The management of water resources has important economic, environmental and social consequences for Chile. This chapter examines pressures and trends related to the country’s water resources, focusing on water quantity and quality, the impact of climate change, and the state of water and sanitation services. It subsequently analyses water strategies, river basin plans, and institutional arrangements. The chapter concludes with a discussion of policy instruments such as water allocation, water quality standards and regulations, data and information, economic instruments, and finance and investment for infrastructure. Throughout the chapter, good practices in other OECD member countries, such as Israel and Spain, are highlighted.
OECD Environmental Performance Reviews: Chile 2024
OECD Environmental Performance Reviews
2. Water management and policies
Abstract
2.1 Pressures, state and trends
2.1.1 Water quantity
Chile’s freshwater resources are unevenly distributed across the country, resulting in stark contrasts for water availability and quality. The country’s distinct geography and climate variability across the territory add to the challenges for water management. Chile has the world’s longest national mountain ridge and shoreline, which provides a high potential for hydropower. The climate varies from the driest region in the world, including the Atacama Desert, to numerous glaciers and a humid climate in the south. The country has about 1 250 rivers that flow from the mountains to the sea. Its 101 hydrological basins, including many small-scale basins, create a complex, interconnected water system.
Water scarcity is acute in the arid north, where most of the water-intensive mining activities occur. It is a major challenge in central Chile, where agricultural production and population centres are concentrated. Pressures on water resources are growing due to various factors: rising demand; pollution; and declining, more erratic and unpredictable supply due to the over-allocation of water resources, drought and climate change. The impact of climate change on the hydrological cycle and rising temperatures generate considerable uncertainty about future water availability and demand.
The management of water resources has important economic, environmental and social consequences for the country. Chile aims to become a global agricultural and food production power. In the context of the global transition to net zero, by 2040, demand for Chile’s main minerals – copper and lithium – is projected to nearly double and increase tenfold, respectively (OECD, 2023[1]). Chile is also pursuing ambitious investments in green hydrogen. All these activities depend on the secure supply of water. Intensifying pressures on available water resources have resulted in growing competition for water among industry, agriculture, energy production, public water supply and ecosystems. This, in turn, has resulted in social conflicts, including with Indigenous communities. The competition for water has amplified the number of conflicts and their extent across the national territory. Significant drivers of disputes relate to property rights and the environment, regularisation of water rights, and overexploitation and uncontrolled use of groundwater (Donoso, 2021[2]).
The availability of freshwater resources is sharply declining
Chile faces extreme water stress and ranks 16th among 164 countries for baseline water stress (Kuzma, Saccoccia and Chertock, 2023[3]). Pressure on freshwater resources has intensified over time, resulting in acute declines in availability. Chile has been facing a “megadrought” for 14 years. Drought risk is high or very high in multiple provinces across the country (Figure 2.1). River flows are generally below 2015-20 averages. The situation is especially acute in northern and central Chile. For example, the Bio Bío River in central Chile has experienced declining flows. It is the second largest river, with the highest hydropower potential. As such, it has been characterised as the most economically important river in the country. Water levels in many dam reservoirs are declining; in Lake Laja, for example, levels are far below capacity (Figure 2.2). This dam is a critical source of hydroelectricity and irrigation and among the reservoirs with the capacity for multi-year storage. It serves as a “reserve battery” for the entire national grid (Bauer, 2013[4]).
Figure 2.1. Multiple provinces are at high or very high risk of drought
Note: The drought risk index is a combined index that integrates indicators of meteorological drought, measured through the Standardized Precipitation Index, and agricultural drought, estimated through the Normalized Difference Vegetation Index.
Source: CONAF (2021), Actualización a Escala Nacional de los Mapas de Desertificación, Degradación de las Tierras y Sequía de Chile, [National Scale Update of the Desertification, Land Degradation and Drought Maps of Chile].
Figure 2.2. The availability of freshwater resources is sharply declining
Source: SINIA (2022), Medio ambiente y el impacto de la actividad antrópica: Aguas Continentales [Environment and the impact of anthropogenic activity: Inland Waters], Reporte del Estado del Medio Ambiente Chile 2022 [State of the Environment Report Chile 2022].
Growing uncertainty related to surface water supply has translated into intensifying pressures on groundwater. Demand for groundwater exceeds sustainable levels of supply in most regions (Figure 2.3). 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 2.3).
Figure 2.3. Groundwater demand exceeds supply in most regions, while less than half of abstraction works are monitored
Note: Left panel: SHAC = sector hidrogeológico de aprovechamiento común (hydrogeological sector of common use), a body of groundwater that can be defined and managed as a unit. Sustainable volume: annual amount of water associated with the recharge of the aquifer. Total committed: amount of water that corresponds to all constituted and recognised water rights. Total requested: annual amount of water that corresponds to all applications for water rights, both resolved and pending. Data are underestimated.
Right panel: MEE = monitoring effective extractions. Data are available as of May 2023. Values are provisional. Total works reporting considered works reporting on line. Regions of Aysen and Magallenes are not registered for groundwater.
Source: DGA (2016), Atlas del Agua, [Water Atlas], Chapter 4, pg.116; SINIA (2023), Monitoreo de Extracciones Efectivas [Monitoring of Effective Withdrawals].
Overall, agriculture remains the major user of freshwater resources, accounting for around 72% of estimated consumptive water demand, with industrial and municipal use accounting for minor shares (Figure 2.4). Hydropower was the second-largest energy source in power generation after coal, accounting for 20% of electricity supply in 2022. This share varies significantly year-on-year, depending on hydrological conditions; although recurring drought conditions have contributed to the generally declining share of hydropower in power generation. Environmental concerns have slowed developments of new hydropower plants, but multiple plants are still being developed (IEA, 2018[5]). Green hydrogen projects are expected to increase water demand, although these will be required to use desalinated water. In northern and central Chile, due to drought conditions and a lack of secure water rights, domestic water supply often competes with other uses. This leads to high-cost and inefficient emergency solutions (e.g. cistern trucks and desalination of brackish rivers).
Relative to water use for service-based activities and industrial activities, water used for agriculture is much less efficient. Water use efficiency of service-based activities and industrial activities has increased significantly over 2010-19, while water use efficiency in agriculture has increased only slightly (Figure 2.4).
Figure 2.4. Agriculture accounts for the largest share of water withdrawals and is less economically efficient than other water uses
Note: Water demand for electricity generation can be categorised into two types: non-consumptive (hydroelectric power plants) and consumptive (thermal power plants utilising water for cooling systems). Indicator for target 6.4.1. “Change in water use efficiency over time”, UN Sustainable Development Goals.
Source: DGA (2017), Estimación de la Demanda Actual, Proyecciones Futuras y Caracterización de la Calidad de los Recursos Hídricos en Chile [Estimation of Current Demand, Future Projections and Characterisation of the Quality of Water Resources in Chile], Volume II, Table 27.1.1. Food and Agriculture Organization (2021), SDG Indicators, FAOSTAT (database).
National averages of water use mask critical variations across the territory. Whereas mining accounts for a relatively small share of total abstractions, it represents a considerable share in the arid north. For example, in Antofagasta, the world’s leading copper and second largest lithium-producing region, mining accounts for nearly half of total consumptive use, contributing to depletion of non-renewable groundwater resources (Acosta, 2018[6]). Mining activities rely substantially on groundwater, although the share of non‑conventional water supplies (e.g. desalination) has increased over time (Figure 2.5).
Figure 2.5. Water consumption for copper mining has increased steadily
Water abstraction and circularity rate in copper mining, by source, 2012-21
Source: COCHILCO (2022), Anuarío de Estadísticas del Cobre y otros Minerales 2002-21 [Yearbook of Statistics on Copper and Other Minerals 2002-21].
Box 2.1. Increasing lithium production presents challenges for water management
In the context of the global transition to net zero, demand for lithium is projected to increase tenfold by 2040. In Chile, lithium is produced from brines; the process involves the evaporation of water over long periods. The Atacama Salt Flat in Antofagasta is the site of Chile’s two largest lithium mines. This area is one of the world’s driest regions and also the location of internationally recognised wetlands and nationally protected areas whose boundaries often overlap with salt flats.
Water evaporation from the brines results in fresh (or brackish) groundwater flowing into the salt flats, replacing the evaporated water. This may decrease freshwater availability for ecosystems, as well as for other uses, including for drinking water supply. Lithium-rich brines are managed as a mining resource, with the impacts on the environment managed through environmental permits.
The pressures on water resources from lithium mining are already acute in the Atacama basin, where the lithium industry is the main abstractor of water. Lithium mining and processing also puts pressure on water quality, though extensive assessments of the extent of contamination and impacts are lacking. Pressures will extend to other regions where lithium extraction ramps up. Use of desalinated water for mining operations is already on the rise. However, it must be transported long distances from the coast to altitudes of up to 3 000 m above sea level, an energy-intensive process. In addition to relying on non-conventional sources, water use efficiency will need to improve. The impact on fragile salt flat ecosystems and wetlands must also be managed carefully.
2.1.2 Water quality
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. Discharges from mining, port and transport infrastructure, and manufacturing also contribute to water pollution. A significant share of wastewater discharges goes directly into the ocean, while inland discharges are predominant in the Metropolitan region. All or nearly all of wastewater discharges are released into the ocean in the regions of Atacama, Arica and Parinacota, Tarapacá, Valparaiso, Antofagasta, Bio Bío and Magallanes and Antártica Chilena (Figure 2.6).
Figure 2.6. Urban and industrial wastewater and fish farming are main sources of water pollution
Pollution emissions to water bodies, 2020
Note: Panel A: The region Arica and Parinacota pollutant emissions to water correspond to 577.74 tonnes in oceans.
Source: SINIA (2022), Medio ambiente y el impacto de la actividad antrópica : Contaminación [Environment and the impact of anthropogenic activity : Pollution], Reporte del Estado del Medio Ambiente 2022 [State of the Environment Report 2022].
Incomplete data and monitoring of surface water and groundwater quality impede a comprehensive assessment of water pollution in Chile. 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% (Figure 2.6). Diffuse pollution from agriculture is also a concern, with high levels of nitrates and pesticides observed in surface water. Monitoring the extent of the problem is difficult, as key environmental indicators such as nitrogen and phosphorus balances are lacking (OECD, 2022[8]).
In addition to agriculture, mining and other industrial activities, mainly in northern and central Chile, are major sources of pollution. This makes heavy metal contamination a serious concern and challenge for drinking water supply and irrigation (Vega, Lizama and Pastén, 2018[9]). It is estimated that more than 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[10]). 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.
2.1.3 Water management in the context of climate change
The impact of climate change on the hydrological cycle and rising temperatures exacerbate water-related risks with diverse impacts across the territory. Climate change also generates uncertainty about future water availability and greater frequency and intensity of extreme events. Climate impacts amplify seasonal variation in runoff and increase 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 are 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 (Vicuna et al., 2021[11]).
The Ministry of Environment (MMA) has developed an Atlas of Climate Risks (ARClim) to provide 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. This is a valuable initiative to inform climate adaptation and sustainable water resources management. Figure 2.7 illustrates the variation in several key risks related to climate change and their dispersion across the territory.
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. The plan considers nature-based solutions. Research and experience with nature-based solutions attest to their capacity to deliver multiple benefits for water management, climate adaptation and biodiversity cost effectively (OECD, 2020[12]). They can also contribute to managing uncertainty related to climate change by avoiding or delaying lock-in to capital-intensive grey infrastructure, allowing for flexibility to adapt to changing circumstances (OECD, 2013[13]).
Figure 2.7. Projected variation in water-related risks due to climate change
Variation in risks related to hydrological droughts, public water insecurity and flooding between historical (1980-2010) and future scenarios (2035-65 under RCP8.5)
Notes: Hydrological drought risk incidence (provincial level): hydrological drought is defined as the condition of extreme deficit water storage and flows in the river basin with respect to historical conditions (1980-2010); future scenarios consider 2035-65 under RCP8.5. The severity of a drought is characterised by its magnitude and frequency. The risk index considers hazard, exposure and vulnerability. Higher risks are reflected by higher demand than supply in areas with extremely low flows and limited resilience. Risk to public water security: meteorological drought is defined by the precipitation deficit. The map displays the impact of climate change, as expressed in the incidence of drought and potential evapotranspiration, on public water supply (urban and rural). It represents which municipalities are more likely to experience adverse health and well-being impacts associated with water insecurity under historical and/or future climatic (hazards), social and institutional conditions (exposure and resilience). Data at the municipal level are limited to the information available in the 2018 National Water Balance
Source: MMA (2020), Atlas de Riesgos Climáticos: Recursos Hídricos [Atlas of Climatic Risks: Water Resources], arclim.mma.gob.cl; Biblioteca del Congreso Nacional de Chile, Información Territorial, Mapas vectoriales: Mapoteca [Library of the National Congress of Chile, Territorial Information, Vectorial Maps: Map Collection], www.bcn.cl/siit/mapas_vectoriales/index_html (accessed 3 August 2023).
2.1.4 Water supply and sanitation services
Chile has achieved close to universal access to safely managed drinking water and a relatively high share of access to safely managed sanitation services (Figure 2.8). 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 79% for sanitation. The share of the population with access to WSS services in Chile is the highest in the Latin America and Caribbean (LAC) region (74% for drinking water and 46% for sanitation in LAC). This is broadly in line with OECD averages, although access to sanitation remains below the OECD average of 84%.
Figure 2.8. Chile has achieved nearly universal access to drinking water and relatively high levels of access to sanitation in urban areas
Progress assessment of SDG 6 “Clean water and sanitation”, selected LAC countries and OECD average, 2010-20
Note: Indicator 6.1.1 refers to the population supplied with intra-domiciliary water from an aqueduct; Indicator 6.2.1a refers to the population that lives in dwellings with a sanitary service connection to sewage or septic tank. OECD LAC averages includes OECD members (i.e. Chile, Colombia, Costa Rica and Mexico) and candidates for accension (i.e. Brazil and Peru).
Source: WHO/UNICEF (2021), Joint Monitoring Programme for Water Supply, Sanitation and Hygiene.
Private operators regulated and supervised by the government deliver WSS services in urban areas of Chile. Private operators have 30-year concession contracts, with the infrastructure owned by the state. The privatisation of the sector is credited with spurring significant investment in wastewater treatment, with a rapid increase of coverage from zero to universal in a span of roughly 15 years. This approach has been largely successful in delivering nearly universal access to reliable, financially sustainable urban WSS services. Still, the share (around 30%) of non-revenue water from urban public water supply is relatively high. Challenges include the need to reduce non-revenue water, expand tertiary wastewater treatment and enhance resilience to climate change impacts.
For wastewater treatment, more than two-thirds of wastewater receives at least secondary treatment. The share of primary treatment hovered at just over 20% from 2010 to 2018. Maritime outfalls, located mainly in coastal cities in the north, account for 11.6% of the total number of wastewater treatment systems (Molinos-Senante, 2018[14]). These rely on dilution in the ocean rather than removal of pollutants from wastewater, and hence are not effective wastewater treatment systems. Nutrient removal in wastewater treatment plants is necessary to avoid excessive nutrient discharge into receiving water bodies. This is common practice in many OECD countries but limited in Chile (Vega, Lizama and Pastén, 2018[9]). Excessive nutrient discharges contribute to eutrophication of water bodies.
Despite overall high rates of access to WSS, there are important urban-rural disparities in Chile, as in many countries. About 2 million people have access to drinking water through rural water systems, which are managed by communities via committees or co‑operatives. The number of WSS systems serving rural populations increased by 35% between 2010 and 2022 as a result of an investment programme led by the Ministry of Public Works (MOP) and implemented by the Directorate of Hydraulic Works. Expansion of the service network continues, with plans to build some 25 water and sanitation systems annually.
The quality of drinking water and limited coverage of sewerage and wastewater in rural systems are major issues. Many rural systems fail to meet quality standards. There have been no effective mechanisms, including reliable sources of financing and technical capacity, to ensure proper operation and maintenance. Technical capacity of community water organisations is limited. Municipalities are responsible for grants to vulnerable households and often do not manage the funds properly.
The Law on Rural Sanitary Services (20 998) came into force in November 2020. In a positive development, it established a regulatory framework for rural WSS covering such key areas as tariff setting, inspection and registration of operators. However, implementation has been delayed, due in part to the COVID-19 pandemic. Effective and timely implementation of the law would provide a much stronger basis for reliable delivery of rural WSS to communities. Robust economic regulation for rural WSS can set performance standards for service provision, monitor and incentivise performance, and assess development plans for expanding and maintaining service provision.
2.2 Water strategies and basin plans
The Strategic Plan “2030 Water and Sanitation Agenda” developed in 2019 under the Superintendency of Sanitation Services (SISS) under the MOP articulated the main strategic objectives for water management. This plan spurred development of Strategic Water Management Plans (PEGHs). These describe the general characteristics of the basins (water quantity, environmental quality, climate change and governance), identify gaps and evaluate actions to address these gaps. In 2019-20, basins with the most information available and the most acute water issues were prioritised.1 By 2022, PEGHs covered 48 basins.
More recently, the National Just Water Transition Strategy (2022-26) set out a national agenda for systematic reform of water governance and management in Chile, in line with the objectives of the Socio‑ecological Just Transition. It sets out a comprehensive agenda across main thematic areas: i) water for human needs, including the human right to water; ii) multi-purpose water infrastructures for water security; iii) strong public institutions and stakeholder participation at national- and river-basin level; and (iv) safeguarding water for ecosystems.
The approach reflects a needed step-change in water management with an emphasis on stronger inter‑ministerial co‑ordination, basin-level governance and action to ensure water resources are managed in the public interest, including protection of freshwater ecosystems. The Programme for Results, developed by the MOP and MMA with the World Bank, supports Chile’s Just Water Transition. It emphasises supporting river basin governance, strengthening rural WSS and enhancing resilience to climate change through water management, including nature-based solutions.
The 2022 reform of the Water Code advanced basin-level planning by requiring a Strategic Plan for Water Resources in Basins (PERHC) for all basins. The plans should be publicly available, reviewed every five years and updated every ten years. The 2022 Framework Law on Climate Change (FLCC) (Article 13) requires certain factors in the plans, such as the characterisation of water risks and socio-economic factors in line with the principle of equity and climate justice. The FLCC also requires the MOP to enact a regulation for the elaboration, updating and revision of the plans, as well as monitoring and reporting, and public participation. The regulation 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.
The PERHCs will use the PEGHs already developed as an input, along with other available information. The PERHCs require more comprehensive information and address some limitations of the PEGHs. This includes improving hydrological and hydrogeological modelling to inform decision making at the relevant spatial scale and to incorporate information on water use rights. The plans must include a recovery plan for impacted aquifers in terms of both the quantity and quality of resources. The evaluation of measures for each basin should include the costs and benefits of different alternatives. Co‑ordination with other government plans and regulations will be strengthened, notably the National Plan for Adaptation to Climate Change.
The development of PEHRCs for all basins can support more integrated planning and policy decisions. 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 plans will require significant resources and technical capacity. Further, they are only indicative and not required by statute. Chile should assess whether plans, at least certain provisions, should be legally binding. Moreover, the period for public participation should be extended beyond the 60 days minimum foreseen in the FLCC.
2.3 Institutional arrangements for water management
Water governance in Chile is complex and fragmented, involving over 40 water-related institutions delivering over 100 functions at different scales. The institutional landscape for water management is one of the most centralised and, at the same time, fragmented in the OECD, with limited prerogatives at the subnational level (OECD, 2017[15]). A striking feature of the Chilean water management model has been the absence to date of integrated basin governance systems. In the absence of river basin governance, Water Users Organisations (WUOs) have acquired the experience and social acceptance to manage water resources. However, they typically focus on irrigation related to a specific river, or section of a river, without control over all rivers and tributaries that form a basin. There is limited co‑ordination with other groundwater users, resulting in the neglect of hydrological interconnections between the river and the aquifers (OECD, 2017[15]).
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. In a welcome step, these pilots also aim to expand the range of stakeholders in water management beyond the remit and focus of the Monitoring Boards in place in several basins.
To promote basin-scale governance effectively, river basin organisations will need clear decision-making competencies 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. In Chile, regional governments do not have direct competences in water management, although they do have responsibility for territorial planning. A bill to formalise establishment of basin-scale governance organisations is pending. This bill should be a priority to provide a legal framework to establish river basin governance. Further, 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 (Box 2.2).
Box 2.2. River basin governance: An example from Spain
The spatial scope of water management and hydrological planning in Spain is the river basin district. Water policy competences (hydrological planning, granting of water use rights, protection and management of the public water domain, water quality control, design and implementation of main water infrastructure) are attributed to the state level in river basins that exceed the territorial scope of a single Autonomous Community, and are attributed to the Autonomous Communities in basins that are entirely within their territory.
River basin organisations (RBOs) were created in 1926 and have been operating uninterruptedly up to the present day. Attached for strategic and administrative management purposes to the Ministry for the Ecological Transition and the Demographic Challenge, they are public law entities with their own legal personality and assets, which provide water management services with functional, economic and financial autonomy.
The ministry submits the hydrological plans proposed by each RBO and the National Hydrological Plan to the government for approval. It also has competence over the granting of water use rights by means of infrastructure of general interest, infrastructure for water supply, treatment and desalination that concern the territory of more than one autonomous community, and any other action that is declared to be of general interest by a law.
RBOs in Spain have the following functional structure:
Governing bodies: The president, appointed by the government, exercises the highest managerial and executive functions of the RBO, and the Governing Board.
Management bodies: the Users' Assembly, the Discharge Commission, the Exploitation Boards and the Works Boards. Through the full participation of water users, the Exploitation Boards and the Users' Assembly co‑ordinate operation of the hydraulic works and water resources in the basin. The Discharge Commission collaborates with the president of the RBO in determining the appropriate regime for the exploitation of reservoirs and aquifers in the basin.
Participation and planning body: the Water Council of the River Basin District promotes information sharing, public consultation and active participation in the hydrological planning process and proposes to the government, through the ministry, the hydrological plan for the basin and its subsequent revisions.
Co‑operation body: the Committee of Competent Authorities ensures proper co‑operation in the implementation of water protection regulations. It involves the state, regional and local public administrations and has a key role in the elaboration, co‑ordination and implementation of the measures of the hydrological plans for fulfilment of environmental objectives.
Technical support: Several technical support offices equipped with human and material resources provide technical functions for each RBO and its functional bodies.
The model of water management and governance in Spain, through RBOs, is a good example of the application of the OECD Council Recommendation on Water and the OECD Principles on Water Governance. It ensures an allocation of water resources based on long-term basin-wide water management plans, considering availability and the criteria of use efficiency, general utility and productivity. The approach promotes integrated management of surface water and groundwater resources, with the participation of all stakeholders, especially users. Finally, it encourages implementation of public policy measures adapted to local conditions.
Source: Government of Spain (1988), Royal Decree 927/1988 on the Regulation of Public Water Administration, www.boe.es/buscar/act.php?id=BOE-A-1988-20883.
The Inter-Ministerial Committee on Just Water Transition (CITHJ), chaired by the MMA, was created in 2022 to provide a co‑ordination platform among the six ministries2 with competence in water management. It develops short, medium and long-term roadmaps to address the water crisis and define immediate actions.
Box 2.3. National water authorities: Examples from OECD and partner countries
Institutional arrangements to manage water resources vary widely in OECD and partner countries. Responsibilities for water policy and management are primarily defined by specific water and environmental laws but may also be enshrined in the national Constitution. Nearly all OECD countries involve both central and subnational governments in water policy design, planning and management. As a good practice for water governance, “form should follow function” in the design of institutional arrangements. There should be a clear understanding of objectives and clarity on roles and responsibilities at all levels of governance (national, regional, local, river basin).
Select examples of national water agencies are illustrated below:
Israel’s Water Authority: Established in 2006 with an amendment to the Water Law, the Water Authority is the governmental body authorised to govern all aspects relating to the water and sewage sector in Israel, including its management, planning, development, operation and regulation. The main goal of the Water Authority is to enable regular and reliable supply of water to all water consumers in the required quality and quantity, at reasonable prices, while preserving the water sources for future generations.
Brazil’s National Water Agency (Agência Nacional de Águas [ANA]): Created in 2000, ANA provides a qualified and stable institution to facilitate forward-looking reforms of water management in Brazil. Both a regulatory and an executive agency, ANA combines the high standards and hierarchical position of a regulator at the federal level and the capacity for on‑the‑ground action as the executive authority for federal rivers (to oversee licences for water uses and collect water charges). It has strong technical capacity and serves as a trusted partner to co‑ordinate water resources management with state water agencies and river basin agencies.
Peru’s National Water Authority (Autoridad Nacional del Agua [ANA]): Created in 2008, ANA serves as the governing body of Peru’s National Water Resources Management System. It is the highest technical and regulatory authority on water resources in the country with its own budget and legal status. It elaborates, manages, executes and supervises the National Water Resources Policy and Strategy, promulgates regulations and establishes procedures for integrated water management (for both surface water and groundwater). It also helps co‑ordinate a number of public entities related to water resources management with ANA.
Source: (OECD, 2015[16]; OECD, 2021[17]).
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 on water management 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. Chile should thus establish a central governmental authority to regulate, plan, develop, conserve and protect water resources and provide holistic management for water and wastewater. Select examples from OECD and partner countries are highlighted in Box 2.3.
2.4 Policy instruments for water management
2.4.1 Water allocation
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 challenging context, unique in international experience. 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. They are separate from land ownership. In many cases, water rights are freely tradeable, without prior authorisation or consideration of third-party impacts (OECD, 2015[18]). 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 (Bauer, 2013[4]).
The state’s limited authority to regulate these rights and lack of transparency of the water market led to over-allocation and extreme concentration of water rights, overexploitation of some aquifers, drinking water shortages in some rural areas and conflicts among water users. Most water market transactions are among agricultural users. The wide range of prices for water trades reflect the influence of the individual bargaining power of buyers and sellers (Hearne, 2018[19]). The 2005 reform of the Water Code strengthened regulation on groundwater management and set minimum flow requirements for new water rights to preserve the resilience of water bodies, but many market and information failures remained.
In April 2022, major reforms to the Water Code (Law 21.435) helped bring the allocation regime closer in line with 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 reform 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. The law replaces the concept of owner (dueño) of the rights of use by that of holder (titular) of such rights. Groundwater is declared as a national asset for public use under the new law, without prejudice to the owner of land in the aquifer’s domain. It is prohibited to grant water rights in glaciers and in protected areas, such as national parks, national reserves, reserves of virgin regions, natural monuments, nature sanctuaries and wetlands of national importance.
The DGA’s Public Water Cadastre records registered water rights and approved requests related to the transfer of rights and changes in the collection and supply point. Figure 2.9 provides an overview of the water rights registered over 1990-23 by type of water body, type (consumptive or non-consumptive), use and conditions of exercising the right (occasional, permanent, etc.). The number of registered water rights allocated in Chile has nearly doubled in the past decade. In several instances, more than 100 water rights in the Public Water Cadastre were allocated to a specific user in the same year and in the same basin for consumptive rights for irrigation.
Figure 2.9. Most water rights in Chile are permanent, continuous rights allocated to irrigation
Note: “Other water uses” includes but is not limited to medical purposes, observation and analysis. “Consumptive rights” entitle the holder to consume the water in its entirety in any activity. “Non-consumptive rights” allow use of water without consuming it and require it to be returned in the same quality and quantity, and in a timely fashion. Water rights attributed between 1990 and 2023 were considered. Values are cumulative for the whole period. Bottom right panel: occasional and alternating, permanent alternating and provisional, and permanent discontinuous and provisional rights represented around 0.02% of attributed water rights for the considered time period.
Source: DGA (2023), Derechos de aprovechamiento de aguas registrados en DGA, Consolidado Nacional [Water Use Rights Registered in DGA, National Consolidation].
Moreover, a significant number of water rights are not registered in the 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 2025.3 After the deadline, unregistered water rights will expire. Registered water rights are projected to triple by the deadline, reaching more than 300 000. The DGA’s Inspection Department monitors abstractions, but its capacity is limited. Penalties exist for illegal abstraction and may constitute a crime. The Senate is discussing a bill to amend the Criminal Code to increase penalties for crimes of illegal water abstraction.
Under the new reform, new water rights are temporary and granted through a concession. The duration of 30 years is contingent on the availability of water resources and the sustainable use of groundwater. DGA methods to determine water availability for allocation are highly sensitive to the period of time used for the analysis. This can lead to underestimating the variability of resources available and the impact of long‑term trends, including climate change (Barría et al., 2019[20]). In addition to revising methodologies to inform water allocation decisions, the DGA could consider establishing new 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 review of allocation arrangements and bring the system more in line with good international practices (OECD, 2015[18]).
Minimum ecological flow requirements must be established for the preservation of nature, considering the ecological conditions for each surface water body. In an important development, these minimum ecological flows must be considered in the granting of new water rights. However, this is not sufficient to ensure minimum ecological flows in the case of water rights already granted or restore deterioration of freshwater ecosystems in over-exploited basins. Further, the DGA may allocate water rights to ensure minimum ecological flows and ecosystem preservation. An environmental impact assessment would evaluate the potential for water rights to be incompatible with minimum environmental flows. However, the DGA and the System of Environmental Impact Assessment use different methodologies to assess minimum ecological flows. Amendments to the Water Code (article 129 bis) in July 2023 specify that a regulation to be signed by the Ministers of the Environment and Public Works will set out new criteria for establishing minimum ecological flows. This is an important opportunity to define and consistently apply a robust and harmonised method to establish and enforce minimum ecological flows. Box 2.4 summarises the example of establishing minimum ecological flows in Spain.
Box 2.4. Ecological flow regime: An example from Spain
The natural flows of many rivers in Spain are altered by infrastructures (storage reservoirs), diversion for water use and other causes. A regime of ecological flows facilitates compliance with environmental objectives, seeking to reduce the pressure from alteration of natural flows. In this way, it replicates the functions of the natural regime in each river.
Spain has made significant progress in this respect and has established ecological flow regimes for all water bodies:
minimum flows under hydrological normality, with a distribution of temporal values over the year
minimum flows under a situation of prolonged drought
maximum flows, with a distribution of temporary values, which are established in river sections affected upstream by the existence of a reservoir, and where it is necessary to limit them for environmental reasons
generating flows, which is a regime of artificial floods in highly altered river sections, and which simulates in some way the effect of high natural river flows
rates of change, where the rate of rise or fall of flow is limited in river sections affected upstream by regulating infrastructure.
The regime of ecological flows is included in the Hydrological Plan of each river basin district. As such, it is a prior restriction on water use (legally binding), both for new water use rights granted after approval of the plan and for those already in existence. It respects only the priority of use for water supply for human consumption. Plans also consider the environmental needs of important wetlands.
Ecological flows are set up in accordance with the Hydrological Planning Regulation and the Hydrological Planning Instruction. They are calculated through technical studies based on hydrological and hydro-biological (habitat availability) methods. Their compatibility with water uses is analysed through modelling studies of the availability of the water resource and the alternatives for its management in order to satisfy water demands.
The proposed environmental flow regime is subject to public consultation and active participation by water stakeholders. This takes place within the framework of public participation for the preparation and approval of the Hydrological Plan of each river basin (or its periodic revisions). If the environmental flow regime affects pre-existing water use rights, its establishment and implementation may include, in addition to public consultation, an agreement phase with stakeholders.
Source: Government of Spain (2007), Decree 907/2007 Regulation on Hydrological Planning, www.boe.es/eli/es/rd/2007/07/06/907/con; Ministry of Environment, Rural and Marine Environment (2008), Hydrological Planning Instruction (revised 29 December 2016), www.boe.es/buscar/pdf/2008/BOE-A-2008-15340-consolidado.pdf.
The DGA has the power 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. The DGA expects some 50 areas will be declared depleted 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.
The DGA can declare “restriction areas” and “prohibition zones” for new exploitations. Declarations of restriction areas (articles 65 and 66) apply to groundwater when there is a risk of serious depletion of an aquifer or its sustainability. Prohibition zones (articles 63, 64 and 67) are designated when the sum of existing water rights compromises the availability of resources determined in a technical study. In such cases, water rights holders must install and maintain systems to measure flows, volumes abstracted and transmit this information to the DGA.
As of May 2023, preventive measures for excessive allocation of DAAs covered 31% of the national territory. In all, 102 hydrogeological sectors (83 598 km2) of common use had been decreed as prohibition zones, and 98 as restriction areas (71 214 km2). These measures seek to prevent the depletion of basins and aquifers and allow the DGA to take specific actions, such as the formation of WUOs. The DGA’s Effective Extraction Control System applies to both groundwater and surface water.
The president can declare water scarcity zones in the event of a severe drought, at the request of the DGA. The 2022 reform of the Water Code reinforces this power. Scarcity zones can be declared for up to one year, with successive extensions possible. Such a declaration requires the responsible authority to present an agreement for the redistribution of water within 15 calendar days. The number of decrees designating scarcity zones rose from 8 to 35 between 2016 and 2022, affecting half of Chile’s 56 provinces in 2022 (Figure 2.10). As of 2022, multiple water scarcity zones were concentrated in population centres (Figure 2.11).
Figure 2.10. Rising number of scarcity zones reflects extraordinary drought conditions
Number of decrees declaring scarcity zones and number of provinces affected
Note: Water scarcity zones can be decreed in those areas with an extraordinary drought, defined according to hydrometeorological criteria (i.e. based on data on precipitation, river flows, reservoir volumes and aquifer conditions). Regions decree water scarcity zones, which can encompass multiple provinces and municipalities.
Source: DGA (2023), Planilla Decretos Zonas de Escasez Hídrica (2008-2023) [Water Scarcity Zones Decree Spreadsheet (2008-2023)] https://dga.mop.gob.cl/administracionrecursoshidricos/decretosZonasEscasez/Paginas/default.aspx (accessed 17 August 2023).
Figure 2.11. Concentration of multiple water scarcity zones in population centres
Number of declared water scarcity zones, by province, 2022
Source: DGA (2023), Planilla Decretos Zonas de Escasez Hídrica [Water Shortage Zone Decree Spreadsheet] (2008-2023), https://dga.mop.gob.cl/administracionrecursoshidricos/decretosZonasEscasez/Paginas/default.aspx (accessed 17 August 2023); Biblioteca del Congreso Nacional de Chile, Información Territorial, Mapas vectoriales: Mapoteca [Library of the National Congress of Chile, Territorial Information, Vectorial Maps: Map Collection], Mapas vectoriales — (bcn.cl) (accessed 3 August 2023).
As water scarcity becomes more common and water shortages more persistent, emergency measures will be insufficient to deal with conditions that have become the “new normal”. Historically, Chile has addressed scarcity issues by increasing supply (Donoso, 2021[2]). 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, have considerable potential. However, Chile should also introduce demand management measures, improve water use efficiency, and ensure a robust and flexible water allocation system. Key lessons from allocation reforms in OECD and partner countries are summarised in Box 2.5. These should be fundamental pillars of Chile’s strategy to manage water resources over the long term, including addressing the impacts of climate change.
Box 2.5. Water allocation reforms: Lessons from OECD and partner countries
Reforming water allocation arrangements can be contentious and institutional path dependency can raise the costs of making allocation more flexible. A number of OECD and partner countries have pursued or are pursuing such reforms to improve the sustainable management of water resources; adapt to current and future water challenges; and facilitate water allocation to higher value uses, including for ecosystem services. A review of ten OECD and partner countries’ experience with allocation reforms provides some lessons learnt.
Making the case for reform. Water reforms may be driven by an accumulation of pressures over time or spurred by a “trigger event”, such as a severe drought. Concerns about water scarcity and insufficient water for ecosystems are often key factors. Water reforms can also emerge from broader political reforms or social movements outside of the water sector, such as efforts to improve economic efficiency (e.g. Australia, Israel) or equity in the distribution of resources (e.g. South Africa). Well-documented evidence of the limitations of allocation arrangements to address current and future pressures can demonstrate the value of reform (e.g. England and Wales). The perceived shortcomings of the water allocation system strongly shape reform options (e.g. Alberta, Canada, England and Wales, France, South Africa).
Water allocation reform is an iterative process that extends over many years, even decades. This has been the case in the Murray-Darling Basin, Australia; the Yellow River Basin, People’s Republic of China; and South Africa, where allocation reforms have spanned decades. This is also the case in Chile, with periodic, often incremental, reforms to the 1981 Water Code over the past 40 years.
Effective and meaningful stakeholder engagement facilitates allocation reform. Experiences from Israel, Alberta, Canada, England and Wales, New Mexico, the United States and South Africa attest to the importance of stakeholder engagement to achieve credible and lasting reforms. Case studies also illustrate the wide range of opportunities to engage stakeholders effectively throughout the process.
Negotiating accompanying measures and balancing divergent interests is essential. Measures to mitigate the negative impacts of reforms can facilitate progress. For example, water rights users can be compensated for reductions to these rights (e.g. Australia) or an interim period can allow adjustment to new allocation measures (e.g. prices, change in rights). Finding compromise on contentious issues is needed, such as determining the appropriate level of water pricing for irrigation (e.g. Israel) or government support to financing water infrastructure (e.g. France). In some contexts, a powerful central authority can play an essential role in resolving disputes.
Source: (OECD, 2015[18]).
2.4.2 Water quality standards and regulations
The implementation of water quality standards in Chile remains incomplete and requires further development and updating. Drinking water must comply with 43 quality parameters related to the presence of chemicals and metals; turbidity; the presence of microorganisms; physical characteristics; and the absence of bacteria. There are two primary environmental quality standards for water (NPCAs) (focused on protecting human health). These have not been implemented to date. Of the 101 basins, only 6 have secondary environmental quality standards4 (NSCAs) (focused on the preservation of aquatic ecosystems). These secondary standards are local in nature, each with its own parameters and maximum values of pollutant concentrations tailored to the context of the freshwater system.
A further eight NSCAs are under development. The approach to developing these environmental quality standards is complex and slow; dedicated human resources are limited. Economic costs and benefits are analysed to develop water quality and emission standards. While this is a good practice, the methodologies typically applied often fail to capture important non-market benefits, such as improved ecosystem services. 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, ecological considerations and specific pressures. In addition, Chile could consider developing a water quality Watch List to improve information on substances of greatest concern in view of possible future setting of environmental quality standards.
Chile has several water quality monitoring instruments. The DGA’s network of 1 523 monitoring stations covers 78 of the 101 basins (77%). This is an improvement from the 829 stations in 2014 where only 61% of basins were actively monitored (Vega, Lizama and Pastén, 2018[9]). Despite advances in recent years, water quality monitoring is fragmented across different institutions. The frequency of sampling should be increased. The lack of a comprehensive and integrated monitoring network, and insufficient data, impede decision making and policy development to improve water quality.
The coverage of wastewater discharge standards remains patchy and standards are outdated. There are three main standards: sewage (DS 609/1998), surface waters (DS 90/2000) and groundwater (DS 46/2006). These discharge standards have not been updated in the past two decades, although they are under review. 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 do not define the scope of primary, secondary or tertiary treatment. Tertiary wastewater treatment is not required to comply with discharge standards, as secondary treatment (mostly activated sludge) is sufficient. The reform of DS 90/2000 increases the stringency of discharge standards for certain surface water bodies. However, it does not consider parameters or limits that require tertiary treatment to comply with the standard. Requiring the nutrient removal in wastewater treatment would reduce excessive nutrient discharge into receiving water bodies, and thus eutrophication (Vega, Lizama and Pastén, 2018[9]).
There are no specific standards and regulations for agricultural wastewater sources (including aquaculture). Wastewater discharge standards are completely disconnected from environmental quality standards for water bodies. Chile should pursue more stringent wastewater discharge standards, broaden their coverage to other key sources of pollution (notably agriculture, aquaculture and mining) and link explicitly to secondary water quality standards, as is common practice in most OECD countries. 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. It is considering a few projects, but they remain at early stages. Chile passed a law (21.075) regulating the collection, reuse and disposal of grey water in 2018. However, the Ministry of Health has not yet formalised the corresponding regulation. Congress approved modification of the law 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 or reused for irrigation. A clear legal and regulatory framework is needed. It should establish 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 promote development of wastewater reuse in Chile. Moreover, environmental flows should be set particularly in sub-basins and aquifers that rely on treated wastewater discharges to maintain a minimum flow or recharge.
The remediation of contamination is a looming challenge, one the regulatory framework is inadequate to address. The MMA 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[21]). However, lack of secondary environmental standards for water quality directly impedes development of PPDAs for affected water bodies.
As a complement to substance-by-substance water quality monitoring, Chile could make better use of non‑targeted or effect-based techniques. Isotopes and bioanalytical methods, for example, could vastly improve water quality management (Brack et al., 2019[22]; OECD, 2023[23]). Effect-based methods can screen potentially harmful pollution and contamination hotspots, including pollution by mixtures of chemicals and chemicals that are not regularly monitored. This would seem appropriate considering both the wide range of pollutants (from agriculture, mining or urban wastewater) affecting freshwater quality in Chile and the lagging standards for water quality and monitoring. Isotopes can trace the pollution source. Such methods may seem advanced, particularly since routine water quality monitoring system is still in development. However, their ability to screen water quality risks can help prioritise monitoring and establish secondary water quality standards for national and basin-specific substances. Nevertheless, these methods cannot replace the need to collect detailed information on the composition and characteristics of the specific pollutants on the site and the extent of the contamination, which are required for risk assessment and the preparation of remediation plans for contaminated sites.
2.4.3 Data and information
Chile has a range of disparate information sources and data platforms to inform management of water resources. A number of tools exist, notably the National Water Balance (updated in 2017); the Online Hydrometric System to capture satellite data on meteorological and hydrological conditions; the National Water Bank – a repository of data used to produce official hydrological statistics; the National Institution of Statistics’ database with key datasets on water; the National Inventory of Wetlands; and the Atlas of Climate Risks.
Still, a number of information and data gaps have been identified, including in spatial coverage of the quantity and quality of surface water, groundwater and ecosystems, and monitoring frequency and coverage (National Water Board, 2022[24]). Challenges related to accurately monitoring water abstractions and water quality data are especially acute. Information on water quality is fragmented across different institutions; water quality information on specific impacts from activities of national interest, such as diffuse pollution sources and aquaculture, is lacking; available information on water quality is also insufficiently disseminated. There is an absence of research on, and monitoring of, emerging contaminants (including pharmaceuticals, cosmetics and personal care products) (National Water Board, 2022[24]). In addition, there are long time lags between DGA sampling of water quality and reporting.
A reference centre for water quality is absent, creating a challenge to reconcile disparate analyses by different laboratories and monitoring campaigns. There is a lack of reliable data on water use rights. For the provision of drinking water services, SISS has established information protocols that private companies use to report data. Nevertheless, capacity to validate the information provided is lacking.
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 coherent and more comprehensive source of key information to support efforts to monitor water resources and inform policy and planning.
2.4.4 Economic instruments for water management and WSS
The use of economic instruments for water management in Chile is limited. There is untapped potential to better apply the polluter pays principle and the beneficiary pays principle. There are no abstraction charges for the use of water resources. Pricing water via abstraction charges can generate revenue that could support water management, internalise negative externalities associated with water abstractions and send a price signal to users to discourage inefficient and low-value water uses (OECD, 2015[18]). The 2005 reform to the Water Code introduced a non-use tariff for unused water to address speculation and hoarding of water rights, which is mainly an issue for non-consumptive rights (for hydropower). Once the water use right is determined to be “unused”, the tariff is levied based on a system of escalating charges (OECD, 2015[18]). Water effluents, pesticides and fertilisers are not taxed or charged. The previous review recommended such economic instruments for water management, but there has been no progress on this front.
Chile is a leader in the LAC region in the effective implementation of economic regulation of urban WSS services (Fernandez, Saravia Matus and Gil, 2021[25]). Tariffs for drinking water and sewerage are charged at a uniform rate per cubic metre across all users and adjusted for inflation. There are no block tariffs. A fixed charge is also applied, regardless of consumption levels (Fernandez, Saravia Matus and Gil, 2021[25]). The variable portion of the tariff is adjusted seasonally, with a higher value during the peak summer period (1 December to 31 March), 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. Overconsumption of drinking water triggers an additional charge; if use exceeds a threshold of 40 cubic metres (m3)/month during this period, the unit price is more than doubled (Andres et al., 2021[26]). Overall, water tariffs in Santiago are generally lower than in other major cities in the region, while fully recovering costs (Figure 2.12).
Tariff levels are based on marginal investment costs. Eligible low-income households receive a direct subsidy to cover part or all of the cost of up to 15 m3/month of potable water and sewerage (Fernandez, Saravia Matus and Gil, 2021[25]). In rural areas, water tariffs are often too low to recover operational and maintenance costs. As a result, infrastructure has deteriorated over time. From 2024, SISS will be responsible for calculating tariffs for rural services. Tariffs should aim to recover operation and maintenance costs of service provision, with targeted support for low-income households to address affordability issues.
Figure 2.12. Water tariffs in Santiago are generally lower than in other major cities in LAC, while fully recovering costs
Monthly drinking water and sewerage tariffs for 15 m3, major LAC cities, latest available year
Note: Values for Mexico City are underestimated since only data for drinking water services are available.
Source: World Bank (2023), IBNET.
2.4.5 Finance and investment in water infrastructure
Water-related investments account for a considerable and increasing share of investments by the MOP, reaching nearly 20% in 2021 (Figure 2.13). Investments in rural drinking water and sanitation increased more than fourfold between 2010-21 – an important step towards closing the WSS gap for rural communities.
Figure 2.13. Investments in rural drinking water and sanitation have increased significantly
Investments by the Ministry of Public Works related to water, by programme, 2010-21
Note: The authors have grouped investment subcategories into general categories.
Source: MOP (2022), Inversión Histórica MOP.
Chile has achieved financial sustainability for water services in all its urban areas for over two decades, with tariffs the main source of primary financing for the sector (Fernandez, Saravia Matus and Gil, 2021[25]). Aguas Andinas, a publicly traded company, serves a population of 8.5 million in Santiago de Chile, with 100% coverage for drinking water and over 98% in treated sewerage. In rural areas, community organisations operate services with financial support from the national government (Fernandez, Saravia Matus and Gil, 2021[25]).
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 emphasis on flexible infrastructure planning and adaptive design to address emerging priorities. A strategic and long-term approach to water infrastructure investments is critical, given they tend to be capital-intensive and long-lived. Ideally, planning for water-related investments should be robust to known hazards and flexible to adapt to future conditions. It 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[27]).
New sources of supply to address scarcity, such as desalination and wastewater reuse, require large investments. Chile needs to address how to finance them and who should bear the cost. To date, Chile’s experience with public-private partnerships (PPPs) for water infrastructure has been limited. The PPP Infrastructure Plan 2022-26 indicates an investment of USD 449 million in two desalination plants. PPPs for water infrastructure could be further explored, drawing on lessons from other OECD countries. Box 2.6 highlights how Spain and Israel set up a legal and regulatory framework.
Box 2.6. Legal and regulatory framework for wastewater reuse: Examples from Israel and Spain
The use of non-conventional resources (wastewater reuse and desalination) has reached significant levels in Israel and Spain. In Israel, more than 500 million cubic metres (MCM) of raw sewage is collected per year, of which 93% is treated and 85% is reused for agriculture. In Spain, wastewater reuse has reached around 400 MCM in volume and is mainly used for agriculture. Water reuse is concentrated in areas with the greatest natural resources deficit and highest volume of wastewater generated.
In Israel, wastewater reuse follows several policy principles, established by the Water Authority. These include: (i) the full use of wastewater to minimise disposal to the environment; (ii) economic efficiency reflecting that different qualities are used appropriately, subject to agricultural, health and ecological limitations; and (iii) fairness so that sewerage producers are responsible for treatment and purification, reclaimed water users are responsible for usage systems and the government participates in financing external costs.
Public Health Regulations established in 2010 are designed to protect public health, prevent contamination of water sources from wastewater and effluent, allow reuse of effluent as a source of water, protect the environment, including ecosystems and biological diversity, the soil and agricultural crops. In 2011, the Water Authority published rules that give water and sewerage companies tools to monitor the quality of industrial wastewater discharged into system and charge additional sewage rates for these discharges in accordance with the provisions of the tariffs rules. These rules implement the polluter pays principle when the factories are obliged to pay for the additional treatment costs and the damages caused as a result of the industrial wastewater discharged into the sewage system.
In Spain, the use of reclaimed water is a private use of the public water domain. The right is granted by administrative concession, with project competition of potentially interested parties. The river basin authority must permit production of reclaimed water from wastewater, subject to a binding report from health authorities. The quality requirements for reclaimed water are laid down in national and EU legislation. The producer of reclaimed water and the concessionaire of its subsequent use are responsible, respectively, for its production and for its use in accordance with a risk management plan. The authorisation of the plan, implementation and compliance monitoring requires co‑ordination of competent water, health, agriculture and environmental authorities.
In Spain, public administrations may use economic instruments to promote water reuse by granting direct public aid to the concessionaire of reclaimed water (user), or indirect public aid through an exemption from the water use tariff. This tariff helps pay for the availability or use of water, as well as for the deterioration of its quality. It is generally paid by all beneficiaries of water infrastructure that is totally or partially financed by the state. As a condition for granting public aid, the total or partial substitution of a surface water or groundwater abstraction concession by reclaimed water must help achieve environmental objectives of the natural water bodies concerned or optimise water resource management. Compliance with this condition is determined in the hydrological plans of each river basin.
Source: Submissions from Israel and Spain.
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 (OECD, 2021[28]). Use of proceeds bonds (e.g. “green bonds” or sustainability-linked bonds) for water investments have potential, building on Chile’s considerable experience with such bonds for other climate- and environment-related investments (Chapter 1). Payment for ecosystem services (PES) could be used to incentivise improved water management in basins and financing for water resources management. PES have been widely used for water management in LAC and OECD, with a number of successful examples (Leflaive, Dominique and Alaerts, 2022[29]).
Irrigation subsidies
In Chile, around 49% of agricultural land is irrigated (Instituto Nacional de Estadísticas, 2022[30]). It accounts for more than 80% of the country’s agricultural exports, notably fruit-export crops (Martin and Saavedra, 2018[31]). Exports have been the main driver of growth in the agricultural sector, increasing at a rate of 10% per year over 2008-18 (Anríquez and Melo, 2018[32]).
More than one-third of General Services Support to agriculture over 2010-21 targeted water infrastructure (OECD, 2022[33]). 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-sized landowners can complement their investments in irrigation and drainage projects for community or individual works with public grants. Small producers who benefit from the Agricultural Development Institute can receive financing of up to 90%, and small farmer organisations up to 70% of total costs (Panez, Roose and Faúndez, 2020[34]). About 23 000 farmers have benefited from the programme, which helped develop irrigation on 200 000 ha, including a growing number of small farmers over time. The programme also enabled 500 000 beneficiaries to shift to pressurised irrigation, representing a total area of 325 000 ha (Gruère, Ashley and Cadilhon, 2018[35]).
While irrigation efficiency has improved, the return flows of water to groundwater and surface water sources have declined (Anríquez and Melo, 2018[32]). In Chile’s allocation system, water saved from improvements in irrigation efficiency reverts to the water rights holder. This may encourage an increase in total area irrigated rather than contribute to overall water availability. The previous review recommended assessing impacts of subsidies for irrigation and small-scale mining on groundwater recharge, biodiversity and ecosystems. However, this is still pending. Chile should review and assess the efficiency of irrigation investments and their impact on groundwater recharge and ecosystems. It should also explore the possibility of implementing systems to return water flows to basins, in line with the national water management framework.
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Notes
← 1. Copiapó and Huasco rivers (Atacama region); Elqui, Limarí, Choapa, and Quilimarí (Coquimbo); Ligua, Petorca and Aconcagua (Valparaíso); and Maule (Maule).
← 2. Ministries of Environment, Public Works, Energy, Agriculture, Mining and Science, Technology, Knowledge and Innovation.
← 3. Small agricultural producers have five years (dating from enactment of the law) to register their water rights.
← 4. Secondary standards are in place for Serrano, Maipo, Biobío and Valdivia basins, and for the Villarrica and Llanquihue lakes.