Environmental impact of power sector deregulation in Chile

Summary form only given. The Chilean experience, with its long power sector deregulation process, offers valuable elements to understand the form in which the development of a private and competitive electricity market can impact the environment. It also illustrates how regulations can influence or not the behavior of the agents in the care of the environment. The Chilean electricity regulation does not incorporate in explicit form any restrictions or economic signals to integrate the environmental costs in the social or private analysis of the sector development. There are exogenous regulations, as the law of the environment, which externally impose those restrictions or signals. However, both legislation, the electrical and the environmental, not being conceived in a coherent and integrated form, give cause for conflicts. In these conflicts the actions of the private agents and various governmental agencies are interlaced, independent of the interest that they could express in coordinating their action. However, in spite of that, the experience of the Chilean deregulation process has positive implications in its impact in the environment. Private investors, that seek competitive advantages, have been the drivers for change of the national energy matrix, with reductions of the environmental impact that transcend to the electrical sector. In fact, these investors are the responsible for incorporating the Argentine natural gas into that matrix. Gas ducts across the Andes have been justified by the double utilization of the natural gas in industrial consumption and in electrical generation. For example, the arrival of the natural gas to the city of Santiago, useful in electrical generation, reduces the industrial pollution when this new fuel is used.