PAVING THE ROAD FOR COMPETITIVE GREEN HYDROGEN HUBS: DOES CHILE HAVE A CHANCE? Benigna Cortés Leiss Nonresident Fellow in Latin American Energy, Center for Energy Studies Lindley Maxwell, Ph.D. Investigador Principal de Energía, Centro Científico Tecnológico Región de Antofagasta CICITEM Tilsa Oré Mónago, Ph.D. Fellow in Energy and Market Design, Center for Energy Studies May 2023 © 2023 by Rice University’s Baker Institute for Public Policy This material may be quoted or reproduced without prior permission, provided appropriate credit is given to the author and Rice University’s Baker Institute for Public Policy. Wherever feasible, papers are reviewed by outside experts before they are released. However, the research and views expressed in this paper are those of the individual researcher(s) and do not necessarily represent the views of the Baker Institute. Benigna Cortés Leiss Lindley Maxwell, Ph.D. Tilsa Oré Mónago, Ph.D. “Paving the Road for Competitive Green Hydrogen Hubs: Does Chile Have a Chance?” https://doi.org/10.25613/42F2-EW17 Paving the Road for Competitive Green Hydrogen Hubs: Does Chile Have a Chance? Executive Summary Chile’s economy decarbonization process is underway. The country has no hydrocarbon reserves and has limited hydro resources. It has historically relied on imported oil, natural gas, and coal to meet its energy needs. However, its Atacama Desert has the best solar radiation in the world while the extreme south has the strongest wind onshore. As a result, Chile already generates more than 20% of its electricity using solar and wind power. In this context pursuing the production of green hydrogen using renewable electricity resources has been embraced by the government and in 2020 issued “The National Green Hydrogen Strategy of Chile” which has both a medium- and a long-term vision. This strategy relies on the abundance of renewable resources and ample private sector participation: Concentrated solar power, solar photovoltaic, on-shore wind and run-ofriver, may allow Chile to produce the cheapest green hydrogen on the planet once the technology, infrastructure and regulatory challenges are taken care of — including financing and acceptance by the community at large. The technology is currently being tested with multiple pilot projects with public and private funding to provide incentives for the production, delivery, and use of green hydrogen. They are expected to be fully tested by 2025 for local consumption, with the first phase providing: • • • Green hydrogen to replace the gray hydrogen — from hydrocarbon processes that emit CO2 — currently used by refineries and the chemical, cement, and steel industries. Derivatives of green hydrogen such as methanol to replace diesel in heavy-duty transportation in mining activities, and in long-distance transportation via buses, trains, and heavy-duty trucks. Green ammonia to produce explosives and fertilizers. A large part of the challenge in scaling up the production of this new fuel for the local and international market is the development of a regulatory framework that provides certainty and transparency for its whole value chain. Green hydrogen production, storage, transportation and distribution, and end users need reliable rules for the investors, operators, consumers, and communities surrounding these facilities. To incentivize reducing emissions and local demand of renewables including green hydrogen, Chile already has a carbon tax of $5.00/ton of carbon dioxide which the government is planning to increase to $35.00/ton of carbon emissions. A new law on energy efficiency (Law 21.305) has now defined “green hydrogen” as a fuel, rather than the previous definition — “a dangerous extremely flammable element” — that was used when green hydrogen was regulated by the Health Ministry. In addition, Law 21.505, approved November 2022, included hydrogen storage to be used as a backup for the electric system, to manage the intermittency of renewable power generation. As a result, the Ministry of Energy is the entity responsible for this new fuel and its strategy implementation. 3 Paving the Road for Competitive Green Hydrogen Hubs: Does Chile Have a Chance? It has designed a calendar with three phases with the purpose to adapt existing regulations and design new ones to facilitate the development of this new energy vector: First Phase 2020-2023 to elaborate the rules to make green hydrogen, its specifications and delivery. Second Pha