Energy Subsidies: Lessons Learned in Assessing their Impact - UNEP

The Impact of Removing Energy Subsidies in Chile
accounts for almost a quarter of the country’s primary energy needs. Gas has replaced coal to
a large extent. The competitiveness of coal declined with the elimination of subsidies in 1995.
Oil products are still the most important energy source (Table 11.1).
Table 11.1: Primary Energy Production and Consumption for 2000 (Teracalories)
Fuel
Indigenous
production
Imports
Changes in
stocks
Consumption
Teracals
%
Oil
2,970
105,054
2,736
105,288
41.0
Natural gas
22,755
40,832
3,277
60,310
23.5
Coal
2,562
30,813
1,248
32,127
12.5
Hydropower
17,289
0
879
16,410
6.4
Wood & solid biomass
42,544
0
0
42,544
16.6
Biogas
51
0
0
51
Negligible
TOTAL
88,171
176,699
8,140
256,730
100.0
Source: CNE (2002)
Electrical generation in Chile is still largely based on hydropower, but thermal plants are
growing in importance. In 2000, a drought year, thermal plants accounted for 71% of total
generation, compared to only a quarter in 1992. Natural gas-fired combined-cycle gas turbine
plants have become a major source of thermal generation, reaching 54% in 2000. The share
of coal-based plants in thermal generation has dropped from 92% in 1996 to 38% in 2000.
11.3 Petroleum and Coal Sectors in Chile
Prior to the launch of reforms in the 1970s, Chile’s oil industry was controlled by the state.
From 1920 and until 1942, the Government was directly responsible for the exploration,
production and refining of crude oil and the distribution of oil products. Between 1943 and
1950, these activities were carried out by the state company Corporacion de Fomento
(CORFO). In 1950, the state company Empresa Nacional del Petroleo (ENAP) was created.
Until the middle of the 1970s, ENAP was responsible for operating most of the country’s oil
industry, either directly or through its subsidiaries. The prices of most oil products, including
kerosene and diesel, were kept low.
In the mid-1970s, Chile began major political, social and economic reforms, with major
implications for the energy sector. These reforms included a reduced role of the state and
increased private participation in productive activities. Energy-sector reform was
implemented in two phases. In the first phase from 1974 to 1977, a process to prepare the
necessary economic and financial conditions for the reform in the energy sector was begun.
Energy prices were also adjusted to narrow the gap between domestic and international
prices. The second phase, from 1978 to 1989, emphasised institutional reforms including the
regulatory framework, legal aspects and ownership. In 1978, the National Energy
Commission (CNE) was created and given responsibility for developing and implementing
radical new energy policies. The distribution of oil products was privatised, and is now
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