Highlights-OECD Environmental Performance Reviews: Chile 2024

Chile 2024

HIGHLIGHTS

THE OECD

The Organisation for Economic Co-operation and Development (OECD) provides its 38 member countries with a forum to work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to help governments respond to new developments and concerns. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies.

WHAT ARE EPRs?

The OECD Environmental Performance Reviews (EPRs) provide evidence-based analysis and assessment of countries’ progress towards their environmental policy objectives. They promote peer learning, enhance government accountability, and provide targeted recommendations to help countries improve their environmental performance. They are supported by a broad range of economic and environmental data. Throughout the last 30 years, the OECD has conducted over 100 EPRs of OECD members and selected non-member countries.

All reports, and more information, are available on the EPR website: http://oe.cd/epr.

THE THIRD EPR OF CHILE

This is the third EPR of Chile. The previous reviews took place in 2016 and in 2005. The EPR reviews the country’s environmental performance since the last review. The process involved a constructive and mutually beneficial policy dialogue between Chile and the countries participating in the OECD Working Party on Environmental Performance (WPEP). The OECD is grateful to the two examining countries: Israel and Spain.

The EPR provides 36 recommendations, approved by the WPEP on 23 January 2024. It aims to help Chile improve environmental performance, with a special focus on water management and policies.

KEY ENVIRONMENTAL INDICATORS 2022 (or latest available year)

GHG intensity – GHG emissions per capita

5.4 t CO2 eq. per capita (OECD average is 10.9)

Energy intensity – Total energy supply per capita 1.9 toe per capita (OECD average is 3.8)

Renewables (% of total energy supply)

27% (OECD average is 12)

Mean population exposure to PM2.5 23.7 μg/m3 (OECD average is 13.9)

Municipal waste per capita

461 kg per capita (OECD average is 534)

Material recovery of municipal waste (% of composting and recycling in total treatment)

0.7% (OECD average is 38.3)

Sanitation services (% of population using safely managed sanitation services)

79% (OECD average is 84)

Drinking water supply (% of population connected to safely managed drinking water services)

99% (OECD average is 95)

Environmental protection expenditure (% of GDP)

0.15% (OECD average is 0.75)

Environmental taxes (% of GDP)

1.0% (OECD average is 1.4)

Share of CO2 emissions priced above EUR 60/tCO2 (including emissions from biomass)

9.0% (2021, OECD average 28.9)

http://oe.cd/epr

Overview

Chile is a medium-sized country with an open, export-oriented economy. Natural resources have been a pillar of the economy, such as extraction and processing of minerals, forestry and fisheries. Except for the period of the COVID-19 pandemic, the country showed continuous economic growth over the last decade.

Chile has made important strides in its environmental agenda in recent years with the passage of the Framework Law on Climate Change, the establishment of the Biodiversity and Protected Areas Service and the ratification of the Escazú Agreement. However, the country has made limited progress in decoupling environmental pressures from economic growth. Greenhouse gas (GHG) emissions have continued to rise and the country is not on track to reach its legally binding target of net zero by 2050.

Chile is well-positioned to achieve its targets for biodiversity, while air pollution remains a serious public health challenge and waste management relies heavily on landfilling. The country is facing a severe and deepening water crisis that requires concerted action to improve water allocation and water quality, and to strengthen water governance.

CHILE 2022

(or latest available year)

Population: 19.8 million

GDP per capita: USD 29 866 (current purchasing power parities) (OECD average is 54 052)

Total land area: 743 532 km2

Population density: 26 inhabitants/km2 (OECD average is 37)

Currency: Chilean Peso (CLP), USD 1 = CLP 873

* Note: rounded figures.

Key recommendations

CLIMATE CHANGE AND AIR POLLUTION

• Pursue comprehensive and timely implementation of the Framework Law on Climate Change with a whole-of-government approach; clarify sectoral and regional plans with a coherent policy mix.

• Swiftly complete the closure of coal-fired plants with a clear timeline, mindful of the just transition; accelerate integration of renewable sources into the electric grid; establish a gradual timeline towards higher levels and wider scope of the carbon tax.

• Set more stringent climate targets for the transportation and building sectors; expand investment in sustainable public transportation; improve building thermal performance and broaden access to affordable and sustainable energy-efficiency upgrades.

• Enhance co-ordination on climate change adaptation plans, informed by climate risk assessments; develop financing strategies and strengthen capacities of sub-national governments.

BIODIVERSITY, WASTE AND CIRCULAR ECONOMY

• Allocate sufficient resources to ensure the implementation of the Law for Nature, while phasing out harmful incentives that undermine biodiversity conservation.

• Improve biodiversity data management and establish baselines of natural capital to incorporate biodiversity into national accounts; prioritise biodiversity-positive nature-based solutions.

• Promptly implement the bill for the valorisation of organic waste; accelerate the implementation of new extended producer responsibility schemes; strengthen the use of landfill taxes.

ENVIRONMENTAL GOVERNANCE AND MANAGEMENT

• Ensure authorities deploy sufficient resources to successfully implement environmental commitments and overcome capacity challenges for implementation.

• Strengthen the technical quality of environmental impact assessment (EIA); guarantee meaningful public participation, notably by Indigenous communities.

• Reinforce the Environmental Superintendence’s (SMA’s) institutional capacity with sufficient resources; strengthen compliance monitoring and enforcement activities through technology.

POLICY COHERENCE FOR GREEN GROWTH

• Pursue the green tax reform: phase out fuel tax refund for cargo transport and diesel used by off-road vehicles; tighten emissions and energy efficiency standards for all vehicles.

• Identify public environmental expenditure trends with meaningful classification by environmental domains.

• Ensure safety, social and environmental considerations in green hydrogen production; ensure appropriate regulatory framework, permitting and land-use planning; protect water resources and ecosystems, notably the salt flats, in the context of lithium production.

WATER MANAGEMENT AND PLANNING

• Establish a central governmental authority to regulate, plan, develop, conserve and protect water resources; strengthen co-ordination of water management at all levels.

• Prioritise the approval of the bill for the formalisation of basin-scale governance to establish river basin authorities with clear planning and management functions, drawing on lessons from pilots.

• Implement Strategic Water Resources Management Plans, in close collaboration with relevant basin-level authorities and stakeholders.

• Strengthen monitoring and enforcement of water abstractions and water quality; establish a centralised information system for water quality and quantity management.

WATER SUPPLY AND SANITATION (WSS)

• Reduce non-revenue water and enhance resilience to climate change impacts in urban WSS.

• Advance tertiary wastewater treatment (including nutrient removal), with stricter regulations for discharges into water bodies at risk of eutrophication.

• Accelerate implementation of the Law on Rural Sanitary Services to build technical and financial capacity of rural WSS delivery; improve efficiency of investments to expand access to rural WSS.

WATER POLICIES AND ALLOCATION

• Pursue a comprehensive reform of water allocation to address over-use and over-allocation of resources; consider defining water rights as a share of available resources.

• Accelerate the development of secondary standards for water quality; adopt more stringent wastewater discharge standards, broaden their coverage to key sectors, such as agriculture, including aquaculture.

• Formalise a clear legal and regulatory framework on the collection, reuse, disposal and monitoring of grey water; strengthen regulations on desalination.

• Pursue nature-based solutions, including to manage climate-related risks such as floods, droughts and wildfires.

ECONOMIC INSTRUMENTS AND FINANCING FOR WATER MANAGEMENT

• Introduce economic instruments for water management (e.g. abstraction charges, taxes on water effluents, pesticides and fertilisers) to better apply the polluter pays principle and the beneficiary pays principle.

• Examine a broader suite of approaches to scale up financing for water-related investments, including PPPs, use of proceeds bonds and payment for ecosystem services.

Towards sustainable development

ENVIRONMENTAL PERFORMANCE: KEY TRENDS

Decoupling of environmental pressures from economic growth has been limited in Chile since 2010. GHG emissions, total energy supply and domestic material consumption have risen at the same pace as the economy. Nitrogen oxide emissions declined until 2018, but then increased. Emissions of sulphur oxides and fine particulates (PM2.5) declined significantly since 2010, a positive development.

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

Chile made a major step-change in climate policy through a joint effort across ministries. The Framework

Law on Climate Change (FLCC) promulgated in 2022 establishes a binding national goal to reach net zero by 2050. However, Chile is not on track to achieve national targets for GHG emissions. Its emissions rose significantly in 2010-19 and are not projected to peak before 2025 (Figure 1). Challenges remain to ensure the implementation of the FLCC. The government needs to swiftly clarify sectoral and regional plans to meet targets.

Ambitious actions to reduce GHG emissions are required, including pursuing the plan to close all coal-fired plants by 2040 and boosting renewable energy generation, while addressing the lack of transmission lines. The transport and building sectors should have more stringent climate targets to spur further investments in sustainable public transportation as well as electrification of vehicles and building heating systems. Promoting energy-efficient buildings and enhancing electricity accessibility can also contribute to reducing air pollution.

GHG, Accelerated transition scenario

GHG,

BAU-20% 2020 target: 57.9 Mt CO2e

NDC 2030 target: 95 Mt CO2e

Net zero 2050

from LULUCF. The transition scenarios reflect sectoral budgets needed to meet targets.

Sources: SNI Chile (2022), Inventario Nacional de Gases a Efecto Invernadero Chile 1990-2020 [Inventario Nacional de Gases a Efecto Invernadero Chile 1990-2020]; Gobierno de Chile (2022), 5to Informe Bienal de Actualización ante la Convención Marco de las Naciones Unidas sobre Cambio Climático [5th Biennial Update Report to the United Nations Framework Convention on Climate Change].

Figure 1. Chile aims to reach net zero by 2050, but GHG emissions have continued to rise Historical GHG emissions, targets, projections, and indicative pathways to targets, 1990-2050

Nearly one-quarter of Chile's land and more than 40% of its ocean are protected.

Air pollution is a major public health challenge. Chile made progress in reducing major air pollutant emissions, but PM2.5 concentrations remain among the highest in the OECD and far exceed World Health Organisation guidelines, posing significant health risks to 98.6% of the population. Improved monitoring of air quality has enabled the creation of effective decontamination plans. However, the country needs to transition to a more proactive approach, prioritising preventive, and abatement-driven policies.

Waste management issues must be swiftly addressed to embrace a circular economy. Chile made progress by reducing landfilling, implementing several extended producer responsibility schemes and enacting the Single-use Plastics Law. Still, the waste management system remains inefficient. Significant challenges persist in diverting organic waste from landfills and

Municipal

Source

Nearly one-third of Chile's territory is exposed to at least two climate-related hazards: heat stress and ooding.

improving recycling, which stands at a mere 1% (Figure 2). Long-term investment in waste management infrastructure and decisive actions to discourage landfilling are key. Approving the bill for organic waste valorisation would be a positive step forward.

The Law for Nature and the Biodiversity and Protected Areas Service represent major breakthroughs. The country is on track to meet it 30x30 targets, but pressures from invasive species, land-use change, climate change and unsustainable fishing practices persist. By strengthening natural capital valuation and establishing biodiversity baselines, Chile can effectively scale up Payment for Ecosystem Services schemes. Achieving biodiversity goals requires prioritising investment in research and data collection, securing adequate funding, and establishing a dedicated workforce.

Figure 2. More than 90% of municipal waste in Chile ends up in landfills

waste treatment and generation, selected OECD countries, 2020 or 2021

Note: Other recovery includes refuse-derived fuel, waste used for backfilling, process loss from mechanical biological treatment facilities, incinerator bottom ash sent for recycling, metals from incineration sent for recycling. Other disposal includes waste treated/disposed of through other unspecified treatment processes, as well as process and moisture loss.

: OECD (2023), “Municipal waste, generation and treatment”, OECD Environment Statistics (database).

Environmental governance and management

Chile has strengthened environmental institutions and governance since 2016. Major developments include the ratification of the Escazú Agreement, enactment of the FLCC and the creation of the Biodiversity and Protected Areas Service. Under the Escazú Agreement, Chile is working to promote access to information, public participation and justice in environmental matters, including through the Just Socio-Ecological Transition Office established in 2022. At the same time, the government faces acute capacity challenges in terms of human and financial resources to reach environmental objectives. Further decentralisation is needed to empower local environmental services, which have limited autonomy.

There is significant room to improve Environmental Impact Assessment (EIA). Institutional safeguards against political influence are insufficient; this undermines environmental protection and also generates uncertainty that can discourage future investment. Additional challenges relate to the

asymmetry of information between project owners and citizens, ensuring citizen participation at the early stages of the process and integrating climate change into environmental assessments. Reinforcing the technical quality of EIAs is increasingly important in the context of major new projects, such as green hydrogen and lithium production.

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

Policy coherence for green growth

The green tax reform advanced progress in using economic instruments for environmental objectives, including the establishment of the carbon tax (USD 5 per tonne of CO2) and the carbon offsetting system. While the country ranks among the highest countries in Latin America and the Caribbean (LAC) for average effective carbon rates, it is placed well below other OECD countries (Figure 3). An increase in the carbon tax rate

would better reflect the social costs of pollution. There are further opportunities to consider environmentally related taxes and charges, such as a landfill levy. Transportation-related taxes need to be rationalised by eliminating exemptions (e.g., cargo transport). Revenue generated from mining royalties could be secured for environmental purposes, in particular to address legacy pollution such as abandoned mines.

Costa Rica

Jamaica

Mexico

Chile

Dominican Republic

Uruguay

Panama

Guatemala

Peru

Paraguay

Argentina

Colombia

Brazil

Chile has been at the vanguard of leveraging capital markets for sustainable growth. 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. The government issued the world’s first sovereign sustainability-linked bond in March 2022, totalling a USD 2 billion issuance.

Disparities in environmental burdens are a historical and growing concern. Local populations in areas referred to as “overburdened zones” face various environmental problems caused by industrialisation. Soil contamination is dominant in mining regions. In the future, projects that are in high demand for the clean energy transition, such as green hydrogen and lithium production, may increase local environmental concerns in affected regions if they are not well managed. While the government’s commitment to the Just Socio-Ecological Transition is impressive, it can enrich the evidence base to further spur its efforts on environmental justice through dedicated datasets and mapping tools.

cumulative

Intensifying production of green hydrogen and lithium

The National Green Hydrogen Strategy established in 2020 aims to develop a competitive hydrogen industry. The country aims to become a major producer of green hydrogen, leveraging its extraordinary renewable energy potential with relative cost competitiveness. Green hydrogen is not only a potential solution to store and transport electricity, it can also decarbonise hard-to-abate sectors such as heavy industry and cargo transport. High global demand and elevated prices of critical minerals provide historic opportunities to Chile, which has almost half of the world’s lithium reserves. Developed in 2023, the National Lithium Strategy aims to create a network of protected Andean salt flats and address the environmental impacts of its production. A new regulatory framework for lithium production is under development with a focus on minimising local freshwater consumption.

Figure 3. Carbon pricing is relatively high in Chile compared to other LAC countries but lower than in other OECD countries Net effective carbon rates in selected LAC countries and OECD average, 2021

Note: ETS = emissions trading system. Fossil fuel subsidy refers to budgetary transfers that decrease pre-tax prices for domestic fossil fuel use. ETS coverage estimates are based on the OECD’s (2021), Effective Carbon Rates 2021, with adjustments to account for recent coverage changes.

Source: OECD (2022), Pricing Greenhouse Gas Emissions: Turning Climate Targets into Climate Action, OECD Series on Carbon Pricing and Energy Taxation, OECD Publishing, Paris.

average Fuel excise tax

tCO2e

Carbon tax Fuel excise tax ETS permit Fossil fuel subsidy

Chile has the LAC region’s largest GSSS bond market at USD 43.2 billion in

issuance as of July 2023.

Water management and policies

WATER RESOURCES STATUS AND TRENDS

Chile faces a severe and deepening water crisis resulting in increasing social conflicts. Pressure on freshwater resources has intensified over time. The country has grappled with a “megadrought” for the past 14 years. Water pollution is a major concern, with urban and industrial wastewater, fish farming, agriculture and mining the main sources of water pollution.

Emergency measures are inadequate to manage water resources sustainably. Expanding new sources of supply, such as desalination and wastewater reuse, has considerable potential. However, Chile should also introduce demand management measures, improve water use efficiency, and ensure a robust and flexible water allocation system, including to address the impacts of climate change.

WATER POLICIES AND GOVERNANCE

Chile must continue to reform water allocation. The 2022 reform to the Water Code was a positive step forward by enshrining the priority of water supply for human use and introducing time-bound concessions for new water rights. However, issues related to existing water rights, defined as private property, allocated free of charge and granted in perpetuity, and over-allocation are unresolved.

The number of decrees designating scarcity zones has risen from 8 to 35 between 2016 and 2022, impacting half of Chile’s 56 provinces.

granted and over-allocation are unresolved.

water

Environmental flows are not secured. More comprehensive reforms of water allocation should be pursued to provide more flexibility to adjust the amount of water abstracted in line with sustainable supply.

Water quality standards are incomplete and wastewater discharge standards should be more stringent. Environmental water quality standards cover only a fraction of Chile’s water bodies. Their development

Figure 4. Chile’s rising number of scarcity zones reflects extraordinary drought conditions Number of decrees declaring scarcity zones and number of provinces affected

WATER POLICIES AND GOVERNANCE

should be accelerated with a focus on priority basins. The coverage of wastewater discharge standards remains patchy and outdated. There are no specific standards and regulations for agricultural wastewater sources, including aquaculture. Requiring nutrient removal in wastewater treatment would reduce excessive nutrient discharge into receiving water bodies, and thus eutrophication.

Establishing river basin pilots is a positive step to strengthen water governance. The Chilean institutional landscape for water management is one of the fragmented in the OECD. The establishment of pilot organisations for river basin governance in 16 basins seeks to redress this fragmentation by anchoring activities at the basin scale. Chile is also making important progress on river basin planning. Strengthening co-ordination on water management and the establishment of a central governmental authority on water would help align of all agents intervening in water management, as well as stakeholders.

Chile’s population enjoys high levels of access to drinking water and sanitation. The share of the population with access to WSS services is the highest in the LAC region. As in many countries, there are notable urban-rural disparities in WSS services. The limited coverage of sewerage and wastewater treatment in rural areas is a major issue. In northern and central Chile, domestic water supply often competes with other uses, causing resort to high-cost and inefficient emergency solutions.

Chile could better leverage economic instruments to reflect the value of water. The use of economic instruments for water management is limited. There are no abstraction charges for use of water resources. Wastewater effluents, pesticides and fertilisers are not taxed or charged. The country could also explore a broader suite of approaches to scale up financing for water-related investments, such as use of proceeds bonds and payments for ecosystems services.

Figure 5. Chile has achieved nearly universal access to drinking water and relatively high levels of access to sanitation Progress towards SDG 6 “Clean water and sanitation”, selected LAC countries and OECD average, 2010-20

Note: Indicator 6.1.1 refers to the population supplied with intra-domiciliary water from an aqueduct; Indicator 6.2.1a refers to the population that lives in dwellings with a sanitary service connection to sewage or septic tank. OECD LAC averages includes OECD members (i.e. Chile, Colombia, Costa Rica and Mexico) and candidates for accension (i.e. Brazil and Peru).

Sources: WHO/UNICEF (2021), Joint Monitoring Programme for Water Supply, Sanitation and Hygiene.

OECD Environmental Performance Review of Chile 2024

MORE INFORMATION

OECD Environmental Performance Reviews: Chile 2024

The report and all data are available on http://oe.cd/epr-chile-2024

Environmental Performance Review programme http://oe.cd/epr

Find internationally comparable indicators and country profiles on OECD Environment at a Glance: http://oe.cd/env-glance

CONTACTS

Head of Division

Nathalie Girouard

Nathalie.Girouard@oecd.org

Report Co-ordinator

Kathleen Dominique

Kathleen.Dominique@oecd.org

Communications

Natasha Cline-Thomas

Natasha.Cline-Thomas@oecd.org

IMAGE CREDITS

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