Chile public consultation on Paris Agreement carbon market regulations nears end

Chile is taking steps along the international carbon market highway as an environment ministry public consultation on draft domestic regulations linked to Article No. 6 of the Paris Agreement on climate change, is close to wrapping up.

Article No. 6 sets out how countries can work together voluntarily to reach climate targets.  

The consultation process, which closes June 11, builds on work already carried out “to be able to generate a legal framework that permits us to regulate all the mechanisms associated with Article No. 6 of the Paris Agreement linked to the international carbon market,” Cristina Figueroa, an environment ministry climate negotiation specialist, said during a public consultation webinar.

Chile’s climate change law of 2022 tasks the environment ministry with leading the regulatory push in the carbon market sphere.

One objective of a carbon market is spurring investment in emission-mitigation initiatives via the purchase and sale of carbon credits, or emission-reduction or absorption certificates as they are called in Chile’s draft regulations. One carbon credit is normally considered 1t of CO2 equivalent reduced or absorbed. Credits are typically issued following a multi-step process involving government authorities – to validate and greenlight initiatives – and monitoring and verification companies, the webinar was told. Developing countries can both sell and purchase carbon credits. 

These credits are typically generated via the operation of two types of carbon projects: tech-based such as renewable energy projects, and nature-based, like sustainable agriculture. 

In a related development, in 2023, Chile and Switzerland signed an agreement that opens the door for internationally transferred mitigation outcomes, or ITMOs as they are known. The deal envisages potential direct investment in Chile of US$100mn. 

In general terms, a Paris Agreement signatory that fails to hit its NDC emissions goals can buy ITMOs from another country that has overperformed, that is, exceeded its target.

One driver of ITMOs is that they “allow a 'buyer' country to finance lower-cost emissions reductions in another country to meet its own commitment without losing environmental integrity,” according to the World Bank.

Overall, qualifying Article No. 6 initiatives in Chile will be those that would be unfeasible without carbon market economic incentives. Associated emission-reduction or absorption must exceed levels established under local laws and regulations in force.

Chile’s climate change framework law establishes a 2050 carbon neutrality goal.

In 2017, Paris Agreement signatory Chile brought into force its green tax law, which includes, among other measures, a tax of US$5/t on CO2 emissions from stationary sources with boilers and turbines.

Chile's draft regulations can be downloaded from the box in the top right-hand corner of the page.