The economic and competitiveness dimensions of the draft Chilean INDC

Andrea Rudnick

Our Common Future Conference. Paris. July 8th, 2015

Brief look into MAPS Chile

• Phase 1 (2012) & 2 (2013-2014) delivered the following results:

• Business as usual 2007-2050• Business as usual 2013-2050• Required by science and equity scenarios up to 2100• 96 mitigation options from energy, transport, mining, industry,

agriculture, forestry, and waste sectors up to 2050• 8 mitigation scenarios (packaging of mitigation options)• Macro economic model (DSGE) of 9 scenarios (BAU plus

mitigation scenarios)

MAPS Chile mitigation options

• 300 participants from NGOs, academy, public and private sector have guided around 100 consultants to build scenarios.

• 96 mitigation measures were analyzed in detail (savings and costs per ton de CO2 reduced).

• It is possible for Chile to comply its voluntary mitigation goal of a 20% reduction by 2020, but we have to implement specific sectorial measures.

• Many climate change mitigation actions generate savings and economic profit.

Baseline and mitigation scenarios 2013-2030

Macroeconomic resultsAggregate results

Scenario GDP Employment CO2 emissions

2020 2030 2020 2030 2020 2030

Carbon tax (5 US$)* -0,2% -0,2% -0,4% -0,4% -3,1% -3,4%Carbon tax (20 US$)* -0,9% -0,8% -1,5% -1,6% -12,3% -13,5%Base 0,1% 4,1% -0,1% 3,5% -8,2% -9,3%Middle -0,3% 6,7% -0,7% 5,5% -10,9% -23,4%High -0,1% 7,4% -0,2% 6,3% -12,2% -26,2%Energy efficiency -0,6% 3,3% -0,8% 2,6% -4,2% -6,2%NCRE 0,0% 0,6% 0,3% -0,2% -3,8% -9,1%Renewables energies -0,1% 0,7% 0,3% -0,2% -4,1% -15,2%80/20 0,2% 1,2% -0,3% 0,0% -9,9% -18,8%

20132014

20152016

20172018

20192020

20212022

20232024

20252026

20272028

20292030

-2.0%-1.0%0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%

GDP Employment

Gross Domestic Product and Employment(deviation from baseline, %)

-36.0%-32.0%-28.0%-24.0%-20.0%-16.0%-12.0%

-8.0%-4.0%0.0%

CO2 emissions DSGE Co2 emissions sectoral model

CO2 emissions (deviation from baseline, %)

-6,000,000

-4,000,000

-2,000,000

0

2,000,000

4,000,000

6,000,000

Opex Capex

CAPEX, OPEX: Aggregate economy(million of pesos 2013)

CAPEX y OPEX (% Baseline GDP)

2013 2020 2030OPEX -0,1% -0,6% -2,1%CAPEX 0,8% 2,1% 1,2%

Change in CO2 emissions(million of tons)

2020 2030Sectoral model -16,9 -51,0DSGE model -14,12 -39,90Difference 2,76 11,06

High Effort Scenario: Aggregate results

How to design the INDC?The economic debate

• The best information available was co-produced through MAPS Chile, with high level stakeholders during a 4 year process. This evidence includes the impacts of mitigation scenarios on GDP and employment.

• There is a strong premise that Chile's contribution must be aligned with the priorities of growth and development.

• According to: GDP growth rate, population and fuel price projections, together with the mitigation measures considered in the scenarios, the most ambitious scenarios (in terms of emission reduction) verified the largest increases in GDP and employment levels to 2030.

• Therefore, the three most ambitious scenarios were used for the INDC design.

Choice of intensity target An issue about competitiveness

Three forms of contribution were analyzed and intensity target was privileged. Country context was key.

i) Carbon intensity targets (tCO2 by GDP):– Decoupling of economic growth and GHG emissions. – Provides more flexibility than deviation below a baseline. – It is perceived as being more efficient and competitive.

ii) Deviation below BAU: – Difficult to agree on a BAU (Chile undertook deviation from a BAU in 2009). – It is understood as an absolute level of emissions in a given future year. – Provides rigidity as it does not consider economic performance. – There is fear of gaming as there are no international agreed methodologies to

quantify the BAU.

iii) Trajectories (achieve maximum emission and decline): – Projections show that Chile will not reach a maximum of emissions by 2030. – While this form is the one with greater environmental integrity, it is theoretically less

flexible to meet.

Deviation below BAU v/s intensity target

Draft Chilean INDC on mitigation

• The draft mitigation considers two components: an emissions intensity target (which includes all sectors except forestry); and an exclusive goal for the forestry sector.

• Option A:– Chile is committed to reducing its CO2 emissions per unit of GDP by 40% to

45% below 2007 levels by 2030.– In addition, Chile is committed to reducing its CO2 emissions per unit of GDP

by 30% to 35% below 2007 levels by 2025.• Option B:

– Chile is committed to reducing its CO2 emissions per unit of GDP by 35% to 40% below 2007 levels by 2030.

– In addition, Chile is committed to reducing its CO2 emissions per unit of GDP by 25% to 30% below 2007 levels by 2025.

Challenge: align national interests with international requirements

• To meet the contribution Chile should implement additional policies that enable more efficient use of energy and low carbon economy.

• Chile will not fulfill its contribution if the status quo remains.• This means investing additional resources, and a

commitment of government and state.• Increased public investment in climate change will leverage

additional private sector investment, nonetheless climate change competes with other development priorities, such as education and health.

The economic and competitiveness dimensions of the draft Chilean INDC

Andrea Rudnick

Our Common Future Conference. Paris. July 8th, 2015