OECD Environmental Performance Reviews: Chile 2024

Report

OECD Environmental Performance Reviews

7 March 2024

Assessment and recommendations

Abstract

The Assessment and Recommendations present the main findings of the OECD Environmental Performance Review of Chile. They identify 36 recommendations to help the country make further progress towards its environmental objectives and international commitments. The OECD Working Party on Environmental Performance discussed and approved the Assessment and Recommendations on 23 January 2024.

1. Towards sustainable development

Addressing key environmental challenges

Decoupling of environmental pressures from economic growth is limited in Chile

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 (3.0% annual real gross domestic product (GDP) growth on average over 2010-19). The economic recovery from the pandemic in Chile has been more rapid than in most other OECD countries. However, since 2021, global supply constraints and the Russian war of aggression on Ukraine have fuelled price inflation. After tighter fiscal and monetary policies to rebalance the economy, data suggest that GDP did not grow in 2023 but is projected to grow by 1.8% in 2024 and pick up to 2.1% in 2025 (OECD, 2023[1]).

Chile has not managed to decouple a number of environmental pressures from economic growth since 2010 (Figure 1). Nitrogen oxide (NO_x) emissions declined until 2018, but then increased mainly driven by industrial combustion. Greenhouse gas (GHG) emissions, total energy supply and domestic material consumption (DMC) have risen at the same pace as the economy, highlighting the need for further efforts to decouple these pressures from economic growth. Water abstractions for public water supply continue to rise, albeit more slowly than economic growth. Emissions of sulphur oxide (SO_x) and fine particulates (PM_2.5) declined significantly since 2010, a positive development.

Figure 1. Chile has not decoupled several environmental pressures from economic growth

Decoupling trends, Chile, 2010-21

Building resilience to climate change impacts faces major funding and capacity gaps

Chile is highly exposed and vulnerable to the impacts of climate change. Nearly one third of the territory is exposed to at least two climate-related hazards, mainly heat stress and flooding. Extreme heat affected 25.7% of the population over 2018-22 on average (Maes et al., 2022[2]). Flood risk is dispersed across the country and prominent along the central coast. The country is also severely affected by drought and wildfire risk, with wide-ranging impacts on water supply, agriculture and ecosystems. For example, following the 2017 wildfires, nearly 40% of critically endangered habitats in Chile were significantly damaged (OECD, 2023[3]).

Progress on climate change adaptation varies significantly across sectors. The National Plan for Adaptation to Climate Change of 2014 established plans for nine sectors.1 The tourism sector has shown the slowest progress with only 25% of planned actions achieved by 2021, mainly due to limited financial resources and capacity. Lack of financial strategies also impedes progress of planned adaptation actions (Ministry of Finance and Green Climate Fund, 2021[4]). The successful implementation of adaptation measures requires to further strengthen co-ordination across administrative levels, build capacity at sub‑national level, and encourage public-private collaboration.

Chile has made great strides towards developing localised climate risk mapping. The Climate Risk Atlas (ARCLIM) platform, launched in 2020, provides climate risk indicators and visualisation of current and projected climate risks at the communal scale. Unlike many other OECD countries, Chile also analyses socio-economic vulnerability of different population groups to relevant climate risks. Moreover, the country is developing further tools to monitor and assess progress of adaptation policy implementation for better decision making.

Chile achieved a major step-change in the legal framework for climate action, although emissions continued to rise

Chile’s GHG emissions rose significantly in 2010-19 (Figure 2), mainly driven by CO₂ emissions generated by fossil fuel burning (MMA, 2022[5]). GHG emissions decreased in 2020 due to the COVID-19 pandemic, which enabled the country to meet its 2020 target.2 Energy industries are the largest source of GHG emissions followed by transport, accounting for 28% and 25% of emissions in 2020, respectively. Electricity supply accounted for more than 90% of GHG emissions from energy industries over 2010-20. Land use, land-use change and forestry (LULUCF) have consistently contributed to sequester carbon except for 2017, when Chile experienced devastating wildfires.

Figure 2. Chile aims for net zero by 2050, while GHG emissions continued to rise

Historical GHG emissions, targets, projections and indicative pathways to targets, 1990-2050

Chile made substantial progress on the legal and policy framework for climate change through a joint effort across ministries. The Framework Law on Climate Change (FLCC) promulgated in 2022 creates the legal framework to address climate change mitigation and adaptation. It establishes a binding national goal to reach net zero by 2050, which implies the need to reduce gross GHG emissions by approximately 40% from 2020 to 2050. Chile also set long-term and increasingly ambitious climate change mitigation objectives in the Long-Term Climate Strategy (ECLP), submitted in 2021. The strategy defines a national GHG emissions budget for 2030 and 2050 and emission budgets for relevant sectors. Sectoral and regional plans will support achievement of the ECLP horizontally (across ministries) and vertically (across levels of government). There is a requirement to review progress implementing these plans and update ambition every five years3 so that the country can course-correct efforts to achieve the net-zero goal by 2050.

Chile must implement the climate law with a whole-of-government approach

Chile is not on track to achieve national targets for GHG emissions. Ambitious actions will be needed to ensure achievement of both 2030 and 2050 targets (Valdés et al., 2023[6]) (Benavides et al., 2021[7]). Important challenges remain in the implementation of the FLCC. Sectoral and regional plans are under development and must be completed by 2025. They need to clarify concrete measures and policies to peak GHG emissions before 2025, and to meet the 20304 and 2050 targets. Measures defined in sectoral and regional plans must be supported by a portfolio of investments with sufficient financing.

Moreover, the successful implementation of the climate law requires the strengthening of technical capacity at national and sub-national levels. There is a need for increased collection and analysis of data, development of indicators and reporting, and improved monitoring, reporting and verification (MRV) systems to track and evaluate policies and to course-correct as needed. Implementation also requires deployment of professionals with relevant expertise in both national and sub-national institutions.

Decarbonisation of the energy sector requires swift coal phase-out and expansion of renewables

The energy sector is expected to contribute the most to GHG emission reductions in the coming decade. Chile aims to close all coal-fired plants by 2040. This original timetable has been modified several times and brought forward, with the aim to close more than half of coal-fired plants by 2025. As of November 2023, 8 out of 28 coal-fired plants operating in 2019 have been retired (22.5% reduction in terms of total capacity).

The other key policy is to promote renewable energy, notably solar and wind. Chile aims to achieve 80% of electricity generation from renewables in 2030 (an increase from 55% in 2022) and 100% from renewables and other energy sources with carbon capture5 by 2050. These targets should be legally binding, as was the case for 2025 target for renewables, which has already been achieved. A major bottleneck for greater uptake of renewables is the lack of transmission lines, notably in the north, but these are under development. Lack of transmission lines caused the significant curtailment of generated renewable energy (up to 290 gigawatt hours of solar- and wind-generated energy were not used in 2022). Energy efficiency is expected to contribute to 7% of cumulative reductions in GHG emissions by 2050, with the 2021 Energy Efficiency Law as the main legal framework.

Chile established the National Green Hydrogen Strategy in 2020 to develop a competitive hydrogen industry. The country’s extraordinary renewable energy potential with relative cost competitiveness compared to other countries makes it well placed to become a major producer and exporter of green hydrogen. Green hydrogen and its derivatives are not only a potential solution to store and transport electricity from renewable sources, they can also decarbonise hard-to-abate sectors such as heavy industry and cargo transport. Green hydrogen is expected to contribute to 21% of the emission reductions required for net zero in Chile. This is significantly higher than its expected contribution in the IEA’s net-zero emission scenario (4%) (IEA, 2023[8]).

Transport and building sectors should have more stringent climate targets

The transport sector has rising energy consumption and slow uptake of electric vehicles (EVs). The GHG emissions scenario based on sectoral budgets allows emissions to increase the most in the transport sector compared to other sectors from 2020 to 2030. Swift transition to low carbon mobility requires further investments in sustainable public transportation. Another key sectoral measure is the ban of sales of combustion engine vehicles by 2035, with a goal and action plan to achieve a higher share of EVs. However, EV uptake is impeded by limited public charging infrastructure, with only up to 750 public units as of November 2023. Minimum energy efficiency standards for light-duty vehicles will be in force from 2024. Given that the trucks and buses contributed to more than 60% of land transport GHG emissions in 2019, further green tax reform, energy efficiency standards and investment in electrification of these vehicles as well as the use of hydrogen are crucial.

In the building sector, electrification of heating for residential, public and commercial building is a key sectoral mitigation measure. Other key measures include establishing solar thermal systems, energy rating of existing homes and thermal overhaul in vulnerable homes, which also address air pollution linked to energy poverty. The GHG emission reduction target aims for all new buildings to be “zero net energy consumption” by 2050, but the timeframe for this target should be accelerated. The target for existing buildings is even weaker, aiming for 10% to meet a specific standard for thermal regulation by 2050. In Chile, the LULUCF sector absorbed 47% of gross GHG emissions in 2020. The country's forest land increased by 2.9% from 2016 to 2020. The ECLP further aims to restore 200 000 hectares of forests by 2030; nevertheless, wildfire risk poses a continuing challenge.

Air pollution, linked to energy poverty, is a major public health challenge

Despite some improvements, air pollution remains a significant public health challenge. Chile made significant progress in reducing sulphur dioxide (SO₂) emissions, primarily from stationary sources. However, emissions of other air pollutants, such as nitrogen oxides (NO_x) and fine particulates (PM_2.5) have been rising recently (OECD, 2023[9]). Regional disparities in air pollution levels are stark, with northern regions experiencing the highest levels of SO₂ and NO_x emissions from industrial sources (e.g. copper smelters, thermoelectric power plants), while central and southern regions suffer from concerningly elevated PM_2.5concentrations, largely due to residential wood burning for heating and road transport (OECD, 2020[10]).

Chile has taken some positive steps to address air pollution, including the Environmental Regulation Programmes (PRAs) and Environmental Prevention and/or Decontamination Plans (PPDAs) and the green tax emission-intensity criterion for PM, NO_x, SO₂, and CO₂. These measures have contributed to a decline in the average age of vehicles in Chile, attributed to the increasing popularity of new fuel-efficient models. However, the adoption of the EURO VI standard for new light-duty vehicles may have a short-term effect on fleet renewal rates (4.4% in 2021), particularly in northern regions where the purchase of used vehicles is more pronounced (average vehicle age 13.4 years) (De Vicente, 2022[11]).

To further improve air quality and public health, emissions from vehicles already in circulation (5.98 million in 2021) need to be reduced. This can be done by expanding the coverage of the green tax to CO emissions, implementing a comprehensive fleet-renewal management program mandating regular emissions testing, and higher registration fees for older and more polluting vehicles. To mitigate the potential negative impacts of these policies on low-income households and promote social equity, Chile should simultaneously invest in more accessible and sustainable public transportation in all regions. Additionally, by aligning air quality standards with WHO guidelines and concurrently increasing funding for PPDAs, Chile can facilitate timely declaration of saturated or latent zones and prompt implementation of mitigation measures such as diesel bans in urban areas and declaration of low-emission zones for densely populated centres.

High levels of multidimensional poverty, thermally inefficient buildings and weak electricity accessibility exacerbate air pollution, especially in central and southern Chile. The Heater Replacement Programme to enhance energy efficiency upgrades to curb air pollution from residential wood burning along with building thermal retrofitting and housing energy performance labelling are welcome. However, achieving significant progress in reducing energy demand, air pollution, and GHG emissions necessitates sustained and intensified efforts mainly to broaden the accessibility to affordable and sustainable energy for heating. Cultural barriers impede the widespread adoption of cleaner cooking and heating systems. Reinforced environmental awareness campaigns could play a pivotal role in catalysing the transition towards cleaner technologies.

Chile forges ahead with biodiversity conservation amid management and data challenges

Chile is well-positioned to achieve the Kunming-Montreal Global Biodiversity Framework targets. It is one of the few countries in the LAC region, along with Costa Rica and Uruguay, that has increased its forest cover (OECD et al., 2022[12]). Chile has already protected 44% of its exclusive economic zone (EEZ) and has made significant progress in expanding its terrestrial protected areas, reaching 22% of its land area.6 The country is committed to further growing its protected areas network, specifically in vulnerable and underrepresented ecosystems to meet the 30x30 targets.

However, challenges remain in increasing protected areas management effectiveness (CBD, 2021[13]) and reducing threats from invasive species and human activities, such as wildfires and salmon farming within and near protected areas. Chile should further develop biodiversity-positive nature-based solutions to combat desertification, promote sustainable land use, and enhance climate change adaptation (Dussarrat et al., 2022[14]). Additionally, peatland and wetland conservation can further bolster Chile's climate change mitigation efforts (Hoyos-Santillan et al., 2021[15]).

After more than a decade of deliberation, the Law for Nature was promulgated in June 2023, marking a significant step towards reinforcing biodiversity protection and conservation in Chile. However, the implementation of this ground-breaking legislation is expected to be a protracted endeavour, with a projected full operationalisation in 2027. The law introduces several instruments to support biodiversity conservation within and beyond protected areas. These include the Biodiversity and Protected Areas Service (SBAP), approved in August 2023, the National Biodiversity Fund, and the establishment of retribution programmes for ecosystem services (BCN, 2023[16]). These reforms are accompanied by an expansion of the workforce exclusively dedicated to biodiversity conservation, underscoring the critical need for sustained funding and skilled personnel to effectively implement biodiversity conservation measures.

Chile’s progress in implementing payment for ecosystem services (PES) pilots in various regions holds promise for a national PES program. However, to fully scale up PES initiatives and integrate nature and biodiversity into sustainable public and private decision-making, the country needs to strengthen natural capital valuation methods and foster stakeholder engagement. This can be achieved through the Natural Capital Committee (NCC), established in January 2023, which is tasked with developing methodologies for measuring and valuing natural capital and ecosystem services. The development of public baselines of natural capital and ecosystem services, as exemplified by the efforts in the Magallanes region, will further enhance Chile's ability to incorporate ecosystem, species, and genetic diversity into national accounts and its effective mainstreaming into national planning and environmental impact assessments.

To support NCC efforts, Chile must bolster its biodiversity data collection and accessibility. The country’s Sistema de Información y Monitoreo de Biodiversidad (SIMBIO) provides a centralised platform for storing, managing and accessing biodiversity data. However, to fully realise its potential, SIMBIO should be enriched with indicators to monitor temporal and spatial dynamics, as well as progress towards conservation targets. Improving coordination among stakeholders through a biodiversity data network would streamline data exchange and integration across disparate databases and institutions. This would also lead to more reliable and consistent biodiversity information, favouring informed decision-making across sectors. Engaging the public in biodiversity data management and utilisation can foster greater awareness and support for conservation efforts.

Waste management requires urgent and transformative actions towards a circular economy

Chile landfills a higher percentage of its municipal solid waste (92%) than any other OECD country, although it generates less waste per capita (406 kg versus 534 kg in 2020) (OECD, 2022[17]). The entry into force of extended producer responsibility (EPR) schemes in early 2023 and the enactment of the Single-use Plastic Law in 2022 will help the country reduce plastic generation and promote recycling of major waste streamlines (e.g. packaging, batteries and tyres). The expected promulgation of the decree establishing EPR for waste electrical and electronic equipment (WEEE) in 2024 represents a significant step towards a circular economy. Nevertheless, given their designation as priority products, it is crucial to accelerate the implementation of EPR schemes for textiles and fishing nets, which are still in their early stages of development.

The approval and implementation of the bill for the valorisation of organic waste is strongly encouraged. This bill represents a significant step forward in promoting organic waste reduction and strengthening differentiated waste management practices at the territorial level. To further enhance its effectiveness, the proposed mandate on recovery of organic and other separated waste should be accompanied by the introduction of economic instruments, such as a landfill tax (OECD, 2019[18]).This would help Chile discourage the use of environmentally harmful waste disposal practices, promote sustainable waste treatment methods and meet its ambitious waste management goals of 66% organic waste recovery rate by 2040 and 40% recycling rate by 2030.

Despite high waste collection coverage (99% in urban areas and 73.4% in rural areas) (SUBDERE, 2019[19]), municipal solid waste collection infrastructure faces two interconnected challenges: financial sustainability and promoting behaviour change. Currently, many municipalities lack the resources to manage waste due to sanitation fee exemptions, as established by the Municipal Revenue Law, and unclear tariffs. These make it difficult to ensure cost recovery and implement the polluter pays principle through pay-as-you-throw schemes (CSP and MMA, 2020[20]). The absence of substantial technical and financial support to municipalities impedes progress towards achieving national waste management goals.

Chile faces a pressing need to devise a comprehensive long-term investment strategy that prioritises waste separation and recovery infrastructure while simultaneously tackling the modernisation of landfill facilities with stringent environmental standards as they are nearing their end of life (Pelayo Díaz and Linazasoro Espinoza, 2020[21]). This is compounded by the lack of defined ceilings in the Regional Contingency Support Fund, which only allocated 15% of its 2023 budget to waste management, primarily for waste disposal, with less focus on collection, transfer, and recovery. Moreover, to foster waste reduction and recycling initiatives, Chile should make environmental awareness campaigns more accessible and tailored to specific community needs (Rodríguez Salas and Trebilcock, 2020[22]).

Improving environmental governance and management

Significant progress was made in strengthening environmental institutions

Significant progress was made to strengthen the environmental institutional framework. The most prominent development was approval of the SBAP in 2023, as recommended in the previous review. Another major development was ratification in 2022 of the Escazú Regional Agreement on Access to Information, Public Participation and Access to Justice in Environmental Matters in LAC countries. 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. The Inter-Ministerial Committees for Just Socio-ecological Transition and for Just Water Transition were established in the same year. They function as horizontal co-ordination mechanisms for respective matters, alongside the Council of Ministers for Sustainability and Climate Change.

Further decentralisation is needed to empower local environmental services

Chile has been one of the most centralised countries in the OECD. While regional and provincial administrations have some territorial planning responsibilities, they play a minor role in environmental management. Limited institutional autonomy in municipalities has continued since the last review, with limited competences at local level to set more stringent environmental standards than national level. Local authorities also have little fiscal autonomy and lack financial resources for environmental services. The MMA is legally obliged to work with local authorities for environmental matters.

A stronger push towards decentralisation was reflected in the “Stronger Regions” bill submitted to Congress in 2023 (Government of Chile, 2023[23]). The bill aims to empower regions by granting greater autonomy to regional governments to design mechanisms to generate their own income, and use of resources according to the needs of the area. Moreover, the bill proposes a new Permanent Fund for Inter-regional Equity, which aims to reduce the financing gaps between regions. The Mining Royalty Law enacted in 2023 will also strengthen local financing, by creating a flat-rate value-added tax, and three community funds to distribute collected revenue to regions and municipalities.

Progress on environmental quality and emission standards stalled, and the liability regime for environmental damage is still weak

Despite recommendations of the 2016 Environmental Performance Review, progress on strengthening both environmental quality and emission standards has been limited. Chile has quality standards on air and water and emission standards on air, noise, soil and water pollution in force. However, Chile lacks standards on soil (currently under development), and standards for water are incomplete (Chapter 2) (Carrasco, Benítez and Cañas, 2023[24]). Since 2016, some emission standards for stationary sources were added or updated, including ones for odours and arsenic.

There is no legal regime in Chile related to remediation of contaminated land (BCN, 2023[25]) and no specific agency responsible for the investigation and clean-up of those sites, despite a recommendation in the last review. In 2022, a total of 10 253 soils were identified with potential presence of contaminants nationwide, particularly in mining regions. For abandoned mining sites, Chile has made no significant progress since the last review. The 2012 Mine Closure Law requires all new mines to get approval for end-of-life closure plans with guarantees for the full present value of closure cost. However, the law does not apply to already abandoned mining sites. For those sites, limited financing of decontamination activities comes from the state budget, which is not in line with the polluter pays principle.

A sustainable funding solution is necessary for remediation of abandoned mining sites. One possibility would be to create a fund from mining royalties dedicated to clean up legacy land and water pollution. A share of extraordinary revenues due to the high price of lithium could be earmarked for remediation purposes. Another possibility is to impose decontamination fees on hazardous industrial installations and earmark the revenue for such fund.

Environmental impact assessment needs better technical criteria for decision-making and broader, early citizen participation

There is significant room to improve environmental impact assessment (EIA) in Chile. Although a full EIA is required in the case of a potential risk to public health or the environment, most projects (94% in 2022) undergo a simpler environmental impact declaration (DIA). The project owner, rather than an independent party, judges the project entry category (full EIA or DIA). A validation of this screening is incomplete due to limited oversight capacity. Such a validation process is important to ensure that the screening process is not used as a loophole to avoid a full EIA.

Even in a full EIA, the System of Environmental Impact Assessment still does not require evaluation of alternative scenarios. Institutional safeguards against political influence are insufficient (Chile Transparente, 2021[26]). The risk of political influence undermines environmental protection and generates uncertainty that can discourage future investment. Reinforcing the technical quality of EIAs without political influence is increasingly important in the context of the development of major new projects, such as green hydrogen and lithium production. A reform of the Law 19.300 General Bases of the Environment is expected to strengthen the technical quality of EIAs. 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.

Compliance monitoring expanded with new technology but is still under-resourced

The Environmental Superintendence (SMA) recently started remote mass control to check compliance resulting in the number of checks more than doubling between 2017 and 2022. This allowed some 1 700 additional checks on the salmon industry using satellite images and large data sets, achieving more than 95% coverage in this area. Remote compliance checks have been effective to increase the coverage of checks at low cost and improve compliance through behavioural change of the industry given the high probability of detection of non-compliance.

Chile’s highly centralised compliance service exerts pressure on the capacity of the SMA. The management of minor local complaints should be decentralised to minimise the burden on the SMA. There is currently an initiative to modify the Organic Law of the SMA, aiming to grant greater investigative powers to the SMA, streamline compliance procedures and increase incentives for compliance, a welcome development.

To the extent environmental impact mitigation measures concern the competence of sectoral ministries, the SMA does not monitor compliance directly in some cases7. Instead, the SMA co-ordinates with sectoral ministries – sharing control tasks with other services through agreements with different sectoral agencies. While there is a standardised procedure for compliance checks, the arrangements may undermine the enforceability of permit conditions compared to integrated monitoring compliance on a cross-media basis. The key bottleneck to integrated compliance monitoring is a lack of regional resources for compliance monitoring. The SMA should be further strengthened towards integrated compliance monitoring, with sufficient resources to conduct it.

Enforcement has been strengthened by broadening criminal liability

Chile has ramped up efforts to address environmental violations and broadened criminal liability. In 2023, Congress approved a law enabling criminal sanctions for environmental violations. It criminalises certain activities without environmental permit, non-compliance with environmental standards and other activities that damage protected ecosystems. Similarly, amendments to the Organic Law of the SMA incorporate new articles that penalise activities such as maliciously dividing projects into smaller ones to avoid the full EIA (Hilgers, Vial and Gutierrez, 2023[27]).

Enhancing policy coherence for green growth

Chile should continue the reform on green tax and electricity price-setting mechanism

Chile showed some progress in greening the tax system. As part of the green tax reform, a carbon tax of USD 5 per tonne of CO₂ emissions applies for stationary sources since 2017. The tax does not apply to emitting sources primarily based on biomass energy. With the carbon tax, Chile achieved 55.6% of GHG emissions being subject to a positive net effective carbon rate in 2021 (the highest coverage in LAC countries) (OECD, 2023[28]). While Chile ranks among the highest in LAC countries for average effective carbon rates, it was well below other OECD countries in 2021 (Figure 3). Since 2022, the carbon tax applies to large emitters8, without exclusion of any sector.

Figure 3. Carbon pricing in Chile is relatively high compared to LAC countries but lower than in other OECD countries

Net effective carbon rates in selected LAC countries and OECD average, 2021

A carbon offset system came into force in February 2023, including GHGs and local pollutants PM_2.5, NO_x and SO₂. This system can pave the way for a more sophisticated market that allows flexibility in emissions reductions by offsetting tax liability with projects that reduce emissions directly.

Future efforts in carbon pricing should concentrate on establishing a gradual timeline towards higher levels of the carbon tax rate. The government has put forward a revision of the current tax, including increasing the rate, as part of its fiscal reforms. An increase in the rate would better reflect the social costs of pollution. However, such reforms are still in the technical design phase. Higher carbon prices are crucial to spur the needed shifts towards cleaner energy to meet climate objectives.

The electricity price-setting mechanism in the Chilean electricity market needs to be changed for carbon pricing to work effectively. The variable costs of electricity generation plants determine wholesale electricity prices and the order of dispatch. However in Chile, the full amount of the carbon tax is not included in the variable costs, which creates economic distortions in the power sector. Without revisiting this design issue, carbon pricing will not be effective at incentivising the transition towards renewables.

Several of the last review’s recommendations on energy and vehicle taxes have not been implemented. For instance, there is still a wide gap in tax rates between petrol and diesel. Sectoral fuel tax exemptions applying to large-size cargo transport in trucks, and diesel used in off-road vehicles, still exist in the form of tax refunds. Taxes on motor vehicles exempt commercial vehicles and are linked not only to the fuel efficiency and emissions but also to the vehicle price, which is not related to environmental damages. Further reforms should address these outstanding issues, in addition to raising both vehicle tax rates and annual registration fees depending on vehicle types (e.g. age, emission levels) to discourage purchase and use of highly polluting vehicles.

Fiscal cost of support to fossil fuels increased due to the global supply disruptions

The fiscal cost of support to fossil fuels in Chile more than tripled over 2016-22, reaching approximately USD 2.6 billion in 2022. This substantial increase was primarily driven by the Stabilisation Mechanism of Fuel Prices (Mecanismo de Estabilización de Precios de los Combustibles, MEPCO), which accounted for about USD 2.4 billion in 2022. MEPCO aims to reduce international oil and gas price fluctuations for domestic consumers through adjustments in specific taxes on transport fuels. MEPCO’s limit has expanded in recent years to counteract the pandemic’s adverse economic impact, as well as the rising international price of oil and gas arising from the Russian war of aggression in Ukraine. Prior to 2021 and in the first half of 2023, MEPCO effectively stabilised prices without significantly subsiding fossil fuel consumption. During the initial seven months of 2023, MEPCO facilitated the collection of an additional USD 0.7 billion in taxes on fossil fuels. However, it is crucial for long-term sustainability that such a mechanism remains neutral to avoid inadvertently providing support for fossil fuels.

Periods of high and volatile fossil fuel prices highlight the benefits of the clean energy transition. Support measures to fossil fuels weaken incentives to switch to alternative sources of energy. They also use public funds that could be spent on clean energy transitions (IEA, 2023[29]). The long-term focus should be on building resilience and investing in the clean energy transition with emergency relief phased out eventually. Social benefit schemes need to be well-targeted to the vulnerable population who are hardest hit.

Environmental expenditure trends need to be systematically identified with meaningful categorisation by domain

Chilean central government expenditure on environmental protection stayed around 0.1% of GDP (0.35‑0.40% of total governmental expenditure) over 2012-21, lower than the OECD average (0.6% of GDP in 2020). The last review recommended continuing systematic surveys on environmental expenditures with expanded coverage for private sector and sub-national levels. However, progress has been limited (e.g. pilot studies, or initial study started, but data not processed yet).

The public environmental expenditure study using Classification of Activities and Expenditures for Environmental Protection (CEPA) or other equivalent classifications has not been conducted since the 2015 survey. This makes it hard to understand the environmental expenditure trends and identify gaps. There are other efforts to identify public investment in environmental protection, in particular for climate change. However, these approaches are not comprehensive enough to understand expenditure trends by domain.

Chile leads the GSSS bond market in the region to mobilise private sector investment

Chile has been at the vanguard of leveraging capital markets for sustainable growth, which has allowed a broadening of the investor base. 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. Green bonds make up around one-fourth of that GSSS bonds issuance (OECD, 2022[30]). Chile has the LAC region’s largest GSSS bond market at USD 43.2 billion in cumulative issuance as of July 2023. Chile issued the world’s first sovereign sustainability‑linked bonds in March 2022, a USD 2 billion issuance. The two key performance indicators are GHG emissions reduction and the scale‑up of non-conventional renewable energy (NCRE) generation. A failure to meet these performance indicators would trigger a coupon penalty for these bonds.

Green hydrogen attracts national attention, but must ensure safety, social and environmental considerations

The development of the hydrogen industry needs careful consideration across multiple aspects. Safety is critical for all stakeholders, notably for new, less experienced companies. EIA and permitting processes are increasingly important to ensure safe operation by those players as well as larger operators. Land-use planning for siting production facilities needs to consider appropriate safety distances from communities and biodiversity hotspots. More broadly, the government should employ the precautionary principle for using technology with considerable uncertainties related to its safety (OECD, 2023[31]).

Environmental impacts of hydrogen production, such as on water scarcity and biodiversity, are diverse across regions. Water is needed to produce hydrogen, and further water consumption in the area with high solar energy potential such as the north can exacerbate water scarcity. To address this issue, desalination technology will be required to provide water for hydrogen production, while its environmental impacts (e.g. brine) need to be managed. Development of facilities in open spaces, such as in the southern area of the country in Magallanes, can exert pressures on local biodiversity including birds and marine ecosystems. This highlights the importance of a territorial approach to strategic energy planning and to address distinct environmental impacts in each region.

Intensifying production of lithium must address social and environmental impacts

High global demand and elevated prices of critical minerals for the global energy transition provide historic opportunities to Chile, which has almost half of the world’s lithium reserves. However, lithium mining can exacerbate water scarcity, while chemical waste can contaminate soil and water. Chile must address the social and environmental impacts of intensifying lithium production. The development threatens the wetlands in Chilean Andes, which support the fragile salt flat ecosystem (Blair, Balcázar and Barandiarán, 2022[32]).

The National Lithium Strategy, developed in 2023, aims to create a network of protected Andean salt flats. It aims to protect at least 30% of these areas by 2030. A new regulatory framework for lithium production is under development with a focus on minimising local freshwater consumption. Hydrogeological and biodiversity baselines must be established before lithium production to measure the impact of the production activity on salt flats.

These measures are critical for sustainable production of lithium. If not well-managed, lithium mining in particular regions, such as the Salar de Atacama, may also deepen historical inequalities and negatively impact Indigenous Andean territories (Jerez, Garcés and Torres, 2021[33]). Lack of transparency and access to key information for local citizens can contribute to procedural injustice, while new job opportunities are not well distributed among the population in the region.

The Just Socio-Ecological Transition needs well-targeted policies to address social inequalities and environmental injustice

Environmental injustice is a historical and growing concern in Chile. Local populations in areas referred to as “overburdened zones” face various environmental burdens caused by industrialisation. Projects in high demand for global and domestic clean energy transitions, namely hydrogen, lithium and copper production as well as renewable energy projects, can increase local environmental concerns in affected regions, if not well managed. Screening and mapping tools can be a powerful means to help identify communities with environmental justice concerns and inform targeted actions. Chile should strengthen the evidence base to spur its efforts on environmental justice.

Chile has a bold commitment to the Just Socio-Ecological Transition. Putting it into practice will require strategic and targeted policies to address inequality and social impacts. For instance, phasing out coal‑fired power plants has raised some concerns about impact on employment. The consequences of the carbon tax are heterogeneous across households with different incomes and consumption patterns. Without further policy measures, the proposed increases in the carbon tax rate can have regressive distributional outcomes, given that lower income households spend a larger share of their budget on energy. The potential effects of a higher carbon tax on low-income households could be mitigated through well-targeted transfers. Introduction of redistribution mechanisms can also help so that revenues generated from carbon tax are used to provide such transfers.

Recommendations on sustainable development

Climate change and air pollution

Pursue comprehensive and timely implementation of the Framework Law on Climate Change with a whole-of-government approach to mainstream climate change in relevant sectors; clarify sectoral and regional plans with a coherent policy mix to put GHG emissions on the pathway to net zero; align the portfolio of investments with the planned measures; strengthen the MRV system; deploy sufficient technical capacity at national and sub-national levels.
Swiftly complete the closure of remaining coal-fired plants with a stepwise plan and clear timeline, mindful of the just transition; make renewable energy targets legally binding; accelerate integration of renewable sources into the electric grid; establish a gradual timeline towards higher levels and wider scope of carbon tax to better reflect the social cost of carbon; revisit the electricity price-setting mechanism to reflect the carbon tax in order to incentivise the transition towards renewables.
Set more stringent GHG emission targets for the transportation sector; expand investment in sustainable public transportation and improve its accessibility, efficiency, and coverage in urban areas with a specific focus on small- and medium-sized cities; promote investment in electrification of vehicles as well as EV-charging infrastructure, in collaboration with local authorities.
Pursue more stringent targets for GHG emission reduction for buildings, including those for energy efficiency and distributed power generation to address energy poverty; expedite initiatives to improve building thermal performance and broaden access to affordable and sustainable energy‑efficiency upgrades for households and major public and commercial building; enhance public awareness to reduce residential wood burning-related pollution.
Enhance vertical and horizontal co-ordination on climate change adaptation plans, informed by climate risk assessments; develop financing strategies and strengthen capacities of sub-national governments to manage climate-related risks and enhance resilience; pursue the development of indicators to monitor progress.
Biodiversity, waste and circular economy
Allocate sufficient resources to meet conservation goals and ensure the effective implementation of the Law for Nature; complete management effectiveness assessments for protected areas; improve biodiversity data management; establish robust baselines of natural capital and ecosystem services to incorporate biodiversity into national accounts and develop a national PES scheme; review and phase-out harmful incentives that undermine biodiversity conservation; prioritise biodiversity‑positive nature-based solutions.
Accelerate the implementation of new EPR schemes; establish specific regulations for construction waste; approve and promptly implement the bill for the valorisation of organic waste; strengthen use of economic instruments such as a landfill tax.
Modernise landfill facilities with more stringent environmental standards; devise a comprehensive long-term investment strategy for waste separation and treatment infrastructure; review and implement transparent sanitation tariff schemes to achieve cost-recovery while ensuring affordability.

Environmental governance and management

Ensure authorities deploy sufficient resources to successfully implement environmental commitments and overcome capacity challenges for implementation.
Further pursue decentralisation of environmental institutions and management to empower regions to deliver environmental services tailored to their challenges and needs with adequate resources and necessary capacity building; adopt the Stronger Regions bill to promote regional financial autonomy in line with regions’ responsibilities.
Introduce a strict liability regime for future damage to the land and ecosystem; develop and implement environmental remediation standards and plans, notably for soil contamination; establish a financing mechanism (e.g. remediation fund) for clean-up activities of past pollution, such as abandoned mining sites.
Strengthen the technical quality of EIA by creating safeguards against political influence and improving the capacity of the Environmental Assessment Service to obtain and review project information with sufficient resources to digitise the EIA process and produce reliable public databases; reinforce the validation process to ensure the screening for project entry into the SEIA is done properly; guarantee meaningful public participation, notably by Indigenous communities, in early stages of the process; incorporate climate change into EIA and SEA to enhance resilience in territorial and infrastructure planning.
Reinforce the SMA’s institutional capacity with sufficient resources and ensure the involvement of SMA inspectors in assuring compliance with sector-specific environmental permits; decentralise local complaints management; strengthen compliance monitoring and enforcement activities through technology and data analytic tools; reinforce the legal basis to improve the effectiveness of compliance enforcement and SMA’s sanctioning powers.

Policy coherence for green growth

Pursue the green tax reform: phase out the fuel tax refund for large-size cargo transport and diesel used by off-road vehicles; reduce the petrol-diesel tax gap; increase the vehicle tax rate and broaden its coverage to commercial vehicles; expand coverage of tax to mitigate CO emissions; tighten emissions and energy efficiency standards for all vehicles; increase the cost of owning and operating older and more polluting vehicles (e.g. through higher vehicle registration fees).
Identify public environmental expenditure trends with meaningful classification by environmental domains such as CEPA classification, through systematic surveys or budget-tagging, to inform relevant budgeting and environmental policy decision making.
Ensure safety, social and environmental considerations are taken into account in green hydrogen production supported by robust scientific evidence; adopt the precautionary principle in decisions related to safety risk across the value chain (e.g. producers, transporters, and users); ensure appropriate regulatory framework, permitting and land-use planning with a territorial approach.
Protect water resources and ecosystems, notably the salt flats, in the context of lithium production: strengthen and implement a new regulatory framework, including measures to achieve the biodiversity protection goal; advance scientific research and establish environmental baselines with necessary financing support.
Facilitate access to better-targeted social assistance programme, including for areas called “overburdened zones”, to support the Just Socio-Ecological Transition; enrich dataset and mapping tools to identify vulnerable communities facing disparate pollution burdens and inform actions to advance environmental justice.

2. Water management and policies

Water resources status and trends

Chile faces a severe and deepening water crisis resulting in increasing social conflicts

Chile’s freshwater resources, as well as major economic and population centres, are unevenly distributed across the country, resulting in stark contrasts with respect to availability and quality of water. The country’s distinct geography and climate variability across the territory add to the challenges for water management. The climate varies from the driest region in the world, including the Atacama Desert, to a humid climate and numerous glaciers in the south. Water scarcity is acute in the arid north, where most of the water-intensive mining activities occur. It is also a major challenge in central Chile, where agricultural production and population centres are concentrated. The country has about 1 250 rivers that flow from the mountains to the sea, with 101 hydrological basins, creating a complex, interconnected water system to manage.

The management of water resources has important economic, environmental and social consequences for the country. Chile continues to be a major producer and exporter of minerals and is pursuing ambitious investments in green hydrogen and lithium production. Chile also aims to become a global agricultural and food production power. All these activities depend on a secure supply of water and increasing demand will compound water stress. Hydropower accounts for around 20% of electricity supply, although recurring drought has contributed to the decreasing share of hydropower in power generation.

Chile faces extreme water stress and ranks 16^th among 164 countries for baseline water stress (Kuzma, Saccoccia and Chertock, 2023[34]). The pressures on water resources are growing due to rising demand, pollution, and declining, more erratic and unpredictable supply due to over-allocation of water resources, drought and climate change. The result is growing competition for water and increasing social conflicts, including with Indigenous communities. Significant drivers of disputes relate to property rights and the environment, regularisation of water rights, and overexploitation and uncontrolled use of groundwater (Donoso, 2021[35]).

The availability of freshwater resources is sharply declining

Pressure on freshwater resources has intensified over time, resulting in acute declines in availability. Chile is facing a “megadrought”, which has been ongoing for 14 years. Drought risk is high or very high in multiple provinces across the country. River flows are generally below 2015-20 averages. The situation is especially acute in central and northern Chile. For example, the Bio Bío River in central Chile has experienced declining flows. It is the second largest, has the highest hydroelectric potential and has been characterised as the most economically important river in the country. Water levels in many dam reservoirs are declining; in Lake Laja dam, for example, levels are far below capacity. This dam is a critical source of hydroelectricity and irrigation, and among the reservoirs with multi-year storage. As such, it serves as a “reserve battery” for the entire national grid. Growing uncertainty related to the quantity and quality of surface water has translated to intensifying pressures on groundwater.

Demand for groundwater exceeds sustainable levels of supply in most regions (Figure 4). As of 2015, total volume of known allocated water rights for groundwater abstraction was greater than sustainable supply, resulting in over-allocation of these resources. Limited monitoring and reporting impede a comprehensive understanding of total freshwater abstractions for surface water and groundwater. Less than half of registered infrastructure works for water abstraction are reporting volumes abstracted in the Directorate General for Water (DGA) system for Monitoring Effective Extractions; some are not reporting at all (Figure 4).

Figure 4. Groundwater demand exceeds supply in most regions, while less than half of abstraction works are monitored

Overall, agriculture is the major water user in Chile, but mining accounts for a large share of abstractions in certain regions

Overall, agriculture remains the major user of freshwater resources, accounting for around 72% of estimated demand, with industrial and municipal use accounting for relatively minor shares. Relative to water use for service-based activities and industrial activities, water used for agriculture is much less efficient when measured in terms of the value added in USD per volume of water used (in cubic metres).

National averages of water use mask critical variations across the territory. For example, whereas mining accounts for a relatively minor share of total abstractions, it accounts for a considerable share in the north of the country. In the Antofagasta Region (II), for example, mining accounts for nearly half of total consumptive use, contributing to depletion of non-renewable groundwater resources (Acosta, 2018[36]). Mining activities rely substantially on groundwater, although the share of non-conventional water supplies (e.g. desalination) has increased over time. Lithium-rich brines are also an issue for water management, given their ambiguous legal status. As they may be considered as an ore deposit, the DGA cannot manage them as water resources. The pressures on water resources from lithium mining are already acute in the Atacama basin and will extend to other regions as lithium extraction ramps up.

Water pollution is a major issue in Chile and not sufficiently monitored

Urban and industrial wastewater, along with fish farming, agriculture and mining, are the main sources of water pollution in Chile. Energy, fishing and aquaculture produce the largest shares of industrial wastewater. From 2013, the total volume of industrial wastewater increased until 2017, then declined somewhat and remained broadly steady through 2021.

A significant share of wastewater discharges goes directly into the ocean, while inland discharges are predominant in the Metropolitan region. It is estimated that over 60% of industrial discharges flow into sewerage networks and combine with domestic sewage, which is treated by wastewater treatment plants before discharge. The remaining 40% of industrial discharges is either deposited in river basins and irrigation channels or discharged to the soil or directly into the ocean without adequate treatment (OECD, 2017[37]). This is especially concerning in regions where water is scarce and low or non-existent levels of water flows restrict the capacity of water bodies to dilute acidity, hazardous chemicals and heavy metals.

Incomplete data and monitoring of surface and ground water quality, including a lack of key environmental indicators such as nitrogen and phosphorus balances, impede a comprehensive assessment of water pollution. Based on available data, chlorides (and related substances) accounted for the largest share (45%) of pollutants in water in 2020, with sulfates and sulfides accounting for around 34%. Diffuse pollution from agriculture is a concern, with high levels of nitrates and pesticides observed in surface water. Mining and other industrial activities, mainly in northern and central Chile, are also major sources of pollution. This makes heavy metal contamination a serious concern and challenge to drinking water supply and irrigation (Vega, Lizama and Pastén, 2018[38]).

Chile is taking steps to adapt to the impacts of climate change on water resources

Climate change impacts on the hydrological cycle and rising temperatures exacerbate water-related risks and generate uncertainty about future water availability. Climate impacts amplify seasonal variation in runoff and increasing flooding from heavy precipitation. In the arid north, there is high uncertainty about projected changes in precipitation. For central Chile, declining snowpack is expected to reduce runoff by up to 40%. In the southernmost regions, less runoff is projected due to decreased rainfall. Shrinking glaciers and the melting of ice is projected to accelerate in the far southern basins, resulting in a higher average runoff each year. Sea-level rise is expected to reduce groundwater recharge and increase salinisation of aquifers (Vicuña et al., 2021[39]).

Chile has taken important steps to better understand the impacts of climate change on water resources and integrate water into adaptation planning. The Ministry of Environment’s Atlas of Climate Risks provides information on projected climate change impacts and related risks. It includes a Water Resources module that details the projected impacts of climate, vulnerabilities and adaptive capacity at a granular spatial scale across the country. A Water Resources Climate Change Adaptation Plan mandated in the Framework Law on Climate Change is under preparation. The plan will consider measures to reduce climate risk and for disaster risk management to address floods, mudslides and other extreme events related to water resources. It considers nature-based solutions, which can enhance climate resilience, support water management goals (for both quality and quantity) and provide broader benefits for ecosystems and biodiversity cost effectively (OECD, 2020[40]).

The Chilean population enjoys high levels of access to drinking water and sanitation, although disparities in rural areas remain

Chile has achieved close to universal access to safely managed drinking water and a relatively high share of access to safely managed sanitation services. Access to both drinking water and sanitation services (WSS) improved between 2010 and 2020, from 96% to 99% for drinking water and from 63% to 78.6% for sanitation. The share of the population with access to WSS services in Chile is the highest in Latin America and the Caribbean (LAC) and broadly in line with OECD averages.

Private operators regulated by the government deliver WSS services in urban areas of Chile. This approach has spurred investments in WSS and has been largely successful in delivering nearly universal access to reliable, financially sustainable urban WSS services. Still, the share of non-revenue water from urban public water supply (around 30%) is relatively high. For wastewater treatment, more than two-thirds of wastewater receives at least secondary treatment. The share of primary treatment hovered just over 20% during 2010‑18. Challenges to confront include the need to reduce non-revenue water, expand tertiary treatment of wastewater and enhance resilience to climate change impacts.

As in many countries, Chile has notable urban-rural disparities in WSS services. The limited coverage of sewerage and wastewater treatment is a major issue. Many rural systems fail to meet quality standards. In northern and central Chile, domestic water supply often competes with other uses, causing resort to high-cost and inefficient emergency solutions (e.g. cistern trucks and desalination of brackish rivers). The number of WSS systems serving rural populations has increased by 35% between 2010 and 2022. Expansion of the service network continues, with plans to build some 25 water and sanitation systems annually. Nevertheless, there have been no effective mechanisms, including reliable sources of financing and technical capacity, to ensure proper operation and maintenance.

Timely and effective implementation of the November 2020 Law on Rural Sanitary Services, would provide a much stronger basis for the reliable delivery of rural WSS to communities. Robust economic regulation for rural WSS can set performance standards for service provision, monitor and incentivise performance, as well as assess development plans for expanding and maintaining service provision.

Institutional arrangements for water governance

Establishing river basin pilots is a positive step to address fragmented water governance

The institutional landscape for water management is one of the most centralised and, at the same time, fragmented in the OECD. A striking feature of the Chilean water management model has been the absence of integrated basin governance systems. In that context, Water Users Organisations (WUOs) have acquired the experience and social acceptance to manage water resources. However, they typically focus on managing irrigation activities related to a specific river, or section of a river, without control over all rivers and tributaries that form a basin (OECD, 2017[41]). There is limited consideration for the need for conjunctive management of surface water and groundwater.

The establishment of pilot organisations for river basin governance in 16 basins seeks to redress the fragmented nature of water management by anchoring activities at the basin scale and promoting decentralised decision making. The pilots also aim to expand the range of stakeholders involved in water management, beyond the remit and focus of the Monitoring Boards in place in several basins. This is a welcome step. To promote basin-scale governance effectively, river basin organisations will need clear decision-making authority and adequate human and financial resources. In the context of decentralisation, the roles of the national, regional and local authorities need to be clearly defined. A bill to formalise the establishment of basin-scale governance organisations, is pending. This bill should be a priority, to provide a legal framework to establish river basin authorities. It should be part of a broader strategy to establish autonomous bodies, with clear planning and management functions and the requisite human and financial resources to perform them.

At the same time, Chile is making important progress on river basin planning. The 2022 reform of the Water Code requires each of the basins to have a Strategic Plan for Water Resources in Basins (PERHC). They aim to be comprehensive with improved design that can better inform basin-level decision making and strengthen co‑ordination with other government plans. However, the development of these plans will require significant resources and technical capacity. Further, the plans are only indicative and not required by statute to be implemented. The regulation setting out the procedures to prepare, review and update the plans, and ensure public participation was approved by the Comptroller General of the Republic in January 2024. The regulation specifies the creation of “Strategic Water Resources Tables” in each basin to engage all relevant actors in the elaboration of the PERHC.

Chile lacks an integrated national authority to make strategic decisions for the water sector based on professional and technical recommendations. Efforts to improve co‑ordination of water management, including establishment of basin-scale governance and the Inter-Ministerial Committee on Just Water Transition created in 2022, are important developments. Still, these efforts are insufficient to advance the alignment and co‑ordination of all agents intervening in water management at all levels, as well as stakeholders.

Water policies, financing and investment

Chile must continue to reform its allocation arrangements to put water management on a sustainable footing

Water resource allocation is a fundamental issue for Chile to ensure the sustainable management of water resources. The legacy of water allocation in Chile presents a particularly challenging context. The 1981 Water Code established the system for allocation and use of water resources based on tradeable water use rights (derechos de aprovechamiento de aguas, DAAs). Water resources are legally defined as “national property for public use”, while rights to use water are defined as private property, allocated free of charge and granted in perpetuity. In many cases, water rights are freely tradeable, without prior authorisation or consideration of third-party impacts. While other countries have recognised private property rights to water and water markets, none has done so in such a deregulated and unconditional way as Chile. The State’s limited authority to regulate these rights and a lack of transparency of the water market has led to over-allocation and extreme concentration of water rights, overexploitation of some water bodies and drinking water shortages in some communities. The situation has fuelled conflicts among water users.

In April 2022, a major reform to the Water Code was enacted (Law 21.435). This helped bring the allocation regime a step closer towards good international practice, but serious challenges remain. Two major changes are fundamental. First, the law enshrines the priority of supply for human consumption, sanitation and subsistence domestic use both in the granting and in the exercise of water use rights. The law recognises access to water and sanitation as an essential and inalienable human right and that water is a national good for public use. Second, it defines water use rights as a real right over waters, allowing temporary use and enjoyment of them, in accordance with the rules, requirements and limitations prescribed by the Water Code. Thus, under the reform, new water rights are temporary and granted through a concession.

However, issues related to existing water rights and over-allocation in some basins and aquifers are unresolved. For example, minimum ecological flows must be established for the preservation of nature, considering the ecological conditions for each surface water body. These minimum ecological flows must be considered in the granting of new water rights. However, this is insufficient to ensure minimum ecological flows in the case of water rights already granted and to restore deteriorated freshwater ecosystems in over-exploited basins.

The number of registered rights allocated in the past decade has nearly doubled. Moreover, a significant number of water rights are not registered in the DGA’s Public Water Cadastre, impeding a comprehensive and accurate understanding of allocated water resources. Critically, the 2022 reform of the Water Code establishes that water rights not registered in the Water Property Registry at the time of the law’s enactment must be registered by 6 April 2025. After the deadline, unregistered water rights will expire. Registered water rights are projected to triple by the deadline, reaching more than 300 000.

DGA methods to determine the water available for allocation can underestimate variability and the impact of long-term trends, including climate change (Barría et al., 2019[42]). In addition to revising methodologies to inform water allocation decisions, the DGA could consider defining water rights as a share (percentage) of available resources rather than as an absolute volume of water that can be abstracted. This provides more flexibility over the course of the concession to adjust the amount of water that can be abstracted in line with availability. This approach can more equitably share the risk of scarcity across users. The OECD Health Check for Water Resources Allocation can guide a comprehensive review of allocation arrangements and bring the system more in line with best international practices (OECD, 2015[43]).

Emergency measures are inadequate to manage Chile’s water resources sustainably

As water scarcity becomes more common across the country and water shortages more persistent, current emergency measures will not be sufficient to deal with the “new normal”. Historically, Chile has addressed scarcity issues by increasing supply (Donoso, 2021[35]). The Drought Plan launched in 2021 focused on promoting investments in desalination, modernisation of irrigation (including construction plans for 26 reservoirs) and rural drinking water. 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. These should be fundamental pillars of Chile’s strategy to manage water resources over the long term, including addressing the impacts of climate change.

The DGA has been granted the power to curtail the exercise of water rights and the granting of new water rights when the sustainability of the water resource is threatened. The President can declare water scarcity zones in the event of a severe drought at the request of the DGA. The number of decrees designating scarcity zones has risen from 8 to 35 between 2016 and 2022, impacting half of Chile’s 56 provinces in 2022 (Figure 5). As of 2022, multiple water scarcity zones were concentrated in population centres.

Figure 5. Rising number of scarcity zones reflects extraordinary drought conditions

Number of decrees declaring scarcity zones and number of provinces affected

Water quality standards cover only a fraction of Chile’s water bodies

The development and implementation of water quality standards in Chile remain incomplete and require further updating to achieve improved water quality. There are only six secondary environmental quality standards (NSCAs) (focused on the preservation of aquatic ecosystems) out of 101 basins. Another eight environmental quality standards are under development. The approach to developing these environmental quality standards is complex and slow with dedicated human resources severely limited. Chile should accelerate development of secondary standards for water quality. A standard list of basic water quality parameters could be defined for the national territory to simplify the process. Implementation of measures towards achieving the national secondary standards could initially focus on priority basins with the most pressure on water quality and the greatest potential net benefits to society from improved water quality. Additional parameters could be defined for individual basins depending on hydrological considerations and specific pressures.

Wastewater discharge standards should be more stringent and cover more sectors

The coverage of wastewater discharge standards remains patchy and some of them have not been updated in the past two decades. Emission standards cover some, but not all, regulated pollutants and only selected activities and sectors. There are no specific standards and regulations for agricultural wastewater sources, including aquaculture. Wastewater discharge standards are disconnected from environmental quality standards for water bodies.

The ongoing reform of discharge standards for surface waters aims to increase their stringency for certain water bodies but does not consider requirements (in terms of parameters or limits) that make the use of tertiary treatment necessary to comply with the standard. Requiring nutrient removal in wastewater treatment would reduce excessive nutrient discharge into receiving water bodies, and thus eutrophication (Vega, Lizama and Pastén, 2018[44]). As a complement to improved wastewater treatment, Chile could also consider nature-based solutions, such as restoration or construction of wetlands and buffer zones, as a cost-effective approach to improve water quality.

Given the constraints related to water availability, Chile has recognised the need to promote reuse of treated wastewater (“grey” water) for industrial or agricultural activities. A few projects are being considered, although they remain at early stages. A law (21.075) regulating the collection, reuse and disposal of grey water was passed in 2018. However, the Ministry of Health has not yet formalised the corresponding regulations. A modification of the law was approved by Congress in October 2023, which expands the use of grey water to forestry and agriculture.

Legislation does not define who owns the rights to waters discharged through wastewater treatment plants into surface waters. A clear legal and regulatory framework is needed, with well-defined quality parameters and a robust monitoring system for treated effluent to be used for irrigation or other purposes. This is an important prerequisite to stimulate demand for and to promote development of wastewater reuse in Chile.

The remediation of contamination is a looming challenge, one the regulatory framework is inadequate to address. The Ministry of Environment and the DGA have made significant regulatory efforts to prevent future contamination, but there are no national efforts to identify, assess and remediate contaminated sites. Better water quality monitoring is a prerequisite to identify damages and remediation needs. Pollution Prevention and Decontamination Plans (PPDAs) can only be developed after violation of an environmental standard. These plans may employ emission standards, tradeable emission permits, emission taxes or user fees to promote environmental improvements (Melo and Perez, 2018[45]). However, the lack of secondary environmental standards for water quality directly impedes development of PPDAs for affected water bodies.

Lack of comprehensive data and systematic monitoring impedes sustainable water management

Chile has a range of disparate information sources and data platforms to inform management of water resources. Still, a number of information and data gaps exist, including in spatial coverage of the quantity and quality of surface water, groundwater and ecosystems, and monitoring frequency. There is an absence of research and monitoring of emerging contaminants (including pharmaceuticals, cosmetic and personal care products) (National Water Board, 2022[46]). The DGA’s system for Monitoring Effective Extractions reveals important gaps in reporting of abstractions. Building on the various data and information sources available, Chile would benefit from a centralised platform for water quality and quantity management. Such a platform would provide a more coherent and comprehensive source of key information to support efforts to monitor water resources and inform policy and planning.

Chile has robust tariffs for urban WSS, but should better leverage economic instruments for water management

Chile is a leader in the LAC region in effective economic regulation of urban WSS (Fernandez, Saravia Matus and Gil, 2021[47]). Tariffs for drinking water and sewerage are charged at a uniform rate per cubic metre across all users and are adjusted for inflation. A variable portion of the water tariff is adjusted seasonally, with a higher value during the peak summer period, reflecting the scarcity value of the resource. The peak seasonal rate contributes to managing demand to avoid reaching the capacity limits of the water distribution network. There is also an additional charge for overconsumption of drinking water. Overall, water tariffs in Santiago are generally lower than in other major cities in the region, while fully recovering operational costs and part of capital investment costs.

The use of broader economic instruments for water management in Chile is limited. There are no abstraction charges for use of water resources. To address speculation and hoarding of water rights, the 2005 Water Code reform introduced a non-use tariff for unused water rights. Wastewater effluents, pesticides and fertilisers are not taxed or charged. The previous review recommended such economic instruments for water management, but there has not been progress on this front.

Chile should explore a broader suite of financing options for water-related investments

Water-related investments account for a considerable and increasing share of investments by the Ministry of Public Works, reaching nearly 20% in 2021. Investments in rural drinking water and sanitation have increased by more than fourfold between 2010-21 – an important step towards closing the water services and sanitation gap for rural communities.

Until recently, long-term planning for water infrastructure investments in Chile has been lacking; projects have been developed independently, without co‑ordination at basin level. In a positive step, the Water Infrastructure Plan sets out a long-term vision from 2020 to 2050 with an emphasis on flexible infrastructure planning and adaptive design to address future priorities in the context of uncertainty. A strategic planning approach should consider a range of diverse investments, including nature-based solutions, over multiple future scenarios and evaluate options relative to stakeholder-defined goals (Brown, Boltz and Dominique, 2022[48]).

More than one-third of General Services Support to agriculture over 2010-21 targeted water infrastructure (OECD, 2022[49]). The National Irrigation Commission manages a cost-share grant programme to support small- and medium-scale initiatives for irrigation development and management. Small and medium landowners can complement their investments in irrigation and drainage projects for community or individual works with public grants. While irrigation efficiency has improved, the return flows of water to groundwater and surface water sources have declined (Anríquez and Melo, 2018[50]). In Chile’s allocation system, water saved from more efficient irrigation reverts to the water rights holder. This may encourage an increase in total area irrigated rather than contribute to overall water availability. Chile should review and assess the efficiency of investments for irrigation, their impact on groundwater recharge and ecosystems, and the possibility of implementing systems to return water flows to basins, in line with the national water management framework.

New sources of supply to address scarcity, such as desalination and wastewater reuse, have large investment needs. The question of how to finance them and who should bear the cost must be addressed. Chile’s experience with public-private partnerships (PPPs) for water infrastructure has been limited to date. Two desalination plants are indicated in the PPP Infrastructure Plan 2022-26. PPPs for water infrastructure could be further explored drawing on lessons from other OECD countries.

Chile could also explore a broader suite of approaches to scale up financing for water-related investments, tailoring financing approaches with the risk-return profile of investments. Use of proceeds bonds (e.g. “green bonds” or sustainability-linked bonds) for water investments have potential. These could build on Chile’s considerable experience with such bonds for other climate- and environment-related investments. Payment for ecosystem services could incentivise improved water management in basins, an instrument that has been widely used in LAC and the OECD (Leflaive, Dominique and Alaerts, 2022[51]).

Recommendations on water management

Institutional arrangements, planning and information

Establish a central governmental authority to regulate, plan, develop, conserve and protect water resources and provide holistic, overall water and wastewater management with clearly defined roles and responsibilities at all levels of governance (national, regional, river basin and local).
Strengthen inter-ministerial efforts to further advance the alignment and co-ordination of all agents intervening in water management at all levels, as well as stakeholders, to lay the groundwork for a central government authority on water.
Prioritise the approval of the bill for the formalisation of basin-scale governance to establish river basin authorities with clear planning and management functions and the requisite human and financial resources to perform them; drawing on lessons from pilots, expand basin-scale governance across the country, corresponding to relevant hydrological boundaries.
Ensure adequate resources and technical capacity to develop and implement Strategic Water Resources Management Plans, in close collaboration with relevant basin-level authorities and stakeholders; consider making the implementation of plans, at least certain provisions, legally binding; ensure meaningful early engagement of stakeholders, including extending the timeframe for participation.
Establish a centralised information system for water quality and quantity management to provide a coherent and more comprehensive source of information to support water management.
Strengthen monitoring and enforcement of water abstractions and water quality.

Water supply and sanitation

Reduce non-revenue water and enhance resilience to climate change impacts in urban WSS by integrating climate risk and vulnerability assessments into infrastructure planning.
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 arrangements

Further pursue a comprehensive reform of water allocation arrangements to address over-use and over-allocation of resources; revise methodologies to inform water allocation decisions to better account for variability and climate change impacts; consider defining water rights as a share of available resources; adopt effective and harmonised methodologies for minimum environmental flows and ensure they are enforced.
Update water quality standards; accelerate the development of secondary standards for water quality focusing on priority basins; simply the process by defining a standard list of basic water quality parameters for the national territory, with additional parameters tailored to specific basins and protected areas; develop and implement PPDAs for impacted water bodies; strengthen water quality monitoring; develop a Substances Watch list for contaminants of emerging concern.
Adopt more stringent wastewater discharge standards, broaden their coverage to other key sources of pollution through the development of specific emissions standards for productive sectors, notably agriculture, including aquaculture, among others; make an explicit link between discharge standards and secondary water quality standards.
Formalise a clear legal and regulatory framework on the collection, reuse, disposal and monitoring of grey water defining health and environmental criteria and clarifying ownership rights to discharged wastewater.
Strengthen regulations associated with the extraction and desalination of seawater, including the management of environmental impacts such as the disposal of brine.
Pursue nature-based solutions to promote resilient water management, ecosystems protection and provide flexibility in adapting to climate change, including managing 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.
Review and evaluate efficiency of investments for irrigation and their impact on groundwater recharge and ecosystems.
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.

Annex 1.A. Actions taken to implement selected recommendations from the 2016 OECD Environmental Performance Review of Chile

Recommendations	Actions taken
Chapter 1. Towards sustainable development
Addressing key environmental challenges
Establish and implement the suite of domestic climate policies to achieve Chile’s Intended Nationally Determined Contribution (INDC) for 2030; implement the NAMAs or adopt alternative measures to ensure that the 2020 target is achieved. Identify the long-term trajectory consistent with zero-net emissions by the second half of the 2050s; communicate long-term commitment to climate policy, whether through legislative or other means.	Greenhouse gas (GHG) emissions decreased in 2020 due to the COVID-19 pandemic, which enabled the country to meet its 2020 target. The Framework Law on Climate Change (FLCC) was promulgated in 2022. The Long-Term Climate Strategy (ECLP) was submitted to the UNFCCC in 2021, which functions as a roadmap to achieve the NDC target for 2030 and net zero by 2050, comprising more than 400 transition goals to reduce emissions. The strategy defines a national GHG emissions budget for 2030 and 2050 and emission budgets for seven ministries. Sectoral and regional plans to support achievement of the ECLP are still under development.
Continue improving the evidence base and capacity for mainstreaming climate change adaptation into public sector decision making; make the results of climate projections more accessible to end users (through a web portal, for example) to encourage adaptation by the private sector and other stakeholders.	The Climate Risk Atlas (ARCLIM) platform, launched in 2020, provides climate-risk indicators and visualisation of current and projected climate risks at the communal scale. The platform supports the design of public policies, the implementation of measures and their evaluation. In addition, in 2019, the COP25 Scientific Committee was created, which later became the Scientific Committee on Climate Change. The committee provides scientific evidence for decision making.
Implement a monitoring and evaluation framework for climate change adaptation and mitigation policies, including clear accountability mechanisms; reinforce capacity to produce timely emissions inventories; consider using intermediate milestones for longer-term emissions goals; undertake a national climate risk and vulnerability assessment, evaluate the climate resilience of large projects and develop indicators to monitor progress towards adaptation objectives.	The implementation of the national adaptation plans (PNACC) of 2014 and sectoral adaptation plans is monitored on a yearly basis by the Ministry of Environment (MMA). In addition, the FLCC mandates development of the National Climate Change Action Report every two years to monitor and report on progress. The ECLP aims to implement a monitoring, reporting and verification system within the framework of the updated PNACC (expected in 2024). Chile is developing further tools to monitor and assess progress of adaptation policy implementation for better decision making. This development of vulnerability and adaptation indicators is expected to be completed by 2030.
Analyse the consistency of current policy choices with decarbonisation in the longer term, particularly in the transport and energy sectors, and ensure that the necessary adjustments are made; design climate policy measures to ensure a coherent, aligned and integrated policy mix across key sectors responsible for emissions (e.g. energy and transport) and removals (e.g. land sector).	The ECLP defines a national GHG emissions budget for 2030 and 2050 and emission budgets for seven ministries. Chile established a mechanism to review progress and update ambition, which enables it to course-correct efforts to achieve the net-zero goal by 2050. For instance, the ECLP must be fully updated every ten years and partially every five years to incorporate the new NDC. Sectoral plans will be reviewed and updated every five years. Sectoral and regional plans to support achievement of the ECLP are under development.
Develop Pollution Prevention and Decontamination Plans (PPDAs) for all areas that do not comply with air quality standards and evaluate and update those that already exist; closely engage local authorities in the design, implementation and evaluation of specific policy measures within each PPDA.	Since 2016, 10 new saturated and/or latent zones for PM_2.5, PM₁₀ and SO₂ have been established, bringing the total number of PPDAs to 21, covering 16 urban and 5 mining areas. These PPDAs were developed through a collaborative process involving government agencies, non-governmental organisations, academia, municipalities and civil society organisations. Additionally, four PPDAs are under review and five are in preparation or approvals. Further improvements in air quality monitoring will help determine areas that do not comply with air quality standards and enable the development of corresponding PPDAs. The Superintendency of the Environment (SMA) has augmented its supervisory and enforcement capabilities to uphold air quality regulations. PPDAs have led to implementation of the Euro VI entry standard, stricter emission control measures for diesel and petrol, and sustainable housing initiatives.
Approve the proposed legislation creating the Biodiversity and Protected Areas Service and accelerate its implementation; ensure the proposed service has adequate financial and human resources to fulfil its mandate.	The Law for Nature, which creates the Biodiversity and Protected Areas Service (SBAP), was approved in June 2023 and is expected to be fully in force by 2027. The approval of this law will increase the budget for environmental institutions by almost 58%, promote private participation in the management of protected areas and double the number of park rangers.
Accelerate the development and update of the management plans for all protected areas, and systematically review their implementation; ensure that the plans set clear priorities, targets and progress indicators.	Chile has adopted a new planning methodology for terrestrial protected areas based on the Conservation Measures Partnership, which focuses on identifying threats, prioritising strategies, setting specific objectives and establishing progress indicators. This methodology has been used to develop 10 management plans since 2017, and an additional 28 plans are in development. Chile has implemented four Ecosystem-Based Management Plans. In 2022, Sernapesca updated its Guide to Marine Parks and Reserves.
Develop and implement a strategy to encourage private conservation initiatives through carefully designed incentives (e.g. incentives for donations of land in priority areas to the protected area system; contracts with landowners); bring private conservation initiatives into the national system of protected areas; and support financing management plans and protection activities.	In 2017, Law 20.283 on the recovery of native forests and forest development provided landowners with the legal framework to conserve their land in perpetuity, ensuring its long-term protection and biodiversity value. The National Forestry Corporation (CONAF) actively supports establishment of private conservation and has developed a methodology to assess the environmental value of properties and their conservation potential. The enactment of the Law for Nature introduces a comprehensive framework for biodiversity protection, encompassing various actions and instruments to promote private conservation initiatives and integrate them into the national system of protected areas.
Further expand the use of economic instruments to encourage biodiversity conservation and sustainable use, raise additional revenue and leverage private sector investment; in particular, consider introducing water effluent charges, taxes on fertilisers and pesticides, and payments for ecosystem services programmes; expand the use of biodiversity offsets.	In 2019, the UN REDD programme financed projects that support payment for ecosystem services (PES). CONAF has implemented five pilot projects for the territorial implementation of PES models. The Law for Nature promotes use of economic instruments to increase financing for the conservation of biodiversity and ecosystem services. This includes contracts for PES, enabling the possibility to develop a national PES scheme. There are no specific taxes on fertilisers and pesticides. On the contrary, to counter the effects of global supply disruptions, subsidies were implemented.
Accelerate efforts to build the knowledge base on the status and trends of biodiversity, including classification of species and assessment of the status of terrestrial, inland water and marine ecosystems; further engage academic and research centres in filling knowledge gaps and support policy development.	Species classification and reclassification have advanced significantly since 2016. The creation of Sistema de Información y Monitoreo de Biodiversidad (SIMBIO) in December 2021 allows advancement in biodiversity documentation and monitoring. The Scientific Committee on Climate Change (2019) established the Biodiversity Table, which has produced nine comprehensive reports from 2019 to 2021.
Adopt the draft waste framework law at the earliest opportunity and implement extended producer responsibility schemes for key types of environmentally harmful products.	Law 20.920 (REP Law), approved in 2020, established extended producer responsibility schemes for priority products: tyres; containers and packaging; oils and lubricants; electrical and electronic equipment; and batteries. Decrees implementing the REP LAW for oils and lubricants, electrical and electronic equipment, fishing nets and textiles are under preparation.
Encourage waste prevention, recycling and recovery of products not covered under the planned extended producer responsibility schemes (e.g. organic waste), including by: i) making greater use of charges and taxes on generated waste; ii) considering fiscal incentives for recycled products; iii) reviewing the incentives and funding mechanisms for waste management in small municipalities; and iv) raising awareness among citizens.	The REP Law created the Recycling Fund to finance projects, programmes and actions to prevent waste generation and promote reuse, recycling and other municipal waste recovery initiatives. In 2021, the National Organic Waste Strategy established a comprehensive plan to address the growing challenge of organic waste management. It set ambitious recovery targets (66% of organic waste by 2040), emphasising the need for efficient collection, composting and anaerobic digestion processes. A bill to further promote the valorisation of organic waste and strengthen planning and governance of waste management is under discussion. Implementation of incentives to discourage waste generation and landfilling is pending.
Improving environmental governance and management
Develop and implement a coherent policy for regulating pollution releases into air and water from stationary sources, including technique-based emission/effluent limit values for large, high-risk industrial installations and sector-specific emission and effluent standards for facilities with lower environmental impact.	Progress on strengthening environmental standards has been limited. Since 2016, some emission standards for stationary sources were added or updated, including for odours and arsenic. However, the country lacks environmental quality standards on soil (under development) and standards for water resources are incomplete. There is no implementation of technique-based emission/effluent limit values for large high-risk industrial installations and sector-specific emission and effluent standards for facilities with lower environmental impact.
Improve the EIA process to ensure it includes meaningful consideration of project alternatives, guarantees public participation in its early stages and takes better account of potential environmental impacts, particularly on ecosystems.	Evaluation of alternative scenarios is not required in the environmental impact assessment (EIA) process. Under the Escazú Agreement, the Environmental Assessment Service strives to ensure access to information and improve citizen participation. The Service publishes guidance and conducts training courses. However, citizen participation needs to improve further, notably through participation of Indigenous peoples and ensuring public participation at the early stages of the process.
Harmonise environmental compliance and enforcement policies across various national competent authorities and ensure the involvement of SMA inspectors in assuring compliance with sector-specific environmental permits; increase the enforcement capacity of the SMA; consider introducing criminal penalties for egregious environmental offences.	SMA compliance monitoring has been strengthened mainly through incorporation of remote monitoring. This has contributed to greater geographic coverage of compliance monitoring, notably in the fishery sector. However, the SMA does not monitor compliance directly in some cases, to the extent environmental impact mitigation measures concern the competence of sectoral ministries. Instead, the SMA co‑ordinates with sectoral ministries by sharing control tasks through agreements. In 2023, Congress passed a law enabling criminal sanctions for environmental violations. The law modifies the Penal Code, introducing an article “Crimes against the environment”, which criminalises certain activities. Similarly, amendments to the Organic Law of the SMA incorporate new articles that penalise activities such as maliciously dividing projects into smaller ones to avoid the full EIA process.
Strengthen the information base to support environmental decision making by expanding data collection and management with respect to water allocation, abstraction and quality, air pollution, biodiversity protection, etc., and make this information available to the public, as well as to international bodies.	In October 2022, MINREL's Decree promulgated the Escazú Agreement, which promotes the rights of access to environmental information, public participation in environmental decision-making processes, and access to justice in environmental matters. Daily air quality forecasts with restriction and prohibition measures, community alerts and citizen education programmes have been developed since 2016 through the management of PPDAs. Moreover, the Registro de Emisions y Transferencia de Contaminates (RETC) provides a comprehensive repository of pollutant emissions information. The creation of SIMBIO in 2021 advanced biodiversity documentation and monitoring efforts, providing a central platform for accessing and managing data across various administrative levels. Chile updated the National Water Balance in 2017 and has several other data and information systems on hydrological systems. Still, a number of information and data gaps on water allocation and quality remain.
Enhancing policy coherence for green growth
Increase the tax rates on petrol and diesel; gradually reduce the petrol-diesel tax gap and phase out the tax refund for the diesel used by heavy goods vehicles.	A corrective tax bill is pending. The bill aims to increase the tax on diesel to narrow the petrol-diesel tax gap.
Consider revising the new tax on emissions of local air pollutants and CO₂ from large stationary sources: i) increase the tax rate on CO₂ on the basis of pre-defined steps to better reflect the social cost of emissions; ii) include additional emission sources, such as copper smelters and other industrial plants; iii) assess the interactions between the electricity price-setting mechanisms and the CO₂ tax, and consider the adjustments needed to safeguard the full effectiveness of the tax; and iv) expand the geographical basis of the air pollution component of the tax to relevant airsheds.	Since 2017, a green tax for stationary sources has taxed emissions of CO₂ (carbon tax, at USD 5 per tonne of CO₂), as well as local pollutants. Facilities that operate based on non-conventional renewable generation whose primary source is biomass are exempt from the carbon tax, although the tax for local pollutants applies. The government has put forward a revision of the current tax, including increasing the rate, as part of its fiscal reforms. However, such reforms are still in the technical design phase. Since 2022, the carbon tax applies to large emitters (those whose emissions are 100 or more tonnes per year of particulate matter, or 25 000 or more tonnes of CO₂ per year), without exclusion of any sector. The full amount of the carbon tax is not included in the variable costs of electricity generation plants, which determine wholesale electricity prices and the order of dispatch. This creates economic distortions in the power sector and needs to be changed for carbon pricing to work effectively.
Explore the introduction of a cap-and-trade system for relevant pollutants and emitters that are not covered by the new tax on emissions of local air pollutants and CO₂.	A carbon offsetting system came into force in February 2023. It provides the possibility to offset CO₂ emissions with government-certified GHG abatement certificates. This system covers both CO₂ and local pollutants PM, SO₂ and NO_x. This system can pave the way for a more sophisticated market that allows flexibility in emissions reductions by offsetting tax liability with projects that reduce emissions directly.
Broaden the coverage of the vehicle tax to commercial vehicles; delink the environmental and price elements of the vehicle tax; consider increasing the rates of the energy efficiency and NO_x components of the tax.	There have been no reforms or modifications to the tax on the first sale of vehicles since its creation.
Ensure that major investment programmes systematically consider environmental and climate objectives, include sustainability criteria to guide implementation and indicators to monitor environmental impacts.	The strategic environmental assessment guide to incorporate climate change into territorial planning was established in 2023. The FLCC mandates the use of the guide. An update on the current regulations of the Environment Assessment Service to make it coherent with the FLCC is pending.
Chapter 2. Water management and policies
Introduce a risk-based approach to water resource management by developing the knowledge base on water risks to inform decision making; consider enhancing the role of water roundtables to resolve water conflicts.	Since 2019, the Directorate General for Water has developed Strategic Water Management Plans (PEGHs) describing key characteristics of basins and actions to address management gaps. The reform of the Water Code (Law 21.435) defines new water rights as temporary and granted through a concession, a step towards better managing risk of scarcity. The reform also advanced basin-level planning by requiring a Strategic Plan for Water Resources in Basins (PERHC) for each of the 101 basins. A Water Resources Climate Change Adaptation Plan mandated in the FLCC is under preparation. The MMA’s Atlas of Climate Risks provides information on projected climate change impacts and related risks.
Reinitiate institutional and policy reforms to implement integrated watershed management that would bring together water quantity and quality planning and regulation	Basin-level planning by requiring a PERHC for each of the 101 basins will incorporate water quantity and quality aspects of water management. Pilot organisations in 16 river basins aim to establish river basin governance at the relevant hydrological scale.
Design and implement further reforms of the water allocation regime to ensure an effective and enforceable cap on abstractions that reflects environmental and ecological requirements and sustainable use; establish “essential” water uses (such as public water supply, sanitation and ecosystem services) as a high priority use; speed up the regularisation and registration of water-use rights to make the public register on water rights fully operational and transparent; consider auctioning the allocation of new rights (for systems that are not already over-allocated); strengthen enforcement and sanctions for illegal abstractions.	The reform of the Water Code (Law 21.435) included several elements to strengthen water allocation. Notably, the reform: enshrined the priority of water supply for human consumption, sanitation and subsistence in the granting and exercise of water use rights declared groundwater as a national asset for public use established that water rights not registered in the Water Property Registry at the time of the law’s enactment must be registered by 6 April 2025. After the deadline, unregistered water rights will expire. A bill to amend the Criminal Code to increase penalties for crimes of illegal water abstraction is pending.
Develop a strategy to address over-allocation in basins and aquifers where water-use rights exceed the sustainable capacity of the water body.	PERHCs must have a recovery plan for aquifers whose sustainability, in terms of quantity and physicochemical quality, is affected. The reform of the Water Code authorises the DGA to curtail the exercise of water rights due to the non-effective use of the resource or if the sustainability of the water resource is threatened. A declaration of exhaustion of natural sources (article 282) prohibits the granting of new water rights in sources of surface water (rivers, lakes, lagoons). There have been 15 such declarations to date and the DGA projects at least 50 new declarations by 2025. In cases of non-effective use, DDAs for consumptive uses expire in five years; for non-consumptive uses they expire in ten years.
Continue expanding coverage of water quality standards and accelerate implementation of the planned water quality and ecological information platform, with a view to systematically collecting and publishing water quality data; improve monitoring of soil contamination, as well as of water abstraction to protect ecosystems, notably wetlands.	Eight secondary environmental quality standards (NSCAs) are under development. The DGA has expanded its network of water quality monitoring stations, covering 77% of basins. Still, a comprehensive and integrated monitoring network is lacking.
Continue to encourage investment in public water supply infrastructure with a view to securing drinking water supply, reducing water distribution losses and enhancing resilience against water shortages; maintain investment to improve wastewater treatment capacity, especially in rural areas.	Investments in rural drinking water and sanitation (WSS) increased more than fourfold between 2010-21. The number of WSS systems serving rural populations increased by 35% between 2010-22 as a result of an investment programme led by the Ministry of Public Works and implemented by the Directorate of Hydraulic Works.
Systematically assess the impacts of subsidies for irrigation and small-scale mining on groundwater recharge, biodiversity and ecosystems, with a view to reforming these subsidies; decouple agricultural support from input use and the expansion of agricultural land, to ensure the protection of sensitive ecosystems.	Pending.
Expand efforts to increase water use efficiency in all economic sectors, particularly in agriculture and mining; systematically monitor freshwater abstraction and the use of desalinated seawater to prevent negative impacts on water ecosystems.	Irrigation efficiency has improved, although the return flows of water to groundwater and surface water sources have declined. Water saved from improvements in irrigation efficiency reverts to the water rights holder. Less than half of registered infrastructure works for water abstraction are reporting volumes abstracted in the DGA’s system for Monitoring Effective Extractions; some are not reporting at all.

Source: OECD Secretariat based on country submission and findings of the 2024 Environmental Performance Review.

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Notes

← 1. Twelve sectors are included in the FLCC: Forestry and Agriculture; Biodiversity; Fisheries and Aquaculture; Health; Infrastructure Services; Cities; Energy; Tourism; Coastal areas; Water resources (under development); Mining; and Transport.

← 2. The target of reducing GHG emissions by 20% by 2020 compared to business as usual (BAU) emissions projected since 2007.

← 3. ECLP must be fully updated every ten years and partially every five years to incorporate the new NDC. Sectoral plans will be reviewed and updated every five years.

← 4. Targets are not to exceed 1 100 million tonnes of carbon dioxide equivalent (tCO₂e) between 2020 and 2030, and to reach a GHG emissions level of 95 million tCO₂e excluding the LULUCF sector by 2030.

← 5. This is referred to as a “low-emission energy” in the target stated by the Chilean authority.

← 6. Data from Chile come from SIMBIO National Registry of Protected Areas. They differ slightly from data reported in the database of OECD Environment Statistics, which show 41.1% of the exclusive economic zone and 20.5% of terrestrial area covered by protected areas in 2022.

← 7. Although, permits (RCAs) proscribe environmental impact mitigation measures, including those related to sector-specific issues.

← 8. Large emitters are those whose emissions are 100 or more tonnes per year of particulate matter, or 25 000 or more tonnes of CO₂ per year. If either of these two thresholds is equalled or exceeded, the regulated source must pay for the total emissions of the pollutants concerned.

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