Policy Brief | Comments on the Report of Legal Reforms for Achieving Carbon Neutrality by 2050

742
Setting a National Target for CO2 and Short-lived Pollutants by Declaring a Saturated Zone

By Marcelo Mena, Former Minister of the Environment and Director of the Climate Action Center at Pontificia Universidad Católica de Valparaíso.

Addressing the problem of saturated areas is extremely interesting. However to do so, it is essential to integrate climate policy with atmospheric policy since they are synergetic issues and, moreover, because they bear many co-benefits, especially when one seeks to implement things that are difficult to justify in front of a Council of Ministers where you have to present economic arguments.

In spite of the above, in our country both policies are seen as separate policies. This should be remedied, and not only because of a regulatory issue, but also because there are short-lived pollutants (an atmospheric issue) that absorb infrared radiation and trap heat emanating from the earth’s surface, causing a rise in temperature (a climate issue).

When reviewing the phenomenon from an integrative perspective, we see that there are changes in social history. For example firewood, which once seemed a good alternative and was carbon neutral, ceases to be so when we learn that it emits black carbon, a short-lived pollutant; diesel, which we thought for many years was more efficient, is also a source of black carbon. Both technologies lose their climate benefits and therefore change the way we encourage their use. Unfortunately, we have lost many years timewise as we thought they were clean sources and that our country was a pioneer in these technologies. Today, our current Nationally Determined Contribution (NDC) regulates black carbon, but does not have a specific goal, although it is expected that one will be added in this new consultation process.

Turning once again to the matter of saturated areas, there are two remarks I would make. First, the regulatory framework for decontamination plans is weak. Strictly speaking, a saturated zone is forced out of its condition of saturation but not necessarily out of the condition of latency, and a latent zone does not necessarily prevent the zone from becoming saturated again either. An example of this is the Huasco area. Regarding its decontamination plan, it was very difficult to justify taking hard measures considering that there was a discrepancy in how hard they should be. This is why, if we are referring to CO2 issues, it becomes even more complex. Second, incorporating saturated zones within CO2 issues is interesting because when a saturated zone is decreed, for example, nationwide, it means that the Environmental Impact Assessment Service (SEIA) comes into action. Therefore, each project that is entered into the system would have to analyze whether it adds or subtracts in terms of saturation. In this respect, establishing what the values of saturation are is fundamental, however our current regulatory framework – with an Environmental Court, the Constitutional Court, and the Comptroller General’s Office of the Republic – renders a decontamination plan or a saturated area legally vulnerable. It is fundamental that the Superintendency of the Environment acquire a much more powerful role in all decontamination plans, as this role has fallen more with the SEIA and on the Environmental Qualification Resolutions.

From an economic perspective, we have had a mix of command and control instruments, such as green taxes and reforms, along with a decline in the prices of renewable energy. Although there is room for improvement, the green tax increases the operating costs of thermoelectric plants and the regulation that regulates them has also made their investment more expensive, leaving them out of the market. These economic aspects mean that today we are encountering a situation where we can accelerate the closure of thermoelectric plants, which has not been done. Had any closures been carried out, we could have advanced the benefits in having more non-conventional renewable energies (NCREs) and we would have had a more accelerated transformation with more investment. Current market reasons do not necessarily allow this transformation to take place, as such we could find ourselves facing a paradox where a command and control measure such as a power plant closure by 2030 could bring benefits of economic growth in investment.

Finally, there is a view that must also be considered and that is that today we have constitutional limitations precluding any advancement in what has just been described above. For example, a green tax increase could be challenged for violating Article 19(20), relating to the fact that “in no event may the law establish manifestly disproportionate or unfair taxes.”  This argument of whether something is fair or unfair consequently means that a green tax is vulnerable before the Constitutional Court as well as under Article 19(21), which establishes the “right to carry out any economic activity that is not contrary to morality, public order or national security, respecting the legal regulations that regulate it.” Clearly we would encounter certain problems.

When we talk about decarbonization and funding, we must keep in mind that a large part of climate actions and funding comes from the private sector. By way of example, the Climate Policy Initiative estimates that globally more than 56% of global funding is private. More than 80% of global investment in NCREs comes from the private sector. Recently, the coalition of finance ministers for climate action was created, bringing together 53 ministers who manage more than eight trillion dollars a year in their national budgets, equivalent to 10% of the GDP. The Network of Central Banks and Supervisors for Greening the Financial Sector (NGFS) brings together more than 50 countries that regulate more than $50 trillion in financial assets. Incorporating physical and transitional climate risk into investment decision-making with public and private resources is an opportunity to increase climate funding according to magnitude. In Chile, the gradual incorporation of transparency requirements into these risks in connection with pensions, or financial markets, could lead to an unprecedented transformation in resource mobilization towards a low-emission, resilient transition. Rewarding companies for improved performance in resilience, in the form of financing conditions, represents a real incentive that allows for changing the short-term logic in decision-making that prevails in the private sector. Indeed, it is essential that the legal framework for decarbonization take advantage of Chile’s conditions to afford the private sector an active role in climate action.

Regulating Coal-Fired Power Plants via a Decarbonization Law and Amendment of Decree No. 13

By Sara Larraín, Executive Director of the Programa Chile Sustentable (Sustainable Chile Program).

As an institution we have supported two Draft Agreements approved by the Chamber of Deputies and a motion presently under discussion to make the decarbonization of the electricity sector binding. However with respect to the question of whether a new Decarbonization Law is required to achieve carbon neutrality, we believe that it is not necessary since it would address aspects identical to those that should be incorporated today in the title referring to energy or in the Transitional Articles of the Climate Change Framework Bill. For reasons of legislative economy in times when there are several competing urgent matters, I do not believe that a special decarbonization law is viable, the backing of which by the executive branch is uncertain. From our perspective, it is perfectly feasible to incorporate in the bill the discontinuation or a schedule for the gradual reduction of fossil fuel-generated energy (starting with the dirtiest, such as coal, followed by gas, oil, etc.). It is also possible to include within the transitional articles of the Climate Change Framework Bill the figures and the temporary schedule that we want for closing or reconverting coal-fired plants, for example, by making the closure that has already been agreed for ten plants binding (eight closures were announced in June 2019 and two additional ones were committed during the COP in Madrid).

In addition, in the same transitional paragraph “bis”, it is conceivable to include the 17 plants that remain to be closed or reconverted by 2040. According to the voluntary agreement between the Government and the four companies that own the coal plants, the latter will present the Ministry of Energy with a closure schedule no later than during the second year of the Framework Law’s enactment.

In this case it is possible to accomplish something similar to what was done in the Non-Conventional Renewable Energy Act (Law No. 20,257 of 2008, which introduced amendments to the General Electrical Services Act regarding the Generation of Electrical Energy using Non-Conventional Renewable Energy Sources), which compelled companies to insert 10% of renewable energies into the electricity matrix by 2020, subject to the penalty of a fine for non-compliance (during President Michelle Bachelet’s administration), while during President Sebastián Piñera’s administration this goal was increased to 20% by the year 2024, maintaining the fine for those who failed to comply with this obligation.

The commitment to close the ten coal plants mentioned above represents a closure of between 25% and 28% of the total number of coal-fired plants by 2025, therefore the second schedule should establish which or what percentage will close by 2030 and how many by 2040. This would mean ensuring the binding closure of all coal plants, which today has been left to the will of companies and future governments. This can be encapsulated as a provision today in the Climate Change Framework Law, in which case we would no longer have to depend on a new law nor would we have to wait two or three years for the creation of the new Constitution.

It is worth noting that while it is true that freedom of enterprise is established in the current Constitution – a freedom that some lawyers argue is an impediment to condition investment – decarbonization, for example, or having set mandatory NCRE targets in 2008 and 2011 was never declared as unconstitutional. This is because the Constitution itself recognizes the social function of property, which limits or conditions freedom of enterprise. Likewise, it also establishes constitutional guarantees such as “the right to live in a pollution-free environment,” nevertheless today four of the five cities with coal mines are latent or saturated. Therefore the argument here of living in a pollution-free environment is a constitutional argument that supports decarbonization.

With respect to the question of Decree No. 13 or the Emission Standard for Thermoelectric Power Plants, the first thing to note is that they should have started updating it four or five years ago. As a result of this serious delay, the Comptroller General of the Republic recently ordered the Ministry of the Environment to establish a new procedure to update it. As such, we believe that the standard for emissions of particulate matter, sulfur dioxide and nitrogen oxides included in the standard must today be improved to establish levels in line with those recommended by the World Health Organization and to reach the levels of the European Union’s standards for these pollutants.

We also believe it conceivable to incorporate CO2 into this standard to make synergy with the tax already incorporated in economic policy through the green tax. It would also be essential to include emission standards for heavy metals such as vanadium, mercury and nickel, which were in the bill of Decree No. 13 and were later, following the change in government, eliminated from the law’s final text.

These amendments would translate into an increase in the cost of coal-based electricity generation, which is tremendously important because along with the increase in the green tax it would help reflect the true social costs of each energy alternative. Consequently, after using the sun, wind and water – the most economical energies – to generate power, instead of sending coal-generated electricity into the electrical system, in a transition phase power could be used from existing natural gas units – which emit less pollutants – until geothermal and solar generation units with storage to support the electrical system are built.

Today we have a tremendous opportunity with the Climate Change Framework Law, but changes must be made to it to render it more operational and precise with respect to the climate commitments contained in the recent NDC. If this law cannot function as the regulatory framework that will facilitate achieving the NDC’s goals, then it is useless.

Currently, the latest greenhouse gas inventory shows that 78% of gases comprise emissions from the energy sector and, within that, the energy industry contributes approximately 41.5%. It is undoubtedly the most relevant sector and should be one of the most important chapters within the Climate Change Framework Law and include the total schedule of decarbonization: nothing is to be gained from having the ten plants with a closing date now and leaving 70% of the coal-fired generation subject to voluntary negotiations between the companies and ensuing governments. Both in the NDCs and in climate policy, we need to know now, and project now, what the timetable is for the closure of these plants in order to make more investments in NCREs more efficient, which are the future investments the country has to make. Nevertheless, the Framework Law also needs to include the energy efficiency goals of the industry, transport and construction sectors, presently included in the Energy Efficiency Act (Bulletin 12,058-08), especially in relation to the 120 major industries in the country that consume 30% of power. The basis of this law recognizes that the application of this regulation could achieve, through the National Energy Efficiency Plan (an instrument crystallized in this law), a third of the reduction in emissions to which our country committed in the Paris Agreement.

Increasing Renewable Energies in the National Energy Matrix and How to Achieve This

By José Tomás Morel, Studies Manager of the Consejo Minero.

Why is the mining industry interested in climate change? Mainly for three reasons.

First, the fight against climate change and emission-reducing measures require ores such as copper, lithium and cobalt that allow for the more efficient generation, storage and transmission of electricity. As such, combatting climate change requires more mining.

Second, this requirement does not necessitate any type of mining, rather, hopefully, one with lower emissions. In this case, Chilean mining is taking responsibility for its 7% share of the country’s direct emissions, and we know that we have to reduce these. Another 14 % refers to indirect emissions, through our consumption of electricity, but there the first responsibility lies with the power generation sector.

Third, because mining is also affected by climate change, primordially due to water-related issues. Even though mining consumes only 3% of the country’s water, it is still an essential resource and therefore, to the extent that climate change means having lower water availability, it forces us – as it is already doing – to be more efficient and to seek alternative sources of supply, particularly seawater.

In tackling the question of increasing renewable energies in the electricity matrix, the study that we are commenting on contains two points of debate. On the one hand, there is the idea of fixing a quota by law for renewable energies; and, on the other hand, whether renewable energies are increasingly being incorporated into the tenders of power distributors.

Regarding fixing a quota by law, we believe this is not a good idea. At the time it was more of an notion to provide an initial boost to NCREs, which were then unknown; no one knew how they worked, what costs they had or how they would be incorporated into the electricity system. However today we know that they work very well under certain conditions. The electricity system is required by law and energy policy to meet three conditions by 2050: (1) it must be clean, (2) it must be economical, and (3) it must be safe. Without a doubt, renewable energies are clean and economic, as such they no longer require encouragement through quotas, however certain security issues for the electricity system still need to be resolved. Today it is unreasonable to have a 100% NCRE electricity system, because in terms of stability and security of supply, we need it to be complemented by other energy sources, such as thermal coal plants and liquefied natural gas and even reservoir power plants.

Therefore, if we wish to increase renewable energies what we need is to advance refashioned electricity regulations in terms of energy transmission, power, supplementary services and with respect to the operation of the Electrical Coordinator. This is what the authority today has called the strategy of flexibility, which has less to do with a quota for renewables and more to do with how we can adjust the electricity system so that it may receive renewables better and allow us to uphold the three objectives of the electricity matrix: i.e., have it be safe, economical and clean.

What is the role of mining in this area? For several years now and increasingly so, mining has been encouraging the installation of renewable energy plants based on their supply contracts. To the extent that contracts between mining companies and power companies expire, they are renewed with renewable energies. Since the mining sector consumes a third of the country’s electricity, anything it can do to boost the largest installation of renewable energies is very important.

Is it feasible that electrical energy from renewable sources in mining will reach 70% or 100 % by 2050? Yes, it is, but it will take time because there are contracts that are still in force. Moreover, we have to see how much the electricity system can withstand with renewable energies; but, ultimately, we perceive that it is feasible.

What can help mining speed up this transition? There is one key issue, which is traceability. Today, although there are many contracts where the supplier indicates that the source of its energy is renewable, we need this to be traceable, something that the Electricity Coordinator can be able to attest and assure. Customers from other countries who buy ores from Chile will want to know the origin of the energy that was used to produce them. Therefore, we must provide them with information so that they know how green the copper we are selling to them is.

What do we do with the power distributors? Regulated customers, who are in distribution areas, today represent 40% of the country’s power consumption. If we add the 33% comprising mining companies to this 40% of regulated customers we get 73%, a figure that is tempting enough in terms of supplying all of these customers with renewable energies. However we have to be careful, remembering that renewable energies have many advantages, but in order for the electricity system to be safe we cannot have 100% of renewable energy for the entire country. We have to be careful not to get too excited. Today, long-term energy planning still considers that by the year 2040 we will have thermoelectric energy from coal mines and liquefied natural gas; for this reason, it is not as easy as simply accelerating the distribution of renewable energies. We could lose the attribute of a safe electricity system.

This text was drafted based on a transcript made by Claudio Osses, assistant of the Center for Environmental Law, which was modified and corrected by the authors themselves to fit this format.

Notes

[1] Law 19,300, Article 2. t) Latent Zone:  a zone 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.  u) Saturated Zone: a zone in which one or more environmental quality standards are exceeded.

[2] The National Electric Coordinator is a technical and independent body in charge of coordinating the operation of all facilities of the National Electric System that are interconnected, whose organization, composition, functions and powers are governed by the provisions of Law No. 20,936 and its Regulations.