Chile’s Coal Phase-Out: Opportunities for a Just Transition

Jun 11, 2021 ˙ Voces

As countries around the globe make the much-needed transition to zero carbon energy, the livelihoods of millions of coal and oil workers hang in the balance. Discussions surrounding the need for a “just transition”—a framework to protect workers’ rights in the shift to a more resilient, low-carbon economy—have begun in some parts of the world but have been slower to permeate emerging economies. In Latin America, Chile’s initiative to fully phase out coal generation by 2040 will be critical for the Southern Cone country to comply with its Nationally Determined Contribution (NDC) under the Paris Agreement, as well as to meet its domestic decarbonization goals. However, despite the urgency of slashing Chile’s emissions, ensuring that coal workers are not economically abandoned in the process exemplifies one of the main challenges for policymakers surrounding the just transition.

Since the 1990s, economic growth has led to a steady rise in Chile’s total energy consumption. Following a shortage of natural gas imports from neighboring trade partner Argentina in the early 2000s, along with difficulties expanding hydropower capacity, new coal-fired power plants were constructed to ensure Chile’s energy security. According to the International Energy Agency, coal’s share in Chilean electricity generation increased from 13.7 percent in 2005 to 41 percent in 2016. Today the matrix relies more heavily on renewables than ever before, although coal was still responsible for 40 percent of the country’s power generation in 2019. Chile stands out as one of the countries in Latin America most reliant on coal-fired electricity generation.

Clean energy generation in Chile has surged over the last few years thanks to an increase in wind, solar, and other forms of renewable generation. Non-conventional (non-large hydro) renewable generation has expanded every year since 2014 and comprised one fourth of total generation at the end of 2020. 2021 promises to be a record year for renewable additions—data from Chile’s energy commission indicates that there are four gigawatts of new renewable projects in the pipeline, equivalent to 16 percent of current total installed generation capacity.

An important obstacle facing the Chilean government is how to implement social safeguards to ensure that the communities affected by this shift away from coal are not left behind. In 2019, a report found that coal-fired power generation provides 4,391 direct jobs and 9,505 indirect ones, accounting for 0.17 percent of total employment in Chile. The loss of these jobs would be much more pronounced in the areas where they are concentrated than in the country as a whole. Employment generated by these plants represents 6.8 percent of employment in Huasco, Atacama and 4.4 percent in Tocopilla, Antofagasta, both in northern Chile. While coal-fired generation only accounted for 0.69 percent of the country’s gross domestic product (GDP) in 2019, regional impacts are also greater in relative terms. For example, in the Atacama Region, coal plants represent 3.89 percent of GDP, while in the Antofagasta Region they represent 3.65 percent.

As Chile charts a path toward greener sources of energy, the country has also begun integrating aspects of a just transition into its climate plans. Through its updated NDC, Chile has committed to “respect and promote the obligations related to a just transition,” and in the process of decarbonizing its matrix, the Chilean government has worked with businesses, union leaders, and international organizations to incentivize impact reports to better understand how Chilean coal workers will be affected by this transition. Chile’s decision to prioritize the issue makes it unique among its Latin American peers. But despite the mention of a just transition in policy documents, the government lacks a concrete plan to transition coal workers to other jobs. Thus far, most workers from retired units have been transferred to plants that are also soon to be terminated or reconverted. While new green jobs will certainly be created because of the coal phase-out, a report by the Inter-American Development Bank anticipates that former coal workers may struggle to find jobs in other sectors in light of their specific skill set and training.

Labor unions have also expressed concern over the administration’s authority on environmental justice issues given the widespread social unrest the country faced starting in October 2019, leading President Sebastián Piñera to move the COP 25 climate summit to Madrid. The unions argue that the government’s violent repression of the protests damaged the administration’s credibility on issues relating to social justice. The protests, which began as a student-led demonstration against a hike in public transport fares, escalated into a general reaction to economic inequality in the country. Despite some progress, in recent years Chile has been ranked as one of the OECD countries with the highest level of income inequality. The protests underscore the need to ensure that the transition to clean energy is equitable and that progress on climate change fully embraces measures guaranteeing social justice.

As the energy transition in Chile accelerates, examining ways to ensure the shift is just will be increasingly important. In the run-up to this year’s climate change conference in Glasgow in November, COP 26, building coalitions and sharing lessons learned between countries including Chile will be crucial to raising ambitions for a just transition on a global scale. Political will, as well as dedicated funding streams for job training, will be required to help meet the goals of a just transition. Likewise, the Chilean government will need to design future climate policy in a cooperative, community-centered manner that focuses not only on the needs of the government and industry, but on those that the energy transition threatens to leave behind as well.