While not a leading emitter of greenhouse gas emissions, today Chile stands in the top quartile of countries most vulnerable to climate change.

In 2018, in the face of mounting domestic climate pressures and global commitments to reduce reliance on coal power, the Government of Chile introduced a national energy strategy to completely phase out all coal-fired power plants in the country by 2040.

With a clear public and corporate commitment to phase out coal assets in place, IDB Invest, the private sector arm of the Inter-American Development Bank, saw the opportunity to pilot a new decarbonization instrument with global energy utility Engie, that would accelerate the closure of two coal power plants to achieve a greater reduction in emissions. The instrument applied blended finance in the form of a compensation scheme. IDB Invest also sought to lay the groundwork for a new tradeable carbon credit class tied to the accelerated decommissioning of coal plants.

Key insights from this case study include:

A national transition away from coal requires more than blended finance alone; it hinges on strong policy commitment and industry buy-in.

To incentivize and accelerate coal decommissioning in Emerging Markets and Developing Economies, availability of concessional finance is paramount.

A dedicated and knowledgeable blended finance team is highly valuable in first-time, pilot transactions in new sectors.

Piloting transactions in controlled environments with experienced counterparts helps to speed up the development of models for more complex applications.


CS IDB Invest Decarbonizing the Energy Sector in Chile FINAL

decarbonization, coal power plants, carbon credits, blended finance, results-based payments, IDB Invest

Decarbonizing the Energy Sector in Chile - Case Study

Convergence