Environmental Conflicts in Chile: an Institutional Assessment

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Environmental Conflicts in Chile an
Institutional Assessment

• Rodrigo Pizarro
• Fundación TERRAM
• Presentation for the Montana University Chile
  Program
• 4 January 2007

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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.

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Context Institutional Crisis

• High Profile Environmental Agencys 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.

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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

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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

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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)

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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.

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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.

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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.

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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.

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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.

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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.

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The first questionWhat and who decides what?
There is a choice.
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Question 1What and who decides what?

• The environmental decision involves three
  aspects
• How much land should be destined for
  protectionhere 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)

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Problem 1 The Problem with the SEIAHow to fire
the mechanic?
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Problem 1 The Problem with the SEIAHow 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.

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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.

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

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Problem Nº3 Agency CaptureThe cat in charge of
the meat factory?
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Problem Nº3 Agency CaptureThe 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.

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

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Question 3 What are the instruments

• Problem Nº5 The instruments Dealing the
  externalities of intangibles.

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Problem Nº5 The instrumentsProperty 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.

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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?

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Role of NGOs
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Role of NGOs

• Change political will public communication/educa
  tion
• Change and perfect policies research and lobby
• Organize communities/environmental justice
  organization and advocacy.

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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

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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.

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Thank you

• Rodrigo Pizarro
• Fundación Terram
• January