Feb 25, 2021
Reducing national emissions is a priority for Chile. It has set a target of closing its 28 thermoelectric fossil fuel plants over the next 20 years. But with 35% of the country’s electricity coming from these plants, and so many companies and livelihoods reliant on them, how can that ambition become a reality?
Part of the solution could come from a new and innovative financial model pioneered by the Climate Investment Funds (CIF) and the Inter-American Development Bank (IDB). The model works by putting a monetary value on the greenhouse gas emissions that are avoided by decarbonization efforts. That means that when a coal plant is closed and replaced with clean technology production, the reduction in greenhouse gas emissions this entails will be calculated and offered to the company or companies responsible.
Earlier this month, the first financial package was awarded as part of this model. ENGIE Energía Chile received US$125 million, comprising a loan from the IDB and financing from CIF’s Clean Technology Fund (CTF) and the Chinese Fund for Co-financing in Latin America and the Caribbean. ENGIE became eligible for the funding because it agreed to close two of its coal-based plants in Chile, which would reduce up to 1.2 million tons of CO2.
The company will use the financing it has received to build, operate and maintain a wind farm near the city of Calama in the region of Antofagasta. It has committed to building more than 1,000 MW of wind and solar initiatives across the country in the next few years. This will accelerate the development of the renewable energy sector in Chile.
Mafalda Duarte, Head of the CIF, said: “This initiative is an excellent example of how the clever use of financial incentives can drive big changes in energy production and significantly reduce a country’s greenhouse gas emissions. I hope we will see this model replicated across Latin America and the whole world in years to come.”
A “world first” model
The model developed by CIF and the IDB is the first of its kind, and the agreement between the IDB, CIF and ENGIE represents the first time emissions reduction activities in the energy sector have been monetised. Importantly, it points a way forward for countries and development organisations to meet Article 6 of the Paris Climate Agreement. This Article establishes a cooperation mechanism to facilitate the achievement of emissions reduction objectives, including an emissions trading system which would allow the creation of a global ‘carbon price’.
A priority of all of CIF’s projects is to analyse their effectiveness, learn lessons and share these lessons across the organisation and the development sector more widely. This is particularly important for this initiative. The model is expected to be replicated in other projects in Chile, Latin America and Caribbean, and the rest of the world.
Latin America’s clean technology revolution
The CTF continues to deliver impressive results in Latin America and the Caribbean. USD$720 million of CTF financing in the region through to 2020 has mobilised co-financing of USD$5.2 billion for clean technology projects. To date, these projects have led to:
- 19.1 metric tons of CO2 in cumulative greenhouse gas emission reductions.
- 1.4 GW of renewable energy capacity installed.
- 848 GW hours in annual energy savings.
- 289,868 additional passengers per day using low-carbon public transport.
This new decarbonization monetization model - and the new, renewable infrastructure it encourages - will ensure these numbers continue to rise in the future.
Read more about the Clean Technology Fund here.
