Decarbonizing the Energy Sector in Chile

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