BY ANNE-CHARLOTTE FROTTÉ
Anne-Charlotte Frotté is an international relations student at SAIS specializing in Finance & Economics, as well as Climate & Sustainability. She is interested in exploring the intersection of economic policy and environmental sustainability.
INTRODUCTION
With the world facing a series of crises, from the COVID-19 pandemic to geopolitical conflicts and the climate emergency, Chile is spearheading sustainable development efforts. Today, Chile privatizes resources like water and minerals, and is a major supplier of lithium and copper, both of which are used for clean energy storage and transportation. Chile is now working to use their advantage in green hydrogen production to become one out of three of the world’s largest hydrogen exporters by 2040, and produce green hydrogen at the lowest cost by 2030. In fact, Chile aims to lead in green hydrogen production with a 25 GW target by 2030, potentially generating excess energy for export.
Hydrogen is an energy carrier and has the potential to replace fossil fuels, it is helpful when looking to decarbonize sectors. Green hydrogen is the process of producing hydrogen with electrolysis, the splitting of water molecules into hydrogen and oxygen, using a renewable energy source. Increasing innovation surrounding green hydrogen is valuable as it is a versatile tool that does not emit greenhouse gasses.
Chile's pursuit of green hydrogen as part of its decarbonization efforts has the potential to bring significant economic benefits but also poses a variety of challenges, beginning with achieving the necessary funding. Additionally, Chile is currently facing a 10-year megadrought that is impacting many aspects of life, including renewable energy production. This drought is making green hydrogen become even more costly, as projects will need to source water from the ocean, and thus desalinate it. This process would increase the price of green hydrogen, but would allow for the little water that is left to be used for other purposes.
THE FOLLOWING STEPS
In order to achieve its ambitious green hydrogen goals, Chile must rely on diverse investments from the government, internal companies, foreign investors, and global institutions. The government has committed US$1 billion for green projects and allocated 30% of additional resources from its pandemic recovery plan to sustainable projects. The government also plans to spend around US$193 million to co-finance a research institute for clean technologies, while The Ministry of Environment established that 30% of additional resources from the public investment program, a part of Chile’s recovery plan for the pandemic, will be allocated to sustainable and green projects. This will make a major impact in creating six new green hydrogen projects, for which the government has already planned.
While green hydrogen projects will receive government funding, private investors and multilateral banks are also crucial for financing. In fact, in order to achieve their goals, the Chilean government must come up with a National Hydrogen Strategy that markets Chile as an international source of clean fuels and energy carriers. This would open themselves to potential foreign investments.
POTENTIAL EFFECTS
If Chile is able to focus on the green hydrogen sector and ultimately export its products, there will be a positive impact to GDP. The World Bank Blogs state that, “…if Chile reaches its decarbonization target, this could mean an additional growth of 4.4% of its GDP by 2050. This would translate into an additional US$31 billion towards the country's economic development…” To understand the potential impact of a green hydrogen focus, the current unemployment rate must be considered. According to The World Bank, Chile’s current unemployment rate is 9.1%. This may not seem high, but it is close to double that of the UK and the US respectively. It also reflects that about 800,000 people are unemployed.
To specifically address unemployment, green projects aim to create 100,000 green jobs and US$200 billion in sustainable investment over the next 20 years. Currently there are many coal-fired power plants in Chile, however they are a major source of pollution and thus the government aims to close or repurpose the plants by 2040. The 28 plants currently employ many people, and closing them would cause a loss of 13,000 jobs. With that said, it is estimated that the new green projects and the repurposing of the plants will generate 43,000 new jobs. It is important to note that despite an increase in job opportunities, the supply of workers may be low because workers do not have the necessary skills for the jobs. Therefore, it is important for the government to be committed to train workers so they are better adapted to job displacement.
Another benefit, though, is that the shift towards green jobs may reduce informal employment, potentially increasing access to government benefits. Formal employment typically includes benefits such as social security, healthcare, and retirement plans. In addition, formal employment compared to informal labor can be more beneficial for those working, as it provides a more predictable income, as well as reduced vulnerability to exploitation.
CONCLUSION
Chile's journey towards becoming a green hydrogen powerhouse exemplifies the potential for sustainable development to thrive even in the face of global crises. If Chile successfully addresses these challenges and meets its green hydrogen goals, it can expect economic growth, prosperity, and enhanced trade relationships.