Climate finance a common effort, money is there: Chile

Chile's energy and mining minister Juan Carlos Jobet spoke to Argus on the sidelines of the UN Cop 26 climate summit in Glasgow about financing the country's energy transition and how to support the development of a green hydrogen industry.

Chile has ambitious energy net zero plans, where is the financing going to come from to implement them?

The first thing we need to understand is that there is no lack of money and there is a lot of funding available. The challenge we have — as a planet, not just in Chile — is how we deploy those resources in time and to the right technologies and places.

Certain technologies are already profitable — such as solar PV, wind power generation, electric vehicles — and capital is flowing very easily in this direction, although it was a challenge some years ago for these sectors too. There are other segments for which the technologies are not there yet, or are not commercially ready. In those cases we need to deploy capital from governments, subsidies, grants and concessional lending from multilateral institutions to help the private sector reach the profitability it requires for investors.

I think financing is going to be a combination of efforts between the market itself, governments and multilateral organisations. But the good news is that there is a lot of money available, and most financial institutions today understand that investing in sustainable projects is the most profitable thing they could do.

Is Chile planning to issue more financial instruments to help pay for its climate plans?

Chile was a pioneer in the region, issuing a green bond. The country received a lot of interest from investors, and we think we will be issuing more bonds to have more money available.

The government has a very important role to play. There are certain investments for example — not in mitigation but in adaptation — that probably only the government could do because they involve public goods. So yes, we will be going to the markets again for more green funding.

How soon will the country have a carbon market in place?

Carbon markets are an essential tool to accelerate the transition all over the world. Today, globally, around 21pc of global emissions are under some type of carbon tax, or ETS. We need to increase our numbers substantially and we also need to increase tax levels.

Chile for example has a carbon tax, but it is too low, at just $5/t. We have put in place a commission which will propose a trajectory to increase the carbon tax in our country. This is because we think it is the best way to level the playing field between fossil fuels and renewable energies, to drive innovation and generate tax revenues. This will help us to support the most vulnerable people and small businesses to navigate the transition. We are going the make the results public before the end of the year.

What needs to be done to support demand growth in hydrogen?

There are certain instruments that will play an essential role, for example Germany launched the H2 Global facility [a funding mechanism to help hydrogen's market ramp up], which will bridge the gap between the price that clients are willing to pay and the price that producers need to receive in order to make their investments profitable.

Leadership is also making a difference. Maersk for example, the shipping company, ordered nine methanol-fuelled ships although the fuel to run them is not yet widely available. They say, we are going to build a ship and we want you to follow us and produce the fuel. This is going to be a self fulfilling prophecy. Creative policy design and innovation from the financial sector will also be key to accelerate the transition.

Which steps could be taken to accelerate the creation of a global standard in hydrogen?

If we do not know exactly what we mean by green hydrogen or clean hydrogen, if we do not really know if it is going to be widely accepted as clean or green how can we start manufacturing it?

It is urgent that the international community, agencies such as the IEA, the Clean Energy Ministerial (CEM), Mission Innovation, the World Bank, the World Trade Organisation (WTO), the IMF and all global institutions conduct co-ordinated efforts to come up with a definition.

It is not going to be perfect in its first version, but it is better to have an imperfect definition that we all share than to have no definition at all, or even worse to have several at the same time. If we have a patchwork of different definitions the development of what need to be an integrated industry will slow down.

By Caroline Varin