While not a leading emitter of greenhouse gas emissions, today Chile stands in the top quartile of countries most vulnerable to climate challenges.

In 2018, in the face of mounting domestic climate pressures and global commitments to reduce reliance on coal power, the Government of Chile introduced a national energy strategy to completely phase out all coal-fired power plants in the country by 2040.

With a clear public and corporate commitment to phase out coal assets in place, IDB Invest, the private sector arm of the Inter-American Development Bank, saw the opportunity to pilot a new, innovative, decarbonization instrument with global energy utility Engie, that would accelerate the closure of two coal power plants to achieve a greater reduction in emissions. The instrument applied blended finance in the form of a compensation scheme. IDB Invest also sought to lay the groundwork for a new tradeable carbon credit class tied to the accelerated decommissioning of coal plants.

Key insights from this case study include:

• A national transition away from coal requires more than blended finance alone; it hinges on strong policy commitment and industry buy-in.
• To incentivize and accelerate coal decommissioning in Emerging Markets and Developing Economies, availability of concessional finance is paramount.
• A dedicated and knowledgeable blended finance team is highly valuable in first-time, pilot transactions in new sectors.
• Piloting transactions in controlled environments with experienced counterparts helps to speed up the development of models for more complex applications.

Chile, although not a major emitter of greenhouse gas emissions, faces high environmental vulnerability. In response, the Government of Chile introduced a national energy strategy in 2018 to phase out all coal-fired power plants by 2040. With strong public and corporate commitment to phase out coal assets, IDB Invest partnered with energy company Engie to pilot a new decarbonization instrument that accelerated the closure of two coal plants to achieve a greater reduction in emissions. The instrument applied blended finance in the form of a compensation scheme. The initiative also aimed to establish a new carbon credit class linked to faster coal plant decommissioning.  

Key takeaways:

• National energy transitions need more than just financial tools—they depend on strong policy and industry support.
• Concessional finance is crucial for advancing coal phase-outs in developing regions.
• Skilled blended finance teams are vital for pioneering efforts in new sectors.
• Controlled pilot projects with experienced partners help refine models for broader application.