Chile's carbon credit retirements decline as market pressures grow

Chile's carbon credit system under its CO2 tax has experienced a substantial decline in retirements, dropping by 61% to just 1.7 million credits for the 2025 tax cycle. This development is significant as it reflects broader market trends, particularly the relationship between the local compliance market and the more lucrative voluntary carbon market (VCM).

The current CO2 tax rate, fixed at USD 5 per tonne, has remained unchanged since its introduction. Officials from the Ministry of Economy, Development, and Tourism have indicated that this rate is unlikely to change in the near future. The stagnant pricing contrasts sharply with the voluntary carbon market, where credits command higher prices, affecting the incentive for local project developers to participate in the compliance market.

Chilean supply of eligible carbon credits is limited. The SCE (Sistema de Certificación de Emisiones) program restricts eligible credits to vintages from the past three years. This limitation, combined with the low generation of Verra-certified credits—only 4.3 million to date—has created a constricted environment for compliance. The focus on electromobility projects has emerged as a potential area for growth, but the current credit supply remains inadequate.

Electromobility is becoming increasingly important in Chile, significantly impacting emissions from the transport sector. Recent insights shared during a government-organized webinar highlighted the potential for new methodologies, like VMR0014, which could enhance the effectiveness of projects in this area. However, despite the relevance of these projects, the issuance of carbon credits remains limited.

Chilean developers find the voluntary market more attractive due to better pricing. Recent analytics indicate that prices for electromobility credits in regions such as Africa and Asia are significantly higher than the domestic price. For instance, AMS-III.C. credits average around USD 12 in Africa and between USD 7.75 and USD 16.40 in Asia. This price disparity diminishes the incentive for developers to sell credits domestically, further exacerbating the supply issue.

According to the Ministry of Environment, while the SCE mechanism allows for compliance with the CO2 tax, numerous companies covering a considerable share of national emissions continue to pay the tax rather than engage with the SCE. Since 2023, these companies have contributed around USD 30 million to CO2 mitigation projects, showcasing the ongoing challenges in the local compliance market.

The dynamics of Chile's carbon market highlight a critical moment for stakeholders, with market pressures pushing some developers towards the more profitable voluntary sector. As the gap between the compliance and voluntary markets widens, understanding these trends becomes essential for investors and companies involved in carbon credits. For a more in-depth analysis of the region's carbon credit landscape, refer to the Latin America Carbon Credit Market.

Looking ahead, key developments to monitor will include any shifts in the CO2 tax rate or regulatory changes that may impact supply dynamics. Additionally, the performance of electromobility projects and their ability to generate credits could alter the landscape, influencing both compliance and voluntary market participation.