Environmental Conflicts in Chile: an Institutional Assessment

1. Environmental Conflicts in Chile: an Institutional Assessment Rodrigo Pizarro Fundación TERRAM Presentation for the Montana University – Chile Program 4 January 2007

2. Context: Environmental Crisis 2005 • Petroleum discharge in Antofagasta • Illegal cutting of Alerce trees • Coastal Highway in Valdivia • Pascua Lama Mining Project • Atmospheric Pollution in Santiago • The Farfana water treatment plant • Itata cellulose plant • Celco-Valdivia cellulose plant – An Image is worth a thousand words.

4. Context: Institutional Crisis • High Profile Environmental Agency’s CEO resign, Gianni López resigns 2004, Goñi 1996, Blanlot, 1998 Adriana Hoffmann 2003. • Agendas and Objectives not fulfilled. • The firing of the Seremi of Bienes Nacionales of the Vth Region for voting against the RCA. • Solari-Dockendorff report – The Lagos environmental program was not fulfilled.

5. Context: International Pressure • FTA with the USA • Environmental Chapter • Valdivia Coastal Highway • Salmon-Farming • Increasing pressure on Companies • Forest Ethics Campaign. • Pure Salmon Campaign • OCDE Report • Very critical

6. Context: Political events • 2005 electoral year. • For the first time all parties commit to environmental policies. • President Bachelet signs agreement with environmentalists – Chagual Agreements. She promises: • Environment Ministry • Enforcement Superintendent • National Service of Protected Areas

7. ¿What are the questions in environmental policy? • ¿What environmental quality do we want? (Environment vs Growth) • ¿What is the environmental institution which will design, implement and enforce environmental policy? (Coordination-One institution) • ¿What are the instruments? (Market - Command and Control)

8. Central Thesis • The environmental institution in Chile, created from the Environmental Law (1996) LBMA, answers these questions, but exacerbates a series of perverse incentives which make it impossible to fulfill environmental objectives. • The main problem is with the design of the overall environmental institution and the structure of the Chilean State.

9. Note apart • We suppose: • There is not sufficient progress on environmental issues, according to the objectives of the authorities (the environmental agenda is not complied with) • There is political will to move forward • But these assumptions are debatable.

10. The Chilean Economic Model • The structure of the environmental institutional system cannot be separated from the Chilean Economic Model. • There are three pilars • Stable Macro-economic policies and fiscal discipline. • The Government is subsidiary and public policies are horizontal. • Non-discriminatory opening of the economy.

11. Environmental Institutions in Chile • The logic of the global economic model is maintained. The State is subsidiary in environmental matters • Model of Coordination, environmental policy is determined by sectoral Agencies and Ministries. • Coordination is carried put through the Presidency Ministry at the national level and the Intendencias (appointed by the President, Chile is a unitary State) at the regional level. • Instruments are sectoral, both regulatory type (norms) and some market (permits: water, fisheries). • The SEIA is the ‘coordination’ environmental instrument of the system. It consists of one window to obtain all environmental permits, it is a facilitator of investment. There is though a certain amount of discretion by regional authorities and citizen participation.

12. Theoretical Framework • Principal-Agent Theory • Agency relations exist when an individual (individual, firm or organization), which shall call the Principal, requires the services of another, we shall call the Agent, for objectives valued by the Principal. For example a car owner and a car mechanic • The Principal and the Agent have different incentives. • Asymmetric information exists • There are monitoring and transaction costs.

13. Hypothesis • The institutional framework exacerbates Agency problems, because of the design of the environmental institutional framework. • Even if there exists political will to fulfill environmental objectives, it is difficult, even impossible to do so, because of the intrinsic incentives of the institutional system. • It is necessary to identify the Agency problems and design an institution that either eliminates them or controls for them.

14. The first question:¿What and who decides what? There is a choice.

15. Question 1:¿What and who decides what? • The environmental decision involves three aspects: • How much land should be destined for protection–here there is a conflict for land use. (State or private sector) • How are environmental norms determined. (The State with the private sector?) • The SEIA as a decision-maker of investment projects and their technology. (Private sector only)

16. Problem 1: The Problem with the SEIA¿How to fire the mechanic?

17. Problem 1: The Problem with the SEIA¿How to fire the mechanic? • The SEIA (consists of a regional decision between growth and environmental quality). The Corema has certain discretionality in accepting the project and under certain conditions But: • The location is decided by the Firm. – eg landfills in Santiago. • The environmental evaluation is sectoral, carried out by sectoral agencies. • The political decision is by a national body, the Corema (Intendente and Seremis) are appointed by the Central Government. • The citizens (The Principal) have no capacity to evaluate or monitor the agent, the Corema • The decision between growth and environmental quality is not regional, it is not democratic, and it is not participatory, and politically discretionary, it is a national Central Government decision. Neither is it efficient, no monetary compensations are permitted. • From an agency point of view it is the worst possible scenario.

18. Question 2: Environmental Institutions • Problem 2: The true institutional incentives of the sectoral agencies. • Problem Nº3: Agency Capture. • Problema Nº4: Credibility and Consistency of Environmental Policy.

19. Problem 2: The institutional incentives of the sectoral agencies (The Coordination System)¿Who pays the mechanic?

20. Problem 2: The institutional incentives of the sectoral agencies (The Coordination System)¿Who pays the mechanic? • In Chile sectoral agencies have responsabilities in relation to economic production, enforcement and environmental conservation together. • For example • CONAF (forest production DL701 and protected areas). • SubPesca (fish production and marine biodiversity). • MinVu, (State housing and land use). • Public Works (public works and water). • Moreover they are evaluated by the production success, forestry exports, fishing exports, number of social housing, number of water works. • Confronted by these incentives it is impossible to fulfill their ‘environmental’ mission and obviously coordination is impossible. • In this case CONAMA is the Principal y the sectoral Agencies the Agent. But CONAMA has no mechanism to force the compliance of the environmental mission, and the Agencies must comply with their principal mandate.

21. Problem Nº3: Agency Capture¿The cat in charge of the meat factory?

22. Problem Nº3: Agency Capture¿The cat in charge of the meat factory? • When agencies associate their ‘success’ with the success of the sector they regulate, they have what is termed ‘agency capture’ (for instance annual reports of agency have exports growth). • In Chile this is worse because of the small labor market, this occurs particularly in natural resource agencies.(eg CONAF). • Consequently it is very difficult to ensure optimum regulation and adequate enforcement. • Therefore Agency capture worsen the agency problem. Agencies respond to economic interests not environmental. Therefore coordination is impossible.

23. Problema Nº4: Credibility and Consistency of Environmental Policy. ¿How long do you let the baby cry?

24. Problema Nº4: Credibility and Consistency of Environmental Policy. ¿Let the baby cry? • Time consistency refers to the incapacity of governments (or agents) to commit credibily to long term policies, because of the nature of short term demands. (sleeping a baby – how long will the parents stand the crying?). • This phenomena implies that environmental policy is not time consistent. • By leaving environmental decision ultimately to be arbitrated by a ‘political’ Ministry (the SegPres), environmental policies (because of its long term nature) will be submitted to short term expediency. • The same occurs with the enforcement of mega–projects. Once approved, if they do not comply they can only be closed down. This is simply not credible. • Because of the phenomena the worst that can be down is for environmental policy to depend on ‘political’ institutions

25. Question 3: What are the instruments • Problem Nº5: The instruments: Dealing the externalities of intangibles.

26. Problem Nº5: The instruments¿Property versus Territory? • Theoretically and in practice environmental instruments have moved from command and control to market to land use management. (The example of water) • The lack of land use and planning instruments, makes it very difficult to deal with pressing environmental problems. Economic instruments are incapable of adequately dealing with internalizing localization related externalities (where to locate a cellulose plant). • Environmental norms will never contemplate adequately the different uses of the territory. Land use instruments and planning, allows for: • Optimum use of the territory • Real citizen participation. • Deal with emerging problems: transport, coastal management, the city and river basin management.

27. Evaluation • The objective of environmental institutions is • Comply with the objectives of the government, the Principal. • Be efficient • Be effective • Be transparent • Was the environmental institution designed in such a manner as not fulfill its own objectives? Could this be deliberate?

28. Role of NGOs

29. Role of NGOs • Change political will – public communication/education • Change and perfect policies – research and lobby • Organize communities/environmental justice – organization and advocacy.

30. Conflicts in this context • Related to land use – NIMBY • Related to amount of conservation - Aysén • Related to economic loss of intangibles – reputation - grapes next to cellulose plants • Related to compensation – Poor community look for economic upgrade/environmental Justice. • Related to competition of generic resources –water, air, etc

31. The future • Need to deal with the competing land uses. • Chile cannot avoid land use planning • State cannot be subsidiary – It must decide on land uses- here is the main role for citizen participation. Does this imply a conflict with the economic model? • Otherwise environmental conflicts will continue and affect export model.

32. Thank you Rodrigo Pizarro Fundación Terram January