August 20, 2012 | by ANTONIA SOHNS
Chile – the world's largest copper producer – is one of the economically most unequal countries in the OECD. Mining governance remains essential to abate social tensions and avert an energy crisis, Antonia Sohns from the Worldwatch Institute reports.
With 28 percent of the world’s copper reserves buried beneath their soil, the Chilean people consider copper “the wage of Chile,” el sueldo de Chile. The copper industry accounts for 15 percent of the country’s GDP and has had a profound impact on the development of social, economic and political institutions. Copper is thus at the core of Chile’s larger prospects and challenges. Copper’s abundance has enriched Chile for decades, but more recently resource governance and rising inequity have ignited protests throughout Chile as citizens call for equality.
In order for Chile to assuage social tensions and avoid an energy crisis that could halt mining production, Chile must invest in diverse renewable energy resources and enhance inclusivity.
Legacy of copper governance
Copper governance in Chile emerges from a complex historical legacy that spawned a governance framework with positive and negative dimensions. In the 1970s, Chilean dictator Augusto Pinochet instituted a program of neoliberal economic reform and began privatizing the management of extractive resources that had long been held in the public trust. Though copper remained under state control: in 1976, Pinochet consolidated copper governance by creating the Corporación Nacional del Cobre de Chile (CODELCO), a state-owned company managed by the military.
CODELCO’s creation and governance as a state-owned company significantly built on the era of statist developmentalism from 1930 to 1973, where the state consolidated strength through taxation and centralizing power. CODELCO would ensure the state’s competitiveness and leading role in copper mining. Until 2009, the military received 10 percent of CODELCO’s profits to purchase arms and fund new projects. Today, CODELCO remains the largest copper producer in the world.
Although CODELCO has enabled Chile to maintain copper as a national resource and helped the government avoid the resource curse, Pinochet’s neoliberal policies began to perturb the distribution of power in favor of free enterprise. Significantly, Pinochet modified the mining code, asserting private property rights by transferring the ownership of mining concessions to individuals or transnational companies. Previously, the Constitution had granted the state – and hence the Chilean people – the right to subsurface minerals.
By legitimizing the role of the private sector in economic development, Pinochet’s economic policies have had an enduring impact on Chilean society. Market liberalization has resulted in such a high degree of income and wealth concentration that in 2010 Chile was rated the most economically unequal country in the 34-nation Organization for Economic Co-operation and Development (OECD). In 2011, Chile was given one of the lowest ranking for social inclusion and cohesion in the OECD.
Pinochet’s neoliberal policies have additionally marginalized communities by excluding them from the decision making process. Most recently, such inequity has spurred nationwide protests and litigation efforts to attempt to halt to many large development projects and spread the benefits of resource extraction more evenly.
Public resistance continues to gain traction as Chileans aim to draw attention to rising social inequity by opposing mining developments and other large-scale projects, such as the $3.5 billion HidroAisen hydropower project, which would benefit private owners at the expense of the public good.
Looming Energy Shortage
Another impediment to sustainable resource development in Chile is the country’s limited energy supply. The mining sector consumes 38 percent of Chile’s energy and will continue to demand a high share as the country further develops its copper resources. Chile hopes to develop these resources at an efficient rate and remain the world leader in copper supply, yet it faces insufficient energy supplies to meet this potential.
To address the energy shortage, the Chilean government recently passed a new national energy strategy, La Estrategia Nacional de Energía (ENE) that will guide energy policy through 2030. The strategy aims to boost available energy supplies through increased efficiency, yet the plan falls short because it fails to decouple company profits from the amount of energy sold. Without this, companies will have little incentive to promote energy savings. However, if Chile does not rapidly increase its energy supply, it could lose 2 to 3 million tones of potential mining production annually by 2015.
Chile is exploring all possible solutions to avert this crisis. The country has remarkable renewable energy potential, particularly for geothermal, solar, wind, ocean, and biogas, yet these resources comprise a mere 3 percent of national electricity production. Harnessing these resources will be vital to a stable Chilean energy supply.
In both energy development and the governance of copper, it is critical that the Chilean government engage all stakeholders in the policymaking process. The business sector has gained a powerful position in Chilean politics, and has worked to promote neoliberal economic principles in all political institutions – often to the exclusion of both labor and environmental interests.
To ensure the development of an extractive industry that will combat economic disparities and address energy insecurity in Chile, the government must prioritize the active inclusion of all stakeholders. The government has substantial reform capabilities and through passing the ENE has revealed its ambition to avert crisis. Chile’s continued adaptability and strategic planning through policies that mitigate both an energy shortage and allay social inequity will be critical to the country’s socio-political stability and the security of its copper industry.