continue to exert intense pressure on terrestrial ecosystems. Despite the encouraging 14% decrease in forest fires in Chile in the 2020-21 season, human actions and climate change remain perilous threats to ecosystems (SINIA, 2022[25]). Leveraging the resilience of its unique biodiversity, particularly in the Atacama Desert, Chile can develop and implement biodiversity-positive nature-based solutions to combat desertification, promote sustainable land use and strengthen climate change adaptation (Dussarrat et al., 2022[35]). Additionally, the enhancement of peatland and wetland conservation can further bolster Chile's climate change mitigation efforts (Hoyos-Santillan et al., 2021[36]) (section 1.1.1).

Chile has made significant progress in expanding protected areas. Chile has already protected 44% of its exclusive economic zone (EEZ) and has made significant progress in expanding its terrestrial protected areas, reaching 22% of its land area.20 This makes it a leader among OECD and LAC countries. However, more efforts are needed to meet the 30x30 targets and adequately represent all biomes. To that end, under its NDC (Government of Chile, 2020[37]), Chile has committed to expanding its protected areas, with a special focus on vulnerable and underrepresented ecosystems, to meet 30x30 targets. The National Lithium Strategy (Box 1.2) aims to expand the protection of salt flats, home to an exceptional microbial and avian biodiversity, from 7.8% to at least 30% of these ecosystems under protection.

However, challenges persist in enhancing the management effectiveness of protected areas. Only 28.6% of terrestrial and 0.1% of marine protected areas have completed management effectiveness assessments (MEAs), falling short of the 60% target (CBD, 2021[38]). Completing MEAs will aid in achieving Chile’s NDC commitment to implement management plans, including climate change adaptation measures, for all marine protected areas established by 2030 and foster replication of successful management practices.

After more than a decade of deliberation, the Law for Nature was promulgated in June 2023, marking a significant step towards reinforcing biodiversity protection and conservation in Chile. However, the full implementation of this groundbreaking legislation is expected to be a lengthy process, with full operationalisation anticipated in 2027. The law introduces a comprehensive package of instruments to support biodiversity conservation within and beyond protected areas. These include establishment of the Biodiversity and Protected Areas Service (SBAP), approved in August 2023, which oversees biodiversity monitoring in protected areas and other ecoregions of high biodiversity value. Additionally, the law mandates the implementation of several conservation management tools, including the National Biodiversity Fund, sustainable certification and eco-labelling, a biodiversity and ecosystem services certification system, contracts for remuneration of ecosystem services, cleaner production agreements, proposal of environmental criteria in sectoral subsidies and grants, and the Real Right of Conservation (Derecho Real de Conservación)21 (BCN, 2023[39]).

Alongside these reforms, Chile has committed to a dedicated workforce and funding expansion for biodiversity conservation. This highlights the critical need for sustained funding and skilled personnel to implement biodiversity services effectively, encompassing research, protected area management and infrastructure development. To ensure these efforts translate into concrete outcomes and achieve their full potential, Chile should enhance transparency and granularity of biodiversity-related expenditure (section 1.3.2), enabling stakeholders to track progress and hold decision-makers accountable.

Chile’s progress in implementing payment for ecosystem services (PES) pilots in various regions holds promise for a national PES programme. However, to fully scale up PES initiatives and integrate nature and biodiversity into sustainable public and private decision-making, the country needs to strengthen natural capital valuation methods and foster stakeholder engagement. This can be achieved through the Natural Capital Committee (NCC), established in January 2023, which is tasked with developing methodologies for measuring and valuing natural capital and ecosystem services. The development of public baselines of natural capital and ecosystem services will further enhance Chile's ability to incorporate ecosystem, species and genetic diversity into national accounts and its effective mainstreaming into national planning and environmental impact assessments (EIAs) (section 1.2.2).

Fulfilling this objective requires sustained investment in biodiversity information and data collection, alongside enhanced dissemination and accessibility. Chile’s Sistema de Información y Monitoreo de Biodiversidad (SIMBIO) serves as a valuable centralised platform for storing, managing and accessing biodiversity data. Yet, it could be further enriched with indicators monitoring temporal and spatial dynamics, as well as progress towards conservation targets. Additionally, fostering co-ordination among stakeholders through a biodiversity data network would streamline data exchange and integration across disparate databases and institutions. Engaging the public in biodiversity data management and use can foster greater awareness and support for conservation efforts.

Chile landfills 92% of its municipal solid waste, one of the highest percentages among OECD countries, although it generates less waste per capita (406 kg vs. 534 kg in 2020). This represents a decrease from the past decade when the country landfilled an average of nearly 100% of its waste. National waste generation has remained stable between 2016 and 2021, at around 19 Mt per year. Waste is predominantly non-hazardous (97%) (Figure 1.8, left panel). By implementing the National Waste Declaration System (SINADER) and linking it to the single window system of the RETC, Chile has improved its waste information over the past seven years. This has allowed the country to better understand its waste generation and management challenges, as well as develop more effective policies and programmes.

Chile has taken several steps to reduce waste generation and promote recycling. In 2016, Congress passed Law 20.920 (the REP law) with entry into force in 2023. The law establishes extended producer responsibility (EPR) schemes for a variety of products, including packaging, batteries, and tyres. It has also set fundamental principles such as polluter pays, gradualism, hierarchy of waste management practices, traceability and transparency (IEA, 2022[40]) for the aforementioned waste streams. The promulgation of a decree regulating waste oil and waste from electrical and electronic equipment through EPRs is expected in 2024. Given the designation of textiles and fishing nets as priority products, Chile needs to accelerate EPR schemes for them. The enactment of the Single-use Plastics Law in 2022 is also a step forward in reducing plastic consumption and encouraging its reuse and recycling.

Despite high waste collection services coverage (99.2% in urban areas and 73.4% in rural areas) (SUBDERE, 2018[41]), Chile's municipal solid waste (MSW) collection system faces two major interconnected challenges: financial sustainability and behavioural change. One-third of municipalities do not have a substantial waste recovery budget (ECLAC, 2019[42]). Even those that do cannot afford proper waste collection due to extensive sanitation fee exemptions and unclear tariffs. These factors impede cost recovery and the implementation of incentive-based systems aligned with the polluter pays principle, such as pay-as-you-throw schemes (CSP and MMA, 2020[43]). As a result, municipalities must often subsidise sanitation services, with low-income municipalities allocating a bigger proportion of their resources.

The country has taken some steps to address these challenges, such as establishing the Recycling Fund to support EPR schemes and finance projects that reduce waste generation and promote its recovery (IEA, 2022[40]). However, the budget allocated to this fund has been declining (359.1 million pesos in 2017 vs. 233.7 million pesos in 2022) (BCN, 2023[44]). Furthermore, the absence of a comprehensive, long-term investment strategy that prioritises waste separation and recovery infrastructure, coupled with the concurrent need to enhance technical assistance for municipalities, hinders progress towards achieving waste management goals. This is compounded by the lack of defined ceilings in the Regional Contingency Support Fund, which only allocated 15% of its 2023 budget to waste management, primarily for waste disposal, with less focus on collection, transfer and recovery.

Chile's waste disposal infrastructure faces significant challenges. More than one-third (34%) of disposal sites have reached the end of their operational lifespan. Yet they continue to receive approximately one-third of the country's MSW (Pelayo Díaz and Linazasoro Espinoza, 2020[45]). This poses a significant public health concern.

In addition to modernising landfill facilities with stringent standards, Chile should reduce organic waste generation and disposal in landfills, considering that it represents 58% of total MSW generated (MMA, 2021[46]). This includes approving and implementing bill for the valorisation of organic waste, which mandates the recovery of organic and other separated waste. It should also consider a landfill tax akin to those in other OECD countries such as Israel, Norway and several EU member states (OECD, 2019[47]). These measures would discourage environmentally harmful waste disposal and promote sustainable waste treatment. Further, they would align Chile's waste management strategies with its NDC National Organic Waste Strategy (ENRO) and the Roadmap for a Circular Chile (2021) goals. These aim to achieve a 66% organic waste recovery rate by 2040 and a 40% recycling rate by 2030.

Chile has one of the lowest MSW recovery rates among OECD countries, recovering only about 1% (Figure 1.8, right panel). Most waste recovered in Chile is glass, paper and cardboard. Typically, municipalities use green points (69%) and clean points (47%)22 (ECLAC, 2019[42]) to ensure waste recovery. However, house-to-house segregated collection is prevalent in municipalities with superior recycling performance (Peró et al., 2022[48]).

Further expanding recovery infrastructure is crucial for promoting segregated waste collection. Since clean points only accept completely washed and unlabelled products, green points would help gradually raise awareness about waste separation and recycling. Although 75% of municipalities have recycling awareness campaigns (ECLAC, 2019[42]), Chile should tailor them to specific community needs. Such a process should consider demographics, socio-economic status, and available waste collection and recovery infrastructure (Rodríguez Salas and Trebilcock, 2020[49]). This will help the country promote waste prevention and recycling, while reducing capacity and financing needs for waste management (Pelayo Díaz and Linazasoro Espinoza, 2020[45]).

The core national institutional structure for environment has remained in place since the last review. The MMA is responsible for policy design and information management in all environmental domains. The Environmental Assessment Service, a decentralised technical agency under the MMA at the regional level, administers the System of Environmental Impact Assessment (SEIA). The Environmental Superintendence (SMA) monitors and enforces compliance with respect to activities and projects subject to the SEIA or covered by Pollution Prevention and Decontamination Plans (PPDAs), environmental quality or emission standards. Three environmental courts in Chile, which review administrative resolutions and decisions of environmental legal disputes, have strengthened access of citizens to environmental justice. The first two courts started operation in 2013 and the most recent opened in 2017.

Institutional arrangements for environmental management in Chile have been strengthened with the approval of the SBAP and the FLCC. The climate law formalises the Inter-Ministerial Technical Team on Climate Change and Regional Climate Change Committees. The Council of Ministers for Sustainability and Climate Change functions as the main horizontal co-ordination mechanism for environmental matters, including climate change. The National Council for the Implementation of the 2030 Agenda for Sustainable Development co-ordinates implementation and monitoring of the SDGs (Government of Chile, 2023[50]).

Other key developments relate to efforts to address the Just Transition, represented by the ratification of the Escazú Agreement: Regional Agreement on Access to Information, Public Participation and Access to Justice in Environmental Matters in LAC countries (section 1.1.3). Chile and Costa Rica co-chaired negotiation of the agreement. The MMA created the Just Socio-Ecological Transition Office in 2022 to tackle the climate, ecological and inequality crisis. It incorporates social and environmental justice at the local level, mainly focusing on extractive industries (section 1.3.3). In the same year, the Inter-Ministerial Committee for Just Socio-Ecological Transition, as well as the Inter-Ministerial Committee for Just Water Transition, were established to advise the president on Just Transition issues in each domain.

Chile has been one of the most centralised countries in the OECD, with a four-tier government system composed of the national level, regions, provinces and municipalities. While regional and provincial administrations have some territorial planning responsibilities, they play a minor role in environmental management. Since the last review, institutional autonomy in municipalities has remained limited, including their ability to set more stringent environmental standards than national level. Municipalities also have little fiscal autonomy and lack financial resources for environmental services.

The MMA is legally obliged to work with local authorities through collaborative agreements for environmental matters. It does this via its local branch office of the Environmental Regional Secretariat. These national institutions in the regions play an important role in planning and monitoring environment-related policies, but their institutional capacity at the regional level needs to be improved.

A stronger push towards decentralisation was reflected in the “Stronger Regions” bill submitted to Congress in 2023 (Government of Chile, 2023[51]). The bill aims to empower regions by granting regional governments more autonomy to design mechanism to generate their own income and use resources according to their needs. This progress builds on the change in 2021 to establish elections for regional governors rather than selection by presidential appointment. Moreover, the bill proposes a new Permanent Fund for Inter-regional Equity, which aims to reduce financing gaps between regions. The Mining Royalty Law enacted in 2023 will also strengthen local financing by creating a flat-rate value-added tax and three new funds23 to distribute collected revenue to regions and municipalities (section 1.3.1).

Despite recommendations of the last review, progress on strengthening both environmental quality and emission standards has been limited. To date, Chile enforces 21 quality standards on air and water, and 37 emission standards on air, noise, soil and water pollution (BCN, 2023[52]). However, the Chilean regime lacks environmental quality standards on soil (under development24), and standards for water resources are incomplete (Chapter 2) (Carrasco, Benítez and Cañas, 2023[53]). Since 2016, some emission standards for stationary sources were added or updated, including for odours and arsenic. However, despite recommendations in the last review, there is no implementation of technique-based emission/effluent limit values25 for large high-risk industrial installations or sector-specific emission and effluent standards for facilities with lower environmental impact (OECD/ECLAC, 2016[54]).

EIA is carried out through the SEIA. The project entry to the system is either through full EIA or a simpler environmental impact declaration (DIA). A full EIA is required for projects with a potential risk to public health or the environment. Even in a full EIA, however, the SEIA does not require evaluation of alternative scenarios, a limitation yet to be addressed since the previous review. Each approved project receives a resolution of environmental qualification (RCA), equivalent to an environmental permit, and a consolidated evaluation report. These are available to the public. Similar to the emission/effluent limit values, there is no implementation of technique-based RCAs. On average, a full EIA takes 25 months; a DIA only 10. In 2022, 37 full EIAs were conducted and 572 DIAs submitted, approximately 6% and 94% of all the procedures, respectively (Figure 1.9). The project owner, rather than an independent party, judges the project entry category (full EIA or DIA). A validation of this screening is incomplete due to limited oversight capacity. Such a validation process is important to ensure the screening process is not used as a loophole to avoid a full EIA (and thus the need for a permit and eventual monitoring). The poor quality of entries by project owners, such as missing information, often causes delays.

There is significant room to improve the EIA process. Institutional safeguards against political influence, for example, are insufficient (Chile Transparente, 2021[55]). The final approval of an EIA lies with a political committee (ministers, regional), which does not give full confidence that clear and technical criteria guide decisions. The risk of political influence undermines environmental protection and also generates uncertainty that can discourage future investment. A reform on Law 19.300 General Bases of the Environment is expected to remove political influence and strengthen the technical quality of the EIA.

Another key issue is asymmetry of information between project owners and citizens. The process relies heavily on project owners for information provision, while communities lack technical tools and financial support to engage effectively (Chile Transparente, 2021[55]). Modernising the EIA process with the further use of technology (e.g. digitalisation of the EIA process) and production of reliable public databases can improve the quality of information in EIAs and reduce information asymmetry.

Under the Escazú Agreement, the Environmental Assessment Service strives to ensure access to information and improve citizen participation. This needs to happen in the early stages of the process before the evaluation, to allow scope to influence projects at the design stage. Citizen participation needs to improve further, notably through participation of Indigenous peoples. Over 2013-19, the Environmental Assessment Service registered 55 projects that included consultations with Indigenous communities, with the largest number in energy (54.5%) and mining (29.1%). However, many challenges remain for Indigenous populations, notably in rural areas, to access information related to EIAs and to understand the processes so they can participate effectively (Reperger, 2021[56]). Moreover, only projects that conduct full EIAs are subject to consultation, representing only a small fraction of all projects.

Strategic environmental assessment (SEA) incorporates environmental considerations into the process of formulating policies and plans of a general regulatory nature, as well as their substantial modifications. The body responsible for the respective policy or plan triggers the SEA process, while the MMA guides and collaborates on the technical aspects.

According to the Environmental Quality Law, all territorial development plans are subject to SEA. As recommended in the last review, there has been some progress to improve the SEA process in communal regulatory plans, such as publication of the MINVU Manual. While the MMA provides the generic framework through the SEA Orientation Guide, this new manual addresses SEA application and methodology for urban planning. Still, the number of plans submitted to the SEA has declined slightly since the last review; Communal Regulatory Plans account for most submissions.

Climate change needs to be incorporated into environmental assessments. Use of a guide to incorporate climate change into SEA, created in 2023, was mandated by the FLCC. However, an update is pending on the regulations of the Environment Assessment Service to make it coherent with the FLCC. Notably, the EIA and SEA should consider climate change impacts systematically to enhance resilience in territorial and infrastructure planning.

The SMA is exclusively responsible for executing, organising and co-ordinating the compliance monitoring and supervision of environmental permits, Environmental Quality Standards (NCA), Emission Standards (NE) and all other environmental instruments established by law. The law empowers the SMA to impose sanctions, force closure of a project or revoke an environmental permit. Through an open portal, the SMA publishes its control programmes in the fields of RCA, PPDA, NCA and NE, as well as compliance programmes. The Organic Law of the SMA will be modified to grant greater investigative powers to the SMA, streamline compliance procedures and increase incentives for compliance.26

To reinforce its monitoring capacity, the SMA recently started implementing remote mass control. This new technology contributed to a significant increase in compliance checks, which more than doubled from 1 395 in 2017 to 3 573 in 2022 (Figure 1.10). It allowed some 1 700 extra checks of the salmon industry using satellite images and large data-sets, achieving more than 95% coverage in this area. Meanwhile, the share of compliance checks that result in sanctions decreased from approximately 30% in 2017 to 8% in 2022. This remote compliance check has been effective to increase coverage of inspections at a low cost and compliance27 through behavioural change as industry actors know they will almost certainly be monitored.

In 2022, the SMA audited 3 382 units, representing 18.2% coverage out of 18 587 auditable units identified. This number includes on-site compliance checks and remote compliance checks. The number of environmental complaints per year tripled from 1 870 in 2020 to over 5 700 in 2021. The increase was mainly driven by claims related to environmental noise through the newly implemented citizen portal. Addressing minor complaints should be decentralised to local authorities to minimise the burden on the SMA’s capacity.

Since the last review, the number of penalty procedures initiated by the SMA has steadily increased. More than 650 fines were issued over 2016-22 (amounting to USD 125 million). The fine depends on several aggravating and attenuating factors, including the economic benefit incurred as a result of non-compliance. There have been recent cases of severe sanctions imposed on industry. In 2018, the SMA made the historic decision to permanently close the Pascua Lama mining project – part of the Canadian company Barrick Gold – after confirming a series of violations.

Despite the recommendation in the last review, the SMA does not monitor compliance directly in some cases (to the extent environmental impact mitigation measures concern the competence of sectoral ministries).28 The SMA directly monitors compliance only for projects that went through the full EIA process. For other projects, the SMA co-ordinates with sectoral ministries. While compliance checks follow a standard procedure, arrangements may undermine the enforceability of permit conditions compared to integrated monitoring of compliance on a cross-media basis. The key bottleneck to the integrated compliance monitoring is a lack of regional resources for compliance monitoring (only about four people per region in 2023). For instance, the SMA in Antofagasta lacks around ten officials to meet the monitoring needs of mining operations in the region. The SMA should be further strengthened to support integrated compliance monitoring, with sufficient resources to conduct it.

The SMA reinforced its compliance promotion agenda since the last review. For example, the SMA issued guidelines on compliance programmes for different types of infractions. The audit division and the regional offices have set public-private meetings and workshops continuously.

In 2023, Congress passed a law enabling criminal sanctions for environmental violations, as recommended in the last review. The law modifies the Penal Code, introducing an article “Crimes against the environment” which criminalises certain activities29 without environmental permits, non-compliance with environmental standards and other activities that damage protected ecosystems. These violations entail penalties of imprisonment of up to ten years, in addition to mandatory fines. Similarly, amendments to the Organic Law of the SMA incorporate new articles that penalise activities such as maliciously dividing projects into smaller ones to avoid the full EIA process and submitting false information to the SMA to obtain permits (Hilgers, Vial and Gutierrez, 2023[57]).

Despite the recommendation in the last review, there is no legal regime in Chile related to remediation of contaminated land (BCN, 2023[52]). Enforceable legal requirements, such as soil quality standards (under development), are critical to establish responsibilities and deter future environmental damages. In 2022, 10 253 soils30 were identified nationwide with the potential presence of contaminants, particularly in mining regions (MMA, 2023[58]). Chile has a National Cadastre of Soils with Potential Presence of Contaminants (SPPC), which identifies soils that may have contaminants based on past or present industrial activities. Out of SPPCs identified, 57% are active and 29% are abandoned (Figure 1.11).

Chile has made no significant progress on abandoned mining sites since the last review. No specific agency is responsible for investigation and clean-up of contaminated sites. The 2012 Mine Closure Law requires all new mines to get approval for end-of-life closure plans with guarantees for the full present value of closure cost. However, the law does not apply to already abandoned mining sites. For those sites, limited financing of decontamination activities comes from the state budget, not in line with the polluter pays principle. A sustainable funding solution is necessary to address this. One possibility would be to create a fund from mining royalties dedicated to clean up legacy land and water pollution (section 1.3.1). A share of extraordinary revenues due to the high price of lithium could be earmarked for remediation (section 1.3.2). Another possibility is to impose decontamination fees on hazardous industrial installations and earmark the revenue for a remediation fund.

In 2021, the Chilean government collected around USD 3.3 billion of environmental tax revenue, representing 1.0% of GDP and 4.6% of total government revenue from taxes and social contributions (Figure 1.12). The share of GDP is lower than the OECD average (1.4%), while the share of total tax revenue is the same (4.6%). Both shares showed a gradual increase from 2011 to 2020 but dropped in 2021 due to a decline in tax revenues from energy, driven mainly by reduced electricity demand during the pandemic.

Similar to most OECD countries, taxes on energy use in Chile generate the largest amount of revenues (73% in 2020) from environmentally related taxes. In terms of effective carbon rates, as of 2021, Chile ranked among the highest in LAC but well below the OECD average (Figure 1.12).

Since 2017, a green tax for stationary sources has taxed emissions of CO2 (carbon tax) at the rate of USD 5 per tonne of CO2, as well as local pollutants. The carbon tax covered 32.5% of GHG emissions in CO2 equivalent (CO2e) in 2021. This contributed to 55.6% of GHG emissions being subject to a positive net effective carbon rate (the highest coverage in LAC countries) (OECD, 2023[59]). The rate for local pollutants PM, SO2 and NOx is calculated using specific local information related to the population affected by each facility’s industrial activities. The green tax applies to facilities of which the total thermal power capacity of boilers and turbines is at least 50 megawatts (MWt).31 Since 2022, the tax applies to the so-called “large emitters”,32 without exclusion of any sector.

Future efforts in carbon pricing should establish a gradual timeline to increase the tax rate. The government has put forward a revision of the current, including increasing the rate, tax as part of its fiscal reforms. An increase in the rate would better reflect the social cost of pollution. However, such reforms are still in the technical design phase. Higher carbon prices are crucial to spur the needed shifts towards cleaner energy to meet climate objectives.

The electricity price-setting mechanism in the Chilean electricity market needs to be changed for carbon pricing to work effectively. The variable costs of electricity generation plants determine wholesale electricity prices and the order of dispatch. However, in Chile, the full amount of the carbon tax is not included in the variable costs, which creates economic distortions in the power sector. Moreover, renewables-based power generators sometimes compensate carbon tax on fossil fuel-based power generators.33 Without revisiting this design issue, carbon pricing will not be effective at incentivising the transition towards renewables.

The green tax reform introduced a carbon offsetting system that came into force in February 2023.34 The reform provides the possibility to offset CO2 emissions with government-certified GHG abatement certificates. It will reduce the tax burden on “claimants” through the incentive to develop projects to reduce or capture emissions by “bidders”. The carbon tax would then apply only to the remaining emissions. This system covers both CO2 and local pollutants PM, SO2 and NOx. It can pave the way for a more sophisticated carbon market that allows flexibility in emissions reductions by offsetting tax liability with projects that reduce emissions directly.

Chile does not operate an emissions trading system (ETS) for GHG emissions. As a first step towards the potential ETS, a “cap and tax” is expected to be included as part of the green fiscal reform, following the example of Canadian Output-Based Pricing System Regulations. In this “cap and tax” system, companies with emissions above benchmarks (emissions per product unit) will have to either pay the carbon tax or compensate through offsets. Companies with emissions lower than the benchmarks will be able to issue a certificate that can be sold in the market. The current carbon tax rate, however, limits these certificates to abatement efforts whose cost is below USD 5 per tonne of CO2.

The fiscal cost of support to fossil fuels in Chile was estimated at USD 2.57 billion in 2022 (Figure 1.13). The support has more than tripled from 2016 to 2022, mainly driven by the change in budgetary transfers (USD 2.44 billion in 2022), of which the Stabilisation Mechanism of Fuel Prices (Mecanismo de Estabilización de Precios de los Combustibles, MEPCO) accounts for approximately 97%. The remaining support relates to tax expenditures (USD 0.12 billion in 2022), of which refunds to the fuel tax are the majority.

MEPCO aims to reduce international oil and gas price fluctuations for domestic consumers through adjustments in specific taxes on transport fuels, reducing revenue when international prices are above domestic prices and vice versa.35 It replaced all previous stabilisation mechanisms,36 except the Petroleum Price Stabilisation Fund (FEPP). Since 2011, the FEPP has applied only to domestic use of kerosene, which is widely used for heating.

In recent years, MEPCO’s limit has expanded to counteract the pandemic’s adverse economic impact, as well as the rising international price of kerosene and crude oil arising from the Russian war of aggression in Ukraine. The government doubled the amounts for MEPCO from around USD 750 million in 2020 to USD 1.5 billion in 2021. This rose to USD 3 billion in 2022 but dropped to USD 1.5 billion before 2023. Prior to 2021 and in the first half of 2023, MEPCO effectively stabilised prices without significantly subsidising fossil fuel consumption. During the initial seven months of 2023, when international oil prices were below local prices, MEPCO facilitated the collection of an additional USD 0.7 billion in taxes on fossil fuels. However, it is crucial for long term sustainability that such a mechanism remains neutral to avoid inadvertently providing support for fossil fuels.

Periods of high and volatile fossil fuel prices highlight the benefits of the clean energy transitions. However, support measures to fossil fuels weaken incentives to switch to alternative sources of energy. They also use public funds that could be spent on clean energy transitions (IEA, 2023[60]). The long-term focus should be on building resilience and investing in the clean energy transition with emergency relief phased out eventually. Social benefit schemes need to be well-targeted to the vulnerable population who are hardest hit (section 1.3.3).

Fuel excise taxes have been in place since 1986 and apply exclusively to motor vehicle fuels. They set a base component, to which a “variable component” is added or subtracted according to MEPCO. Despite recommendations in the last review, there is still a wide gap in rates between petrol (6.0 UTM/m3 37) and diesel (1.5 UTM/m3 38) for the base component. The corrective tax bill to narrow this gap is pending.

Despite recommendations in the last review, sectoral exemptions still exist through tax refunds. These exemptions apply to large-size cargo transport in trucks,39 and diesel used in off-road vehicles.40 These tax refunds effectively subsidise transport externalities. Moreover, fuels from the air, sea and rail transport sectors are fully exempt from fuel excise taxes.

Taxes on the purchase of motor vehicles exempt commercial vehicles. They are linked not only to fuel efficiency and emissions but also to vehicle price, weakening application of the polluter pays principle. Higher vehicle tax rates and broadened coverage through removal of exemptions are being discussed. Further green tax reforms should address these outstanding issues. In addition, they should raise both vehicle tax rates and annual registration fees depending on vehicle types (e.g. age, emission levels) to discourage purchase and use of highly polluting vehicles.

Taxes on renewable natural resources include those on fishery and forestry. Transferable fishing quotas are used to regulate exploitation of fish stocks. In 2014, Chile also introduced a tax on fisheries extraction rights. Chile has actively participated in efforts to eliminate subsidies to illegal, unreported and unregulated fishing and harmful subsidies to fishing that contribute to overfishing and overcapacity (OECD, 2022[61]).

Chile’s support to farmers is among the lowest of OECD countries at 2.7% of gross farm incomes in 2019-21, down from 7.3% in 2000-02 (OECD, 2022[18]). Since Chile reduced its tariff-based border protection at the beginning of the 2000s, agricultural support creates limited distortions to the markets, with almost no market price support to the sector. The Incentive System for the Agri-environmental Sustainability of Agricultural Soils Program provides supports for fertilisers, but this is limited.

Taxes on non-renewable natural resources include those for mining. A tax on mining patents has long been in place, but accounts for a negligible share of environmentally related tax revenue. A special tax on mining41 has also been in place since 2006, as a royalty on profits.

Chile enacted a bill to modify the special tax on mining in 2023. It will create a flat-rate, value-added tax of 1% for large-scale mining, and modify tax rates to 8-26% on the operating margin of large copper mining companies. The law will also create three community funds to distribute collected revenue to the general budget of regions and municipalities (Ministry of Finance, 2023[62]). This could contribute to environmental remediation if the revenue is earmarked for such purposes. For lithium, two current Special Lithium Operation Contracts are subject to the payment of commissions. In 2023, the government announced the National Lithium Strategy, which ensures the state’s participation in lithium revenue streams (section 1.3.2).

Chilean central government expenditure on environmental protection remained around 0.35-0.40% of total governmental expenditure over 2012-21 (DIPRES, 2022[63]). This is merely 0.1% of GDP, lower than the OECD average (0.6% in 2020). Chile’s Budget Office (DIPRES) makes data available for only three types of environmental expenditures: Pollution reduction, Biological and landscape diversity protection, and Others.

The last review recommended continuing systematic surveys on environmental expenditures with expanded coverage for private sector and sub-national levels. However, such progress has been limited (e.g. pilot studies, or a study that has not yet processed data). The public environmental expenditure study using Classification of Activities and Expenditures for Environmental Protection (CEPA) or any other equivalent classification has not been conducted since the 2015 survey. This makes it hard to understand environmental expenditure trends and to identify gaps. In 2015, the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) supported the study on the expenses across all the relevant ministries, but this surveying methodology was not institutionalised.

It is critical to conduct systematic surveys or establish environmental expenditure-tagging procedures as part of regular budgeting cycles, with meaningful classification by environmental domains. Other efforts can identify public investment in environmental protection, in particular for climate change. However, these approaches are not comprehensive enough to understand expenditure trends by domain. One such effort is the integrated form of public expenditure study by the MMA in collaboration with the United Nations. The other effort is the collaboration agreement by the Ministry of Finance and the United Nations. It showed that government spending on climate-related investments has increased from 0.01% to 0.11% of GDP over 2016-22, representing on average 0.33% of total governmental expenditure (DIPRES, 2023[64]).

Chile accelerated its investment on renewable energy to meet national climate goals. Installed capacity of electricity generation by solar and wind energy has been rising significantly in recent years (Figure 1.14). In LAC countries, Chile is leading the way in the integration of utility-scale renewable energy projects for mining activity, such as Antofagasta’s wind power and Compañía de Acero del Pacífico’s solar projects (OECD et al., 2022[6]). Chile can further leverage its unique potential in the generation of electricity from renewables. Solar radiation in the country’s desert north is among the highest on Earth, while the best onshore wind resources in the world are concentrated in the south (OECD, 2022[65]).

Sufficient investment in transmission and storage infrastructure is critical for a transition towards renewables. Those infrastructures are required to transport the electricity generated by renewables in north and south to the central area with high energy consumption in Chile. However, lack of transmission lines caused the significant curtailment of generated renewable energy. For instance, up to 290 gigawatt (GW) hours of solar- and wind-generated energy were not used in 2022. It also led to electricity price disparities between supply and consumption areas.

The Kimal-Lo Aguirre transmission line is to be operationalised by 2030 to avoid wasting renewable energy in the north. In 2023, the "Energy Transition: Electric Transmission as an enabling sector" bill was submitted to Congress. It aims to accelerate participation of renewables in the energy matrix through efficient development of transmission works (e.g. improve performance of tender processes) and promotion of storage. Further integration of electricity market should be promoted by expanding transmission lines. This would reduce regional price disparities in electricity, boost renewables investment and lower the overall cost of electricity (Gonzales, Ito and Reguant, 2023[66]).

The National Green Hydrogen Strategy was established in 2020 to develop a competitive hydrogen industry in Chile (Box 1.1). Chile’s extraordinary renewable energy potential with relative cost competitiveness positions it to become a major producer and exporter of green hydrogen.42 Green hydrogen and its derivatives43 are a potential solution to store and transport electricity from renewable sources. Further, they can also decarbonise hard-to-abate sectors such as heavy industry and cargo transport. Green hydrogen is expected to contribute 21% of emission reductions required for net zero by 2050. This is significantly higher than its expected contribution in the IEA’s net-zero emission scenario (4%) (IEA, 2023[67]).

Development of the hydrogen industry needs careful considerations across multiple aspects. Safety is critical for all stakeholders, notably for new, less experienced companies. EIA and permitting processes are increasingly important to ensure safe operation by those players, as well as larger operators. Land-use planning for siting production facilities need to consider appropriate safety distances from communities and biodiversity hotspots. More broadly, the government should employ the precautionary principle for using technology with considerable uncertainties related to its safety (OECD, 2023[69]).

Environmental impacts of hydrogen production, such as on water scarcity and biodiversity, are diverse across regions, requiring a territorial approach. Water is needed to produce hydrogen; further water consumption in areas with high solar energy potential such as Antofagasta in the north can exacerbate water scarcity (Chapter 2). To address this issue, desalination technology will be required to provide water for hydrogen production, and its environmental impacts (e.g. brine) will need to be managed.44 Development of facilities in open spaces, such as the southern area of the country in Magallanes, can exert pressures on local biodiversity. There are growing concerns about impacts on bird migration routes and alteration of marine-coastal edges. Strategic energy planning of regions needs to be submitted to SEA to ensure incorporation of appropriate environmental considerations. To minimise trade-offs between renewable energy development and biodiversity goals, the government needs to systematically address both climate and biodiversity objectives throughout electricity planning and policy (OECD, 2024[70]).

The Ministry of Energy invests in several initiatives for improving energy efficiency. Of its 2022 budget for energy efficiency (CLP 7.8 billion), the building sector accounts for approximately half (CLP 4.2 billion). This sector budget includes the “Better School” programme, which aims to improve energy efficiency in 100 Chilean schools through better thermal conditioning. For the appliance sector, minimum energy performance standards and energy efficiency labels promote energy efficiency for light bulbs, refrigerators, motors and air conditioners.

Investment in electrification of mobility has been expanding in Chile. Direct subsidies to encourage electrification of regional buses reached a budget of CLP 976 billion for 2022. In 2021, the public transport system in Santiago introduced electric and low-emission buses, making it one of the cities with the highest percentage of electrical fleet in the LAC region. The Mi Taxi Eléctrico programme, also launched in 2021, helps owners of taxis and buses to switch to EVs (Mi Taxi Eléctrico, 2023[71]).

Various investment initiatives promote alternatives to car use in Chile. The Ministry of Transport and Telecommunications invests approximately USD 1 million annually for bicycle lanes and for the design of specific projects to promote sustainable transportation. For the sustainable mobility infrastructure, almost USD 7 billion is invested to extend metro lines over 70 km, projected in 2022 (Metro de Santiago, 2022[72]).

High global demand and elevated prices of critical minerals in the global energy transition provide historic opportunities to Chile, which has almost half of the world’s lithium reserves. The global demand for lithium is expected to grow over fifteenfold from 2020 to 2040, mainly driven by increasing demand for EVs and storage use (IEA, 2022[73]). The National Lithium Strategy was developed in 2023 (Box 1.2). Under this strategy, the state will lead development of the lithium industry with support from the private sector.

Chile has been at the vanguard of leveraging capital markets for sustainable growth, which has broadened the investor base. The country has issued green, social, sustainability and sustainability-linked (GSSS) bonds since 2019. They constitute approximately 30% of the sovereign debt stock, with half of them linked to social initiatives. Green bonds make up around one-fourth of the GSSS bonds issuance (OECD, 2022[65]). Chile has the LAC region’s largest GSSS bond market at USD 20.9 billion in cumulative issuance in 2021,45 (OECD et al., 2022[6]). Chile issued the world’s first sovereign sustainability-linked bonds in March 2022 (USD 2 billion). The two key performance indicators are GHG emissions reduction and the scale-up of non-conventional renewable energy (NCRE) generation. For instance, a failure to meet the targets would trigger a coupon penalty for these bonds (Ministry of Finance, 2023[75]).

Various initiatives for a national taxonomy for sustainable finance are under development. Chile has created a roadmap for a national taxonomy, focusing on key economic sectors. These include the high-emitting sectors of construction, energy, transport and mining (Climate Bonds Initiative, 2021[76]).

Income inequality and poverty in Chile remain high compared to other OECD countries, but lower than in other countries in the region (Figure 1.15). Chile has made remarkable progress in improving social outcomes, with the poverty rate of around 30% in 2006 decreasing to below 14% after 2015. However, the COVID-19 pandemic reversed this trend, leading to an unemployment rate of 10.7% in 2020 (from a low of 6.1% in 2013); this gradually decreased to 8.8% in 2021. Job quality also deteriorated during this period. Self-employment, which is mostly informal, grew more strongly (on average, at 3.8% per year). Meanwhile, salaried employment grew by less than half in the same period (1.6%) (OECD, 2022[65]). Informal workers tend to have lower and more unstable incomes.

Vulnerable populations face distinct environmental burdens in Chile. For instance, a major air pollution source is home heating with wood combustion by stoves, which are widely used by low-income households (section 1.1.2). Local population in areas referred to as “overburdened zones” (Box 1.3) face disparate environmental burdens caused by industrialisation. In Patagonia, industrial salmon farming exerted pressures on local environment and Indigenous peoples (section 1.1.3).

Projects in high demand for global and domestic clean energy transitions, namely hydrogen, lithium and copper production as well as renewable energy, increase local environmental concerns such as water scarcity and pollution in affected region, if not managed properly. Chemical waste from lithium production can contaminate soil and water. Lithium mining in particular regions, such as the Salar de Atacama, may also deepen historical inequalities and negatively impact Indigenous Andean territories (Jerez, Garcés and Torres, 2021[79]). Lack of transparency and access to key information for local citizens can contribute to procedural injustice, while new job opportunities are not well distributed among the population in the region.

Chile has a bold commitment to the Just Socio-Ecological Transition, but putting it into practice will require strategic and targeted policies to address inequality and social impacts. Phasing out coal-fired power plants has raised some concerns about impact on employment. While coal phase-out is expected to add around 25 000 jobs by 2030 across the country (Feng et al., 2023[80]), unemployment in affected communities needs to be addressed. Support for reskilling, such as providing occupational training, can be helpful. The consequences of a carbon tax are heterogeneous across households with different incomes and consumption patterns. Without further measures, the increased carbon tax will disproportionately affect low-income households, given that they spend a larger share of their budget on energy. This potential impact could be mitigated through well-targeted transfers. Introduction of redistribution mechanisms can also help so that revenues generated from carbon tax are used to provide such transfers.

Chile’s social assistance programmes are considered fragmented with low coverage and benefit levels (OECD, 2022[65]). With its focus on poverty, Chile has performed better than other LAC countries on social programmes. More than 95% of social assistance spending to reduce poverty and vulnerability is channelled through cash transfer programmes. The number of families receiving income support has increased in the last two decades. However, the main cash transfer programmes have not reached all those in need. Coverage reached 30.7% in 2017 for the main social assistance programmes, but only 51% of households in poverty were receiving at least one type of income support (OECD, 2022[65]). Moreover, some high-income households were receiving cash transfers to the detriment of public spending efficiency. Well-targeted polices for social assistance require investments in better data collection.

In addition, screening and mapping tools can be a powerful means to identify communities with environmental justice concerns and inform targeted actions. Chile should strengthen the evidence base to better understand the types of communities facing disparate pollution burdens and use this to spur efforts on environmental justice. For instance, the United States has developed an EJ screening and mapping tool called “EJ Screen”. This tool provides a nationally consistent dataset and approach for combining environmental and demographic indicators to consider EJ issues. These tools can facilitate assessment of cumulative exposures and impacts, serving as an important starting point for more context-specific, local-level policy decisions (OECD, 2023[81]).


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← 1. Six hazards are considered: heat stress, cold stress, wildfire, wind threats, and river and coastal flooding.

← 2.  Twelve sectors are included in the FLCC: Forestry and Agriculture; Biodiversity; Fisheries and Aquaculture; Health; Infrastructure Services; Cities; Energy; Tourism; Coastal areas; Water resources (under development); Mining; and Transport.

← 3. Regionalised data with resolution of 5 km.

← 4. The target of reducing GHG emissions by 20% by 2020 compared to business as usual (BAU) emissions projected since 2007.

← 5. Ministries of Environment; Interior and Public Security; External Relations; Defence; Hacienda; Economy; Education; Public Works; Health; Housing and Urbanism; Agriculture; Mining; Transport and Telecommunications; Energy; and Science, Technology, Knowledge and Innovation.

← 6. The maximum period of preparation for the regional action plan is three years from the date of enactment of the FLCC.

← 7. Targets are not to exceed 1 100 million tonnes of carbon dioxide equivalent (tCO2e) between 2020 and 2030, and to reach a GHG emissions level of 95 million tCO2e excluding the land use, land-use change and forestry sector by 2030.

← 8. In 2019, 28 coal-fired plants were in operation, with a total capacity of 5 529 megawatts. As of November 2023, eight plants closed with a total capacity of 1 189 megawatts.

← 9. The Chilean government uses the term non-conventional renewable energy sources for solar, wind, geothermal, biomass, tidal power and hydropower below 40 megawatts.

← 10. This is referred to as “low-emission energy” in the target stated by the Chilean authority.

← 11. Importers or representatives of each light-duty vehicle brand marketed in Chile must meet these standards under Energy Efficiency Law. The standards are planned to start for medium-duty vehicles in 2026 and for heavy-duty vehicles in 2028.

← 12. This includes solar systems (thermal, heat pumps), non-traditional biomass boilers (pellets, chips, waste), hydrogen combustions, electricity in the proportion of renewable generation, among others.

← 13. Excluding conventional renewable energy such as large-scale hydroelectric energy.

← 14. i) operate zero-emission fleets at large mining companies by 2030; ii) reduce CO2 equivalent emissions from large-scale mining operations by at least 50% by 2030, achieving net zero by 2040; iii) ensure that the mining sector is powered at 90% by renewable energy sources by 2030 and 100% by 2050.

← 15. ECLP also has the target for landscape restoration: 1 million ha by 2030, and 2.5 million ha by 2050.

← 16. Critical episodes are declared based on data provided by a statistical daily air quality forecast model, with the aim of indicating a high risk of exposure to atmospheric pollutants. These episodes are classified as alert, pre-emergency, and emergency. Daily PM2.5 concentration values are established in three ranges: 80-109 μg/m³, 110-169 μg/m³, and 170 μg/m³ or higher, respectively. Only in areas where there are prevention and/or environmental decontamination plans can the existence of a critical episode be confirmed.

← 17. Primary air quality standards are environmental quality standards that aim to protect human health within, given a concentration level that represents an acceptable risk.

← 18. A latent zone is one in which the measurement of the concentration of pollutants in the air, water, or soil is between 80% and 100% of the value of the respective environmental quality standard. A saturated zone is one in which one or more environmental quality standards are exceeded.

← 19. The estimates represent a minimum floor of foregone benefits, so in no case can these results be used as an absolute economic value. Economic impacts are estimated for seven invasive alien species in Chile: beaver (Castor canadensis), rabbit (Oryctolagus cuniculus), wild boar (Sus scrofa), American mink (Neovison vison), yellow jacket (Vespula germanica), blackberry (Rubus spp.), and ulex (Ulex europaeus). The direct and indirect impacts considered are on livestock and agricultural production, forest plantations, components of biodiversity, wood and viti/viniculture production, loss of forest biomass, repair of road infrastructure, potential cost in fire control, decrease in carbon sequestration and resources allocated for species control and research.

← 20. At the national level, MMA uses SIMBIO, https://simbio.mma.gob.cl/AreaProtegida/IndexDesignaciones/1161, as a source of georeferencing for marine protected areas. The official figure from the General Directorate of the Maritime Territory (DIRECTEMAR -SHOA) for EEZ is 3,402,990 km2. Data differ slightly from data reported in the OECD Environment Statistics database, which shows 41.1% of exclusive economic zone and 20.5% of terrestrial area covered by protected areas in 2022.

← 21. Real Rights for Conservation are agreements between landowners and conservation organisations. The landowner retains the ownership but agrees to certain restriction on usages. These restrictions can help protect wildlife, water quality, or other natural resources, while allowing a sustainable use of the land.

← 22. Clean Point: These are fixed facilities located in public places, designed to receive waste selectively from the public, for storage, possible pre-treatment and shipment to collection centres or disposal facilities. Green Point: These are one or more mobile containers located in places of use or public access designed to receive specific waste from the public, for storage and shipment to recovery or disposal facilities.

← 23. The mining communes fund; the regional fund for productivity and development; and the support fund for territorial equity.

← 24. RE 309/2023 begins preparation of the preliminary draft of the Environmental Quality Primary Standard for soils.

← 25. For example, Germany and Austria have some standards closely linked to best available techniques.

← 26. The initiative comprises six pillars, which include: improve reporting times; simplify the sanctioning process; provide greater mechanisms to encourage compliance; and increase maximum penalties.

← 27. The number of non-compliance incidents in the salmon industry decreased from 38 in 2020 to 8 in 2023.

← 28. However, RCAs proscribe environmental impact mitigation measures, including those related to sector-specific issues.

← 29. i) discharge polluting substances into marine or inland water; ii) extract continental waters, whether surface or subway, or maritime waters; iii) dump or deposit polluting substances in the soil or subsoil, continental or maritime; iv) dump soil or other solids into wetlands; v) extract components from the soil or subsoil; vi) release polluting substances into the air.

← 30. The regions with the most SPPCs are Atacama (1 195), Magallanes (1 096), Coquimbo (1 024), Metropolitana (992) and Antofagasta (953).

← 31. Facilities that operate based on non-conventional renewable generation whose primary source is biomass are exempt from the carbon tax, although the tax for local pollutants applies.

← 32. Large emitters are those whose emissions are 100 or more tonnes per year of particulate matter, or 25 000 or more tonnes of CO2 per year. If either of these two thresholds is equalled or exceeded, the regulated source must pay for the total emissions of the pollutants concerned. The set of affected establishments include electricity generation, fishing, pulp/paper, agriculture, wood and mining sector in 2022.

← 33. This is the case if the variable cost (including carbon tax portion) of fossil fuels-based power generators is larger than the market spot price of electricity. The compensation by renewables-based power generators is proportional to their electricity withdrawals.

← 34. It begins to apply to 2023 emissions that will be reported in 2024.

← 35. Petrol, diesel, liquefied and compressed natural gas.

← 36. The Fuel Price Stabilisation Fund (FEPCO), applied in 2005-10, and the Consumers’ Protection System (SIPCO), applied in 2011-14.

← 37. Equivalent to USD 208.0/tCO2e.

← 38. Equivalent to USD 44.1/tCO2e.

← 39. With a gross vehicle weight equal to or greater than 3 860 kg.

← 40. This includes exporters and construction companies for the IEC diesel when it has not been earmarked for motor vehicles that travel on streets, roads and public roads in general.

← 41. The specific tax on mining falls outside the OECD’s definition of environmentally related taxes as it is more a tax on profits than on extracted minerals.

← 42. Hydrogen produced by the electrolysis of water, using renewable electricity.

← 43. They include ammonia, methanol and electrofuels.

← 44. As of November 2023, Congress was reviewing a bill that requires usage of desalination technology for hydrogen production and regulates its environmental impacts.

← 45. As of July 2023, the cumulative issuance reached approximately USD 43.2 billion in Chile.

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