Will Chile be Carbon-Neutral by 2040?

Recently, local news agencies have been publishing articles on a report that was written by McKinsey & Company, which evaluates the decarbonization scenarios of more than 45 countries and represents 75% of global GDP.

The authors of the report conclude that Chile will achieve carbon neutrality goals earlier than expected if it accelerates its decarbonization strategies. Specifically, the report determined that Chile could be the first country (of the 45 analyzed) to be carbon neutral by 2040 with a positive economic impact. The only country that can do so in Latin America.

What the authors are saying is that Chile could meet its goal to become carbon neutral while also profiting from the transition. In other words, it implies that the benefits are greater than the investments. This contrasts with other countries that may need to invest significant amounts to improve their net-zero positions but without the same positive economic benefits that Chile could produce.

The report states that Chile has a unique opportunity to be a leader in the export of key products for global decarbonization such as green hydrogen, green steel, copper, and lithium, which would also bring economic benefits, business opportunities and development to the country.

In the most favorable scenario – McKinsey believes that between both the national decarbonisation and the export of green products, Chile could increase its GDP by between US$80 billion and US$95 billion while at same time creating 650,000 new jobs by 2050.

The McKinsey report is very clear that Chile will not meet this goal if it continues down the same path. Instead, there is only opportunity for the country to significantly speed up its goals and profit from them by making the right investment.  

The authors suggest that Chile needs an extra investment of between US$60 billion and US$70 billion for energy, transportation, and buildings. This would reduce the accumulated emissions between 2018 and 2050 (projection) by more than 80%, through the decarbonization of the energy matrix.

Actions should be focused on five sectors: Energy, through the generation of solar and wind energy and batteries in the system, contributing 44%; Transport, with the sale and use of clean technology cars (electric or hybrid cars), contributing 26%; Industry and Mining, with electrification of trucks and machinery (15%); buildings, heating and hot water homes by clean technologies (8%); Forest and land use, growth of forest areas and wasteland (7%).

Actions List  

• The study recommends several actions such as the construction of renewable energy plants, electrified vehicles, electrified industrial equipment, thermal insulation, electric heating, replacement of fossil fuels, and a boost to energy efficiency. 
• The country will need to have 70% of electrical energy by 2030 from clean sources, such as wind or photovoltaics.
• 47% of the cars sold in the country by 2030 should use clean energy and 100% by 2050; while 39% of extractor trucks, bulldozers, and mining shovels by 2030.
• There will need to be cooperation between private and public sectors. There should be incentives to electrify households, establish a stable regulatory framework to unblock investments in infrastructure, promote specialized training by state and private companies, accelerating the decarbonization of the supply chain.

Where is Chile now?

Conclusion

Will Chile be the only carbon-neutral country in Latin America by 2040? I do not know and to be honest, I do not really care. What I do know is that Chile is a small country that has the opportunity to transition to net-zero much quicker then other countries. 

Chile is blessed with significant natural resources that are needed for the electrification of the global economy. The world needs Chile and its resources. Copper to build electric cars and solar panels. Lithium to produce batteries. Cheap green energy to produce hydrogen. While these industries are extremely important to the Chilean economy as they will create jobs and investment, it will not be the only contribution that Chile makes to the world. The country will also provide valuable lessons on how to transition to a post-carbon world. 

Chile is transforming at a rapid pace and is uncovering problems that other countries will face as they decarbonize their economies. The solutions that come from solving these problems will help other countries be more efficient with their plans and prepare for the issues that will inevitably arise during the process.

Chile has the right mentality and building blocks to transition to a world that is electrified and decarbonized. I strongly believe that the world will look at Chile not only for its natural resources but also for the lessons it can teach them.

Ax Legal is an advisory firm that works with foreign companies in Latin America. Our team of legal and commercial advisors have a distinguished track record of helping foreign technology and services companies to grow and operate in Latin America. Over the years, we have worked with starts up, mid-size businesses, and publicly listed companies. The one common factor that connects our clients is that they are leaders in their field, providing innovative technologies and services to the industrial sectors.

To better understand how we can support you in the Region, please contact Cody Mcfarlane at cmm@ax.legal