NATIONAL CLIMATE FINANCE STRATEGY

Climate Finance Forum Center for Clean Air Policy (CCAP) May 20, 2016. Bonn, Germany

M a r c e l a P a l o m i n o s M i n i s t r y o f F i n a n c e

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Table

1. National Context

2. Low emissions development strategy

3. National Climate Finance Strategy

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Agenda

1. National Context

2. Low emissions development strategy

3. National Climate Finance Strategy

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Introduction

In the past, all countries made a mistake of discussing economic growth strategies without including climate or environmental impacts. Today, we must not make the same mistakes of the past, i.e. climate and environmental strategies without considering the impact on growth and development. One of the main pillars for low emissions development is macroeconomic balances National Challenges: Education and Productivity

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Macroeconomic balances

exchange rate flexibility

Inflation targets

Fiscal sustainability

Controlling Inflation

External Balances

Structural Budget Balance

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Debt in countries with similar credit risk

Gross debt (%, 2015)

Net debt (%, 2015)

Note: Countries with credit risk between A- y AA. Source: S&P, Moody’s, Fitch. FMI, World Economic Outlook (WEO), October 2015.

0 100 200 300

Saudi ArabiaEstonia

ChileQatarLatvia

South KoreaTaiwan

LithuaniaCzech …China

PolandSlovakia

MalaysiaIsrael

FranceIreland

BegiumJapan

Average: 51.7%

-50 -25 0 25 50 75 100

Saudi Arabia

Chile

Estonia

Lithuania

Poland

Latvia

Taiwan

South Korea

Israel

Begium

Ireland

France

Average: 34.1%

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Current account adjustment

Source: Central Banks of each country.

-3,7

-3,0 -3,3

-4,3

-2,1

-1,2

-4,3

-5,2

-4,0

-1,9

-1,1

-3,3

-7,0

-4,4

-2,0

-8,0

-7,0

-6,0

-5,0

-4,0

-3,0

-2,0

-1,0

0,0Chile Brasil Colombia Perú México

2013 2014 2015*

Current Account (% of GDP)

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Macroeconomic stability has helped to achieve favorable financial conditions

Source: Central Bank of Chile.

Sovereign Spread (basis points)

0

100

200

300

400

500

600

700

800

2010 2011 2012 2013 2014 2015 2016

Global Chile Latin America Asia Europe

Chile has one of the lowest levels of sovereign Spread, allowing both the government and local companies borrow at low costs.

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

National Challenges: Education

21,3

45,3

0

5

10

15

20

25

30

35

40

45

50

OCDE Chile

0

10

20

30

40

50

60

70

80

90

100

Students lacking basic skills (%)

Certified teachers (%)

Source: OECD 2015 “Universal Basic Skills: What Countries Stand to Gain”

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

National Challenges: Education Educational Reform Investment

Reforms 2016 2025

Pre-School education 0,13% 0,23%*

Primaryand secondary education 0,33% 0,56%

Terciaryeducation 0,13% TBA

Teachers Carreer 0,11% 0,77%*

(*) (% GDP) Estimation conditional on triggers. Source: Budget Office

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

National Challenges: Boosting Productivity, opportunities for low-carbon development

ProductivityEducationand skills

Betterfinancing

Servicesexports

Energy

Infrastructure

Governmentefficiency

Competition

Opportunity

Opportunity

Opportunity Opportunity

Opportunity

Opportunity

Opportunity

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

South Korea: Successful results of following this strategy (Education, productivity, innovation) in the past

Source: Eduardo Fernández Arias (2014).

GDP per capita in Chile and South Korea

Goal: achieving a more diversified and less focused on the extraction of natural resources productive matrix.

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Agenda

1. National Context

2. Low emissions development strategy

3. National Climate Finance Strategy

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Some Successful experiences

Governance/ institutionality of

climate change

Boosting competition New instruments: green tax

Intended Nationally Determined Contribution

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Governance/institutionality

Council of Ministers for Sustainability

Climate Change Focal Points in each ministry

interministerial coordination to develop action plans to Climate Change

New Sustainable Growth Area of Ministry of Finance Ministry of finance like National Designated Authority of Green Climate Fund

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Intended Nationally Determined Contribution : 5 pillars

Mitigation

Adaptation

Capacity Building

Technology Transfer

Finance

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Boosting competition: energy sector

Energy Agenda: renewable energy and energy

efficiency goals

Power supply auctions

Electrical transmission law

Distributed generation

The government has reduced regulatory barriers to non-conventional renewable energy

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Boosting competition: energy sector

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

1992 1996 2000 2004 2008 2012 2016

Minería

Energía

Source: Corporación Bienes de Capital (CBC), March 2016,

Private Investment (US$ millions)

Increased investment in non-conventional renewable energy

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

New instruments: green tax (tax reform 2014)

Import tax on diesel vehicles

Tax local pollutants emissions (MP, SO2, Nox)

Tax global pollutant emissions (US$5/ton Co2)

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Agenda

1. National Context

2. Low emissions development strategy

3. National Climate Finance Strategy

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Two work streams to address systematic issues and specific measures

“Greening” the financial system: Long-term, systematic measures to level the playing field for climate-compatible investment What policy changes in banking, capital markets, insurance and institutional

investment can increase capital flows to mitigation and adaptation? Direct interventions: Developing a strategy to finance programs in support of INDC E.g., What specific measures and financing options can help Chile meet 2025 target of

45% installed capacity from non-conventional renewables?

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Phases of work: technical assessments

Benchmark the financial system

Systematic gaps

Policy and financing options

Priority measures in key sectors

Barriers in target sectors

Policy and financing options

• Evaluate financial regulations and standards, fiscal and monetary policies

• Assess against international best-practices

• Flesh out measures and sources of support

• Identify near-term measures

• Assess policy and investment environment

• Flesh out measures and sources of support

“Greening” the financial sector Direct interventions I. Scope

III. Identify options

II.Analyze

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Phases of work: technical assessments Institucionalidad de Cambio Climático

23

Benchmark the financial system

Systematic gaps

Policy and financing options

Priority measures in key sectors

Barriers in target sectors

Policy and financing options

• Cost and availability of finance

• Understand real and percieved risks facing banking sector

• Blended finance instruments, priority sector lending

• Installed capacity from non-conventional renewables

• Lack of grid infrastructure and transmission

• Lack of familiarity with technology

• Incentives for private sector grid investment

• Performance guarantees

“Greening” the financial sector Direct interventions I. Scope

III. Identify options

II.Analyze

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Phases of work: Integrating work stream findings into an overall framework

Integrated recommendations that address both systematic issues and specific financing measures Institutional arrangements for implementation Effective use of domestic public finance and international public support

IV. Recommendations

V. Publication

• Publish final Strategy

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Project stakeholders

Project leads: Ministry of Finance and Ministry of Environment

Strategic advisors: Task Force or Steering Group • Government Agencies, stakeholders from economic and

financial sectors, multilateral institutions

Technical lead: Center for Clean Air Policy

M I N I S T E R I O D E H A C I E N D A . G O B I E R N O D E C H I L E

Support requested

• Quantitative and qualitative research and analyses • Contracted studies as needed • Workshops and face-to-face interviews with academics and experts • Consultations with Government of Chile and other stakeholders

International support requested for:

Goal is to publish National Climate Strategy by 2018

Phase I Scoping of systematic and specific issues 3-5 months

Phase II&III Analysis and identification of options 6-8 months

Phase IV Recommendations 3-5 months

Phase V Publish strategy 1 month

NATIONAL CLIMATE FINANCE STRATEGY

Climate Finance Forum Center for Clean Air Policy (CCAP) May 20, 2016. Bonn, Germany

M a r c e l a P a l o m i n o s M i n i s t r y o f F i n a n c e