Decarbonizing the Chilean Electric Power System: A Prospective Analysis of Alternative Carbon Emissions Policies

Abstract

In this paper, we investigate potential pathways for achieving deep reductions in CO2 emissions by 2050 in the Chilean electric power system. We simulate the evolution of the power system using a long-term planning model for policy analysis that identifies investments and operation strategies to meet demand and CO2 emissions reductions at the lowest possible cost. The model considers a simplified representation of the main transmission network and representative days to simulate operations considering the variability of demand and renewable resources at different geographical locations. We perform a scenario analysis assuming different ambitious renewable energy and emission reduction targets by 2050. As observed in other studies, we show that the incremental cost of reducing CO2 emissions without carbon capture or offset alternatives increases significantly as the system approaches zero emissions. Indeed, the carbon tax is multiplied by a factor of 4 to eliminate the last Mt of CO2 emissions, i.e., from 2000 to almost 8500 USD/tCO2 in 2050. This result highlights the importance of implementing technology-neutral mechanisms that help investors identify the most cost-efficient actions to reduce CO2 emissions. Our analysis shows that Carbon Capture and Storage could permit to divide by more than two the total system cost of a 100% renewable scenario. Furthermore, it also illustrates the importance of implementing economy-wide carbon emissions policies that ensure that the incremental costs to reduce CO2 emissions are roughly similar across different sectors of the economy.