Chile, New Zealand Representatives Express Support for Potential Collaboration in Climate Action Teams

(SANTO DOMINGO, Dominican Republic - 21 July, 2022) During a side event at Latin America and the Caribbean Climate Week (LACCW), government representatives from Chile and New Zealand expressed interest in and support for exploring the creation of a Climate Action Team agreement between the two countries.  

A ‘Climate Action Team’ is a cooperative mechanism within Article 6.2. of the Paris Agreement, made up of one 'host' country and one or more 'partner' countries. Under a multi‐year agreement, the partners will support the host country to accelerate climate action and decarbonization efforts beyond its own national climate goals (Nationally Determined Contribution, or NDC) and create social benefits. Partners are rewarded by claiming credits for the emission reductions generated through the Climate Action Team. 

"I see that this instrument (Climate Action Teams) is very positive for Chile,” said Nicolás Grau, Chile’s Minister of Economy, Development and Tourism, in response to the LACCW side event. “It will allow us to move towards a green economy faster and it will also allow us to adopt new technologies and financial support more quickly.”  

The side event, co-hosted by the Government of Chile, Environmental Defense Fund (EDF), The World Bank, and the Corporate Leaders Group for Climate Action – CLG Chile discussed how a pilot of the Climate Action Teams model between Chile and New Zealand could accelerate both decarbonization and green recovery. During the event, EDF released a new report that analyzed modeling results of potential greenhouse gas reductions beyond Chile’s current NDC. 

The report found that Chile needs to implement additional mitigation efforts in order to fulfill its NDC in relation to its carbon budget. A set of additional mitigation actions would allow Chile to fulfill its 2020–30 carbon budget and even overachieve it.  

"Initiatives such as Climate Action Teams can help to quickly reactivate the carbon market, which would allow driving innovation and technological development through international cooperation, in line with the fulfillment of our climate commitments and with a view to achieving neutrality by 2050, mainly activating private sector actions. It is key that we know how this operates in practice and how our countries can benefit from this type of mechanism" said Jenny Mager, Chief of the Climate Change Division of the Chile’s Ministry of the Environment. 

Preliminary results from the report’s modelling based on different carbon prices suggest that 70% of the 62 MtCO2e could be obtained at a marginal cost of less than US$50/tCO2e. In addition, estimates of the capital cost required to achieve this 70% is about US$2.8 billion. Climate Action Teams provides a mechanism that could unlock investment to help overachieve Chile’s current NDC commitment, while also providing significant co-benefits such as reducing local atmospheric pollution and improving public health. 

“Mechanisms such as Climate Action Teams, both with respect to the possibility of incorporating technical capacity and financing to be able to achieve those projects that are within our long-term plan, are fundamental,” said Claudio Castro, Mayor of the Municipality of Renca, Chile, in response to the LACCW side event. “Financing is key, the technical capacity is not installed today in the municipalities, and in both cases we believe that this can be a fundamental contribution that makes the difference between meeting our objective or not meeting it.” 

Representing a potential partner country, New Zealand would provide support to host countries, which includes committed funding for the purchase of a specific volume of carbon credits, technical support for mitigation activities, or connections to investors. In exchange, partner countries can claim credible emissions reductions (international transferred mitigation outcomes, ITMOs) beyond the host country’s NDC. 

"When we look at Climate Action Teams, they tick all our boxes. In particular, it offers an opportunity to work directly with our partners to achieve the outcomes that we and they need. Climate Action Teams also offer opportunities to engage New Zealand experts to contribute to partner's climate action and establish cooperative technical relationships of their own efforts,” said Anna Broadhurst, Climate Advisor to the New Zealand Ministry of Foreign Affairs and Trade. “New Zealand and Chile have a lot in common, our negotiators have worked together for decades seeking an ambitious and effective multi-lateral response to climate change. There are lots of reasons to be excited about Climate Action Teams—New Zealand certainly is.” 

International cooperation through market-based instruments, such as Article 6 of the Paris Agreement, if designed well, has the potential to reduce the cost of implementing NDCs by more than half to US$250 billion per annum, or increase the amount of emissions removed by 5 GtCO2 a year, by 2030. 

“Developing economies will be the source of over 70% of CO2 emissions by 2050. We have a global responsibility to work together and share resources to mitigate climate impact while also supporting equitable development and creating social co-benefits,” said Suzi Kerr, Chief Economist, Environmental Defense Fund. “Climate Action Teams create a path to channel resources to low-income countries to design an ambitious mitigation strategy that meets their own needs.” 

“The proposal has very clear advantages. It puts an end to the idea of project-based additionality, which is a source of distortions and very questionable negotiations. I think it reduces the transaction costs involved in project-by-project initiatives and that whole industry of additionality and engineering that goes on a project-by-project basis. And it opens up the possibility of recognizing the contribution of policies and measures at the national level,” said José Luis Samaniego, Director of the Sustainable Development and Human Settlements Division, Economic Commission for Latin America and the Caribbean, ECLAC. 

Facilitating cooperation to raise climate ambition is a key priority for the Multilateral Development Banks (MDBs). The World Bank is spearheading several initiatives together with other MDBs that aim at ensuring that client countries can benefit from markets without negatively impacting their ability to meet their NDCs, among them the Climate Warehouse and the Climate Market Club.   

“The Climate Warehouse seeks to improve the connectedness of carbon markets and increase transparency and trust by aggregating market information in a meta-data layer. This effort, along with the Climate Market Club, which brings together MDBs and national governments to jointly work through the modalities of piloting activities under Article 6.2, will support the next generation of carbon markets.” said Lucas Belenky, Climate Change Specialist for the World Bank. 

The private sector also plays a role in Climate Action Teams. Although the private sector cannot directly be a party to a CAT agreement but can participate by helping to reduce emissions in the host country, which will eventually deliver ITMOs to partner countries, or by purchasing ITMOs from partner countries to meet voluntary climate goals or legal obligations.  

"The climatic urgency we are experiencing is unprecedented and must move us with determination to concrete actions to stop its progress. At Statkraft, we see renewable energies as the only solution to face this challenge, and that is why we are committed to generating it without emissions and promoting power electrification. To advance towards this goal, we must work in coordination between the private and public worlds, and spaces such as the Climate Action Teams can be a great contribution in this direction,” said María Teresa González, General Manager of Statkraft Chile, member of the Corporate Leaders Group for Climate Action - CLG Chile. 

For more, read the full report with modelling data on Chile's NDC here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4168343