Chile Final Market Readiness Proposal Ignacio Fernandez Ministry of Energy March 11, 2013
Progress since last PMR Meeting Key themes: Consideration of feedback from PMR Assembly on Draft MRP Institutional Developments Process of revising the Draft MRP 2
Organizing General direction Addressing observations to the draft MRP I PA Comment Response - The document was difficult to understand - Work on chronology and linking b/n outputs - Greater clarity of the content was needed to provide better understanding - Redrafting hard-to-read parts of document - New thematic approach of activities in parallel to sequencing chapter (BB3 & 4) - Reorganization of elements in new MRP Tool v2 format - Construction of a list with activities, deliverables and budget (BB3 & 5) - Provide a view of what is envisioned/will be explored and be more specific regardless of political process - Better explained vision (BB2) - Construction of a list with activities, deliverables and budget (BB3 & 5) - Detailed list of research activities and outcomes on BB3 y BB2
Political context Institutional Addressing observations to the draft MRP II PA Comment Response - Clarify the institutional framework for the proposed MRV system (CMS, SC, FP) - Clearer institutional responsibilities - Clear timeframes for decision points - Clarification sought on Chile s political commitment + pledge (consultant s opinions) - Clarification on political commitment - Connection b/n ETS and 20/20 pledge - Finer explanation of MRV framework on BB3 - Clearer picture of institutional arrangements on BB5 - DPs identify political decisions, but too early to determine their timing - Withdrawing of consultant s opinions - Better explanation of the political process and the involvement of different ministries (BB5), as well as a better drafting of objectives (BB2) - Modeling will help determine specific mitigation impacts and roles of this project with the pledge
ETS Pilot Addressing observations to the draft MRP III PA Comment Response - Clarification on the nature and focus of the envisioned ETS pilot - ETS or SCM: Clarification on which market instrument to use and their interaction - Uncertainties: why ETS is not guaranteed and what are the concerns - Clarification on MRV procedures - Inter-ministerial coordination - Feedback helped refine concepts and having a pilot is a DP for later - Full focus on ETS (BB 4) - Focus on ETS design + activities to achieve ETS ready stage - Early economic modeling to address concerns (BB 3) - Better description of MRV (BB3) - Better explanation of institutional roles (BB5) 5
Institutional developments since last PMR meeting Strengthening of SC M of Agriculture: - National Forestry Service M of Foreign Relations: - Foreign Economic Directorate (DIRECON) - Environmental Directorate (DIMA) Petit Comité - Energy - Finance - Environment 6
Process of Revising MRP The process of finalizing the MRP included the following: Improve the drafting (activities, outcomes, institutional roles) Continue with an integrated participation of other ministries: -Steering Committee (ministries of Energy, Agriculture, Economy, Environment, Finance, Foreign Relations and Mining) and; -Petit Comité (ministries of Energy, Environment and Finance) Reformatting the MRP to the version 2 of the Tool 7
Process of Revising MRP cont. MRP Draft Oct 2012 Final MRP March 2013 Chapter 1 Executive Summary Chapter 2 Preparation Phase: Four preparatory studies Chapter 3 Policy Context for the Implementation of Chile s MRP Chapter 4 Planning market based instrument: Roadmap to reach ETS-ready stage Chapter 5 Organization, Communication, Consultation & Engagement General Information and Executive Summary Annex 1: Preparation Phase: Summary of the Process and main study results Building Block 1 The Big Picture: Country Context Improved economy and energy profiles Building Block 2 Policy Landscape and Objectives & Preparatory Work to Support and Inform Policy Decisions Building Block 3 Core Technical and Institutional/Regulatory Market Readiness components Building Block 4 Planning for a market instrument BB4 - Target Area: Assesment and rationale for focus on sector BB4 - Module 4b: Domestic Emissions Trading Building Block 5 Organization, Communication, Consultation & Engagement
Summary of Final MRP 9
Introduction: MRP Focus and Objective The main objectives of the Market Readiness Proposal are: General Objective To carry out a roadmap with the design, and eventual implementation, of a GHG ETS in the energy sector in Chile. Specific Objective To implement market readiness activities that are undertaken by the PMR and additional funding in order to achieve the following specific objectives: To evaluate the economic impacts of the implementation of a GHG ETS at national and sectoral levels. Build understanding and capacities across all stakeholders for design and implementation of Market-Based Mechanisms and their MRV framework. Design the necessary regulatory and institutional aspects to implement a GHG ETS in Chile Design and implement an MRV framework and Registry for the Chilean GHG ETS that allows the recording and tracking of emissions and emission permit transactions. 10
Summary of Building Block 1 The Big Picture/Policy Context Sets the stage for understanding key aspects of Chile s national circumstances by providing relevant economy and energy information. It also outlines climate change policy objectives and goals, including an overview of the country s GHG emissions and its experience in carbon markets. 11
Summary of Building Block 2 Policy Landscape and Objectives and/or Preparatory Work to Support and Inform Policy Decisions It provides the overall climate policy context, including climate change institutional arrangements and the country s pledged mitigation actions Makes the case for suitability of ETS and why it makes sense for Chile to examine ETS as a key policy instrument to meet GHG objectives in the energy sector This building block makes the case for the need of further work on economic, institutional and regulatory research 12
Summary of Building Block 3 Core Technical and Institutional/Regulatory Market Readiness Components This building block presents the basic components to evaluate a design of a GHG ETS for the energy sector in Chile, along with the MRV framework and registry system associated with it. These components are depicted as follows: 13
Summary of Building Block 3 cont. Component 1 Regulatory, Economic and Institutional Analyses needed to design a GHG ETS for the energy sector in Chile: A. Regulatory Analysis for an ETS in Chile B. Economic Analysis for an ETS in Chile C. Institutional Analysis for an ETS in Chile Component 2 Design and implementation of MRV framework and Registry system: A. Design and implementation of an MRV framework B. Development of a Registry: Phase 1: Implementation of a bottom-up GHG emissions registry Phase 2: Design of an emissions transaction registry 14
Summary of Building Block 4 Planning for a Market-based Instrument Sequencing of activities This BB presents relevant information associated with the energy sector, as well as a roadmap showing the intended path to a political decision on the implementation of an ETS and its overall role in Chile s climate policy. It also outlines key policy and institutional elements of the ETS design that will need decision and development, including steps and processes along with an estimated timeline that highlights key decision points. Finally, it includes a process to identify and work with stakeholders on the design of an ETS. 15
Summary of Building Block 5 Organization, Communication, Consultation and Engagement It summarizes overall plans for organization, communication consultation and engagement during the MRP implementation phase, including arrangements for direct MRP supervision as well as for overall political guidance. 16
Budget and Proposed PMR Implementation Phase Arrangements 17
List of Implementation Phase Activities BB3 PMR Timeline and Budget for first two years Quarter Budget (US$ k) 1 2 3 4 5 6 7 8 Year 1 Year 2 Total Component 1 Regulatory, Economic and Institutional Analyses needed to design a GHG ETS for the energy sector in Chile A. Regulatory Analysis for an ETS in Chile i. Comparative analysis of existing regulations 50 50 ii. Identification and mapping of regulatory capabilities for MRV & Registry 100 100 iii. Draft needed protocols & standards for reporting and trading of emissions 140 100 240 B. Economic Analysis for an ETS in Chile i. In depth survey of emitting industries 150 150 ii. Analysis of existing data 60 60 iii. Micro/macroeconomic modelling 210 280 490 iv. Analysis of cobenefits 20 100 120 C. Institutional Analysis for an ETS in Chile i. Assessment of existing and required institutional capacities for an ETS 100 100 ii. Proposed design of institutional arrangements for an ETS 200 200 iii. Assessment of existing and required capacities of financial institutions 100 100 iv. Report with estimated full budget for ETS implementation and operation Total 1 (US$ Thousands) 200 200 1,810 Component 2 Design and implementation of MRV framework and a Registry A. Design and implementation of an MRV framework i. Definition of the scope and breadth of the MRV framework 30 30 60 ii. Definition of types of emission sources 25 25 50 iii. Determining general MRV requirements & develop methodologies & technics 200 200 400 iv. Design and Implementation of a tiered approach to reporting 50 50 100 B. Enhanced implementation of a bottom-up emissions phase of the registry i. Initiatives to increase completeness of information reported under RETC 150 150 ii. Inititatives to improve accuracy of information reported to RETC 100 100 200 iii. Improvement of a compliance system associated to GHG emission in RETC 50 50 100 C. Design of the emission transaction phase of the registry i. Develop key functions and components for a transaction registry 50 50 100 ii. Basic design for transaction phase including logic & minimum requirements 50 150 200 iii. Software/hardware for an emissions transaction registry Total 2 (US$ Thousands) 50 150 200 1,560
List of Implementation Phase Activities BB5 Communication, Consultation and Engagement Strategy Budget (US$ k) Capacity building for public and private sectors and political engagement Year 1 Year 2 Total i. Design of strategy for stakeholder engagement 150 150 ii. Public/private and political stakeholder consultation on ETS and MRV/Registry 25 50 75 iii. Communication strategy, including the development of informational tools 50 100 150 iv. High level visits to understand lessons learned internationally on ETS 50 85 135 Total (US$ Thousands) 510 Administration of the PMR project Year 1 Year 2 Total i. Project coordination 100 100 200 ii. Technical teams 100 100 200 iii. Policy-making team Total (US$ Thousands) 50 50 100 500 19
Summary of Total PMR Funding Request for Implementation Phase (first two years) Building Block 3 Activity Component 1 Regulatory, Economic and Institutional Analyses needed to design a GHG ETS for the energy sector in Chile Total cost of activities Sources of Funding (US$ Thousand) PMR Funding Request National Government Other 1,810 1,200 50 560 3 Component 2 Design and implementation of MRV and Registry systems 1,560 1,100 50 410 5 Involvement with stakeholders 510 400 50 60 5 Budget for the administration of the PMR project 500 300 150 50 TOTAL 4,380 3,000 300 1,080 20
PMR Preparation Phase (US$ 350K) ETS elements SCM MRV elements MRP Proposal National situation Chile s PMR Implementation Phase Diagram PMR Implementation (US$ 4,380 K) ETS Design Stand alone tools: MRV Registry (2 phases) Technical capacities (public and private) Complementary instruments Additional funding ETS Energy sector Government technical & political analyses ETS at 21 National scale
Gracias 22
Backup slides 23
Process of Revising MRP Chapter 1 Executive Summary General Information and Executive Summary 24
Process of Revising MRP Chapter 2 Preparation Phase Annex 25
Process of Revising MRP Building Block 1 The Big Picture: Country Context Improved economy and energy profiles Chapter 3 Policy Context for the Implementation of Chile s MRP Building Block 2 Policy Landscape and Objectives & Preparatory Work to Support and Inform Policy Decisions Building Block 3 Core Technical and Institutional/Regulatory Market Readiness components 26
Process of Revising MRP Building Block 4 Planning for a market instrument Chapter 4 Planning for a market based instrument: Roadmap to reach the ETS-ready stage Target Area: Assesment and rationale for focus on sector Module 4b: Domestic Emissions Trading 27
Process of Revising MRP Chapter 5 Organization, Communication, Consultation & Engagement Building Block 5 Organization, Communication, Consultation & Engagement 28