GHG Market Mechanisms The perspective of a Cap & Trade in Chile

EPRI IETA IEA 11th Annual Workshop on GHG Emission Trading

Ignacio Fernandez Ministry of Energy Chile
October 3rd, 2011

forestry) • Services (finance.Chile: Country profile • 17.1 million • 8% unemployment • Serious income distribution problems Population GDP • US$ 203. tourism) Source: World Bank (2010) .4 billion • Annual growth rate: 6% • Inflation: 3% Primary economic activities • Mining (copper) • Agriculture (wines.

248 GWh Hydro 325 GWh Wind Source: CDEC SIC .681 GWh Thermal 21.043 GWh Thermal Generation SIC (Central) Large population centers 12 GW Installed capacity 22.Background: Electricity profile (2010) Two main electric grids SING (Great north) Mining 35% electric demand 3.7 GW Installed capacity 15.

2010) Source: National Energy Commision: Electricity Statistics .Background: Electricity supply mix (1970 .

Background: Electricity sector profile (2010) Supply mix: 15.600 MW Electricity production: 58.300 GWh Source: National Energy Commision .

Background: Projected electricity supply mix (2011-2021) Source: National Energy Commision: Electricity Statistics Note: reserves margin: 104% at 2011 60% at 2020 .

Background: Emissions at year 2020 (GDP annual growth 6%) 140 120 Million Ton CO2 100 80 60 40 20 0 2007 Residencial 2010 Services 2013 2015 Transport 2018 2020 Generation Industry and Mining Source: National Energy Commision .

Background: Cost of energy (US$ per kWh) Energy in Chile is expensive Source: Ministery of Energy based on the study «Analysis of the spending structure in Energy at the International level» entrusted by the National Energy Commision to the Foundation for Technology & Management and Environmental Economics (University of Chile) .

which is an extraordinary challenge. we want our energy to be secure.” GDP per capita (PPP) Current Thousand US $ 25 20 15 10 5 0 1990 1980 1985 1995 2000 2005 2010 2015 Sebastian Piñera President of the Republic Gross domestic product based on purchasing-powerparity (PPP) per capita GDP ... In addition. clean and cheap. This implies doubling our electricity generation capacity during this decade.A challenge for the energy sector “Our goal is to be the first country in Latin America to defeat poverty and to make under development a something of the past.

but… • It is a member of the OECD • GDP per capita 2008: US$14.An outcome of this challenge Chile is a developing nation.495 with a goal of 6% annual growth rate Source: OECD .

100 20.100 15.100 10.Carbon intensity of the chilean economy What kind of economy do we want to be? Non Annex I Countries World 700 600 Carbon Intensity (Tons CO2e/Mill US$Intl 2005) 500 low $ & dirty high $ & dirty Annex I Countries 400 Argentina 300 Chile South America Colombia Peru low $ & clean high $ & clean 200 100 100 5.100 25.100 Income per Capita (US$Intl 2005 per capita) Source: Own elaboration with data from the World Resources Institute .100 30.

Energy policy profile: History 1981 • Privatization of energy sector 2007 • Appointment of Minister of Energy 2009 • As a member of APEC. Carbon Footprint • Chile joins: .World Bank’s PMR . Chile submitted itself to an energy policy review • COP 15  Chile pledges to 20/20 • Creation of Ministry of Energy • Research on CC policy instruments: ETS. of Cape Town’s MAPS initiatives 2010 2011 .U.CCAP’s MAIN . NAMAs. Chile submitted itself to an EE review • As a member of OECD.

Public policy opportunities GHG emissions trend requires an effective public policy in order to limit growth Economic actors need to have a carbon price signal Investment decisions should incorporate this signal by implementing low emissions technologies Foresight is key for keeping economic competivity An ETS should be a better fit than a tax carbon in Chile’s economic and public policy structure .

Estimation of the legal. regulatory and legislative areas .Registry and MRV design.Complementary instruments (RE and EE) Coordinate and communicate with stakeholders! . procedures and legal attributions .Setting up of regulated and non-regulated markets .Drafting of baseline studies (MRP) .ETS Research in Chile World Bank’s Partnership for Market Readiness (PMR) Preliminary study: “Market Mechanism Options and Analysis for the Reduction of Greenhouse Gas Emissions: Feasibility of Implementing an Emissions Trading System in Chile” with IEA’s technical assistance Preproject .

Tentative design of a market instrument Regulated Sectors: • Industry • Mining • Power Non regulated • Transport • Agriculture • LULUCF Enabling activities • Capacity building • Energy audits • Carbon footprint ETS Cap & Trade Instruments: NAMAs NAMAs Common MRV Implementation Monitoring | Reporting of reductions Verification (enforcement) | MRV of Financing Linkage opportunities to other markets via offsets Offsets .

Criteria design for an ETS in Chile Cap 20/20 commitment Ascending cap? Regulated sector criteria Price level Reduction trajectory Investment signals Assignment of permits GHG Inventory by phases Abatement cost curve By phases Bidding or Grandfathering .

PMR: Non regulated market questions Potential linkeage to other markets EU ETS APEC region What type Assigned Amount Unit (AAU)? EUAs CERs Bilateral VERs ERUs .

PMR: Complementary instruments Potential implementation of RE programs UK’s Renewable Obligation Certificates (ROCs( Potential implementation of EE programs EE requirements for energy intensive clients Objective: Decrease volatility of carbon price .

Thanks .