Chile at the Green Window of Opportunity: The Troubled Road to New Productive Capabilities

3.1 Context: Hybrid Neoliberal Setting and Energy Policy Post-COP21

Before delving into what constitutes new policy sectors, it is essential to provide context for two critical dimensions that underpin the spirit, shape, and purpose of the emerging industrial policy strategies, as well as any broader state involvement in the journey towards a net-zero economy: the hybrid neoliberal institutional setting and sectoral energy policy post-COP21. First, the institutional setting in which green industrial policy operates must be considered. Despite reforms following the return to democracy, industrial policy in Chile has been constrained by the enduring influence of business power, institutional frameworks, and the persistence of neoliberal ideas established during Pinochet’s dictatorship (1973–1990) (Silva 2019; Bril-Mascarenhas and Madariaga 2019). As a result, industrial policy has focused on addressing market failures, enhancing productivity, and promoting technological development within existing sectors of the economy (Agosin et al. 2010; Agosin 2023).

While these policies reflect a ‘small’ industrial policy, the grand narrative of neoliberalism’s triumph tends to overlook the continuities and resistances that exist within the policy landscape. In particular, CORFO, the state agency that leads industrial policy since 1939, played a crucial role in the development of new productive sectors such as salmon, fruits, and forestry, all of which have become central to the national export basket (Ffrench-Davis et al. 2000; Orihuela 2018; Lebdioui 2019). As the following subsections will detail, all new industrial policy on green hydrogen and lithium happens through CORFO. Similarly, CODELCO, the state-owned copper corporation, was not privatized during the dictatorship and remains one of the world’s largest copper producers, a significant source of government revenue, and a key player in the national economy (Nem Singh 2024). Beyond the CORFO and CODELCO stories of institutional continuity, the Chilean polity is characterized by its ‘technocratic’ quality, which means that networks of experts exercise high influence in policymaking and the overall national political process (Silva 2008). As such, green industrial policy is not the beginning of industrial policy in Chile, and the solid–albeit restricted – pre-existing domestic institutions and embedding expert networks are crucial to unpack contemporary attempts to build new productive capabilities.

The second critical dimension to contextualize the case study is active national energy policy since the 2000s and in response to COP21. In particular, the sectoral strategies on the “greening” of copper mining, potentially lithium extraction and green hydrogen are closely linked to, and in some cases dependent on, Chile’s commitment to decarbonizing the energy matrix by 2050. These strategies all require extensive access to clean energy, either to reduce sectoral emissions (as in copper mining) or to enable sectoral development (as in green hydrogen). Following the COP21 in Paris, Chile submitted its nationally determined contributions (NDCs) in 2015, shortly after signing the Paris Agreement. This commitment aligned with the state’s more active role in energy planning, a shift that gained momentum after the 2004 crisis when Argentina restricted natural gas exports to Chile (Furnaro 2019). In 2015, the government of Bachelet enacted the first National Energy Policy (Ministerio de Energía 2015), consolidating various energy laws passed since 2000 aimed at boosting renewable energy generation and addressing other challenges in the energy system.

The National Energy Policy embodies the state’s high commitment to the renewable energy transition, reinforcing its supportive role. As the then Minister of Energy stated, “The State can do this. It can also do a better job. The State must do it better” (Pacheco 2015, p. 19). While the state has not played a central role in project development or subsidies, consistent with a neoliberal approach to policy (Furnaro 2019), the International Energy Agency (IEA) has recognized the Chilean state’s leadership in energy planning (IEA 2024a). This policy was updated in 2022 (Ministerio de Energía 2022a) to address changes in renewable energy markets, including the creation of a nationally integrated energy system and more competitive prices for renewable energy projects. The updated policy aims for Chile to become net-zero by 2050–target legally enshrined in the 2022 Climate Change Framework Law-, with 80 % of energy generated from renewable sources and a target of 70 % zero-emission fuels, such as green hydrogen. While the 2022 update includes the goal of developing renewable energy as a key economic sector, its synergistic role in supplying other sectors is critical to boosting productivity and economic diversification. For instance, the mining industry played a pivotal role in the early stages of renewable energy development in Chile (Furnaro 2019) and remains central to decarbonizing the sector, certifying Chilean copper as “green,” in line with the national mining strategy (Gobierno de Chile 2021). Similarly, as the next section explains, the development of green hydrogen depends on the large-scale provision of renewable energy (Ministerio de Energía 2020).

Keeping in mind these two central features of the contextual national policy process, the entrenched, yet hybrid and opening neoliberal setting and the rise of green energy policy, the next two sections depict industrial policy in green hydrogen and lithium, respectively, highlighting measures aimed at creating new productive capabilities. According to interviewees, these sectors have been identified as “two significant opportunities for industrial development, aligning with the global energy transition and offering conditions that enable innovative policy approaches”. Table 1 summarizes key guidelines for industrial policies in each sector, along with specific measures aimed at creating new productive capabilities in the upstream and downstream segments, as well as beyond the value chains of specific resources; in turn, Figure 1 offers a timeline of policy measures by national government administrations. Considering that many industrial policies aimed at building new productive capabilities in peripheral economies are built on geographical contexts and comparative advantages they hold in producing specific natural resources, these policies can be easily categorized into three types: those related to the processes involved in extraction and processing (upstream), those aimed at building value-added products based on the sector’s comparative advantage (downstream), and those that originate from the specific sector but are not directly linked to its value chain (offstream).

Figure 1:

Timeline of policy measures.

3.2 Green Hydrogen: Fostering Supply, Demand and Capabilities in the Value Chain

Chile’s remarkable progress in renewable energy generation stems from its significant comparative advantages in solar and wind power. This potential is estimated to exceed national electricity demand with a capacity 80 times greater than current electricity generation (GIZ 2014; Ministerio de Energía 2022a: 5). Global efforts toward the path to net-zero emissions have spurred interest in green hydrogen development (IRENA 2022), aligning with Chile’s renewable strengths and its current economic stagnation. Initial interest in green hydrogen remained limited until 2019, when it was incorporated into the demand models used to update the 2020 Nationally Determined Contribution (NDC) during Sebastian Piñera’s second administration (2018–2022). In this NDC, Chile committed to achieving carbon neutrality by 2050, with green hydrogen projected to be responsible for 21 % of emission reductions in the industrial and transportation sectors (Ministerio del Medio Ambiente 2020: 7). Concurrently, a 2019 IEA report suggested that Chile could emerge as a leader in the production and export of green hydrogen–particularly in the form of ammonia-by 2030 (IEA 2019). These visions reinforce CORFO’s earlier idea of developing local consumption hubs while also meeting international demand, expressed through co-financing pilot applications in mining transport linked to solar energy (CORFO 2018).

To fulfill NDC and harness comparative advantage on new energy, Chile’s Ministry of Energy launched the National Green Hydrogen Strategy in November 2020. This strategy laid out an ambitious vision and structured stages within a compressed timeline. The primary objective is to capitalize on Chile’s renewable energy potential and establish a prominent position in the global green hydrogen market (Ministerio de Energía 2020: 9–13). The State role in this initial stage was focused on facilitating, promoting, and coordinating multisectoral efforts, providing strong signals to private investors (Ministerio de Energía 2020: 22). Furthermore, the strategy articulates a transformative vision for Chile, positioning the green hydrogen industry as a catalyst for a new economic identity. This shift is described as a transition “from a country historically reliant on non-renewable resources to a nation that adds green value to its exports and produces the clean energy that the world needs” (Ministerio de Energía 2020: 14).

The green hydrogen strategy gained new momentum under President Gabriel Boric’s administration, which took office in March 2022 for a four-year term. Unlike the Piñera government’s earlier lack of collaboration with Michelle Bachelet’s lithium strategy, Boric’s left-wing government adopted the green hydrogen initiative launched under Piñera. Despite maintaining continuity with the established goals, governmental sources highlight a new approach toward the envisioned industry stating that: “The major difference with the original strategy was that we wanted to promote an industrial policy around green hydrogen to avoid creating an enclave economy like copper or even photovoltaic energy”. To operationalize this vision, the current government launched its Green Hydrogen Action Plan 2023–2030 in 2024, emphasizing the creation of quality jobs, regional supply chain development, and technological innovation (Ministerio de Energía 2024: 9–10).

Since the launch of the first strategy, government efforts have prioritized creating an investment-friendly environment as a central pillar of its strategy, aiming to co-finance private initiatives and reduce financial costs and risks to attract investment in green hydrogen production and projects (CORFO 2021; Ministerio de Energía 2022b: 17). Under the current administration, the most significant initiative is the announced US$1 billion ‘facility’ that CORFO–planned for launch by late-2024 but remains pending-to co-finance green hydrogen production and consumption projects, with support from multinational banks such as the World Bank, the Inter-American Investment Bank, and the European Development Bank (Ministerio de Economía 2023). CORFO executives indicate that the facility seeks to “provide first-floor credit always syndicated with external financing, with guarantees or with some early insurance mechanism for projects.” This trend aligns with the sector’s political-economic dynamics based on promoting de-risking instruments which, according to recent literature, may reproduce and create new economic-financial dependencies that, together with dependence on external investment and markets, may reaffirm uneven terms of production and trade (e.g. Gabor and Sylla 2023; Scholvin et al. 2025; Collington 2025).

In parallel, various measures have been introduced to promote the development of productive capabilities both upstream and downstream along the value chain. Under President Piñera, the focus was on facilitating the development of green hydrogen consumption to drive demand, while also addressing value chain gaps, developing infrastructure, and promoting educational programs at both undergraduate and graduate levels (Ministerio de Energía 2022b: 53). The National Association for Research and Development (ANID) funded projects focused on research and advancing human capital throughout the green hydrogen value chain such as the H2in research project. H2in conducts applied research developing scalable methodologies for hydrogen value chains, producing spillovers through scientific publications and decision-making tools oriented towards developing a multidimensional assessment of hydrogen value chain applications in local industry​. Additionally, funding mechanisms were established to support initial pilot projects designed to stimulate domestic hydrogen use, facilitating the dissemination and transfer of knowledge related to the implementation of green hydrogen projects (DIPRES 2021; ASE 2024).

The promotion of new capabilities has intensified under the Boric administration, based on its explicit intention to promote industrial policies more intensive in knowledge, technology, and innovation. In relation to upstream value chain development, CORFO subsidies have been directed toward co-financing undergraduate and postgraduate programs focused on environmental and climate change assessments and development of green hydrogen production related technologies (CORFO 2024a; CORFO 2024b).^[1] Academics from regional educational institutions involved in these initiatives, such as the University of Magallanes, urge caution, noting that “Announcements regarding the industry have sparked considerable enrollment interest in engineering programs throughout the region(…) This strategy ensures that in the event the industry does not reach fruition, these technicians and professionals remain employable in the broader job market.” As in the previous period, ANID has funded research centers dedicated to the formation of advanced human capital related to these technologies (e.g. The Millennium Institute on Green Ammonia–MIGA) focused on technological development, basic and applied research, and innovation for sustainable ammonia production and use as an energy vector).^[2]

Other key measures include the recent CORFO bids for the “Technological Program to Strengthen Local Capacities for the Manufacture of Enabling Components for the Hydrogen Industry.” This initiative focuses on capabilities linked to the development and/or adaptation of processes for parts and components that can be integrated into upstream segments of the hydrogen production chain, such as the construction of solar panels, wind turbines, electrolyzers, electrical equipment, and other related technologies. The latest iteration of this program, linked to the upstream but also downstream segment, was allocated to the HydroTech Industries consortium to develop an integrated industrial ecosystem for the production, conversion, and adoption of commercial green hydrogen vehicles and components in Chile through an advanced industrial facility in Maipú. The initiative is supported by CODELCO’s commitment to heavy truck conversion and vehicle procurement upon commercial deployment, with anticipated monthly production capacity of 50 buses and trucks (CORFO 2025b). These initiatives are complemented by other upstream focused co-financing calls for manufacturing and/or assembly of electrolyzers and wind energy systems and their components in Chile for the potential green hydrogen industry. While the wind systems program remains in early phases, the electrolyzer initiative has seen CORFO allocate US$25.6 million to three international consortiums – Beijing Sinohy Energy (China), Fastpack S.A. (Chile), and Joltech Solutions (Spain) – for establishing Chile’s inaugural electrolyzer manufacturing facilities. These projects, representing over US$50 million in total investment, aim to produce electrolyzers with capacity ranging from 10 kW to 50 MW across the Biobío and Metropolitan regions, with anticipated operational commencement in 2026 (CORFO 2025c).

On the demand side and for downstream linkages, notable initiatives include the “Technological Program for the Use and Adoption of Hydrogen in the Chilean Industry”. This program focuses on technological developments at pre-commercial or commercial stages, aimed at subsequent application in energy transformation to hydrogen for local industries with high CO2 emissions, as well as hydrogen applications as a chemical input (CORFO 2024c). In its first stage, the program co-financed private initiatives in the transportation, gas, and mining sectors (Ministerio de Economía, 2024a). The most recent version of the program was awarded to SYNFUELS BIOBIO project, a 5-year, $11.4 billion initiative led by Bioforest and multiple industry partners such as AngloAmerican and Forestal Arauco to build a pilot plant to validate forestry CO2 capture technologies and develop e-Fuels production in the Biobío region (CORFO 2025b).

Finally, CORFO recently awarded co-financing for the Technological Center for Innovation in Green Hydrogen in Magallanes to a consortium that includes Fundación Chile and companies with projects at various stages of development (Ministerio de Economía 2024b). The objective of this center is to encourage and accelerate the adoption and development of products and services based on applied research, development, and innovation (R&D&I) through pilot projects, scaling, and the training of human capital to meet the needs of the industry, both upstream and downstream within its value chain, including production, storage, distribution, and applications of green hydrogen and its derivatives. So far, there are no specific policy measures targeted at the offstream, although some R&D&I initiatives may unfold in that direction.

Efforts to promote the establishment of green hydrogen production projects and the development of new industry-related capabilities have also aimed to be strengthened through the articulation of regional public-private and academic stakeholders in regions with high productive potential. A manifestation of this effort is the public-private agreement known as the Magallanes Pact, signed in December 2023. This agreement outlines a common roadmap for the region’s industry development focusing on capacity building, workforce development, local demand generation, production linkages, and the development of infrastructure and innovation with the aforementioned Technological Center for Innovation playing a central role (Ministerio de Energía 2023; CORFO 2024c).

3.3 Lithium: Encouraging Extraction and Capabilities Downstream and off the Value Chain

The big discussion about comparative advantages under the energy transition inevitably recalls the case of lithium. Alongside cobalt and nickel, lithium faces a significant disparity between supply and demand (IEA 2024c). Notably, Chile holds approximately 33 % of the world’s lithium reserves (USGS 2024), in the form of brines located in salt flats. Its production costs are not only lower than those of projects based on pegmatite deposits but also among the lowest compared to other brine deposits (Cochilco 2023). With this substantial comparative advantage, Chile has been one of the world’s top producers and is expected to remain so in the coming decades.

Lithium extraction has been ongoing since the 1980s for various uses. Controversies related to differing perspectives on the role lithium should play in the collective project of nation-building, as well as the corruption scandals in the late 2000s, paved the way for a lithium industrial policy aligned with both the country’s energy challenges and the new global demand for critical minerals (Irarrazaval et al, 2023). In 2014, under the leadership of the center-left second government of Michelle Bachelet (2014–2018), the National Lithium Commission was established, comprising various experts and stakeholders. This commission put forth a policy framework for the governance of lithium and the salt flats (Comisión Nacional del Litio 2015), with the objective of advancing the industrialization of lithium throughout the value chain.

Unlike copper, lithium cannot be exploited through regular concessions. Lithium special status stems from a 1979 decree, which was primarily designed to regulate nuclear energy minerals (Poveda 2020). The decree stipulates that lithium can only be extracted by state companies or through specific contracts for operations that follow an intricate bureaucratic process. The unique regulatory framework governing lithium grants the state considerable power to influence how lithium is extracted, processed, and sold. The existing contracts were negotiated during the dictatorship, lacking relevant taxation regimes or industrial policy conditionality. However, the negotiations under Bachelet’s government marked a significant departure. The new contracts, agreed upon in 2016 with Albemarle and in 2018 with SQM, not only introduced a royalty system for lithium extraction but also aimed to incentivize industrialization downstream in the production network of lithium-ion batteries and create productive capabilities beyond extraction. The key policy measure was the inclusion of a contractual clause prohibiting the trade of brine in any form and stipulating that 25 % of the extracted lithium must be sold at preferential rates to companies interested in developing value-added products (Poveda 2020). As one interviewee noted, this clause represents the most significant conditionality of the strategy, as it departs from the traditional approach to mining policy in Chile: “More than the strategy (…) the contract negotiation includes a 25 % preferential price clause on production. And that’s a bit different from what Chile has traditionally done in mining.” This measure was the key instrument for fostering downstream development, and CORFO was responsible for allocating the quotas to the best proposals. In 2018, CORFO awarded three projects through the tender process: a consortium involving Posco-Samsung SDI, Sichuan Fulin, and Molyment, which committed to constructing facilities capable of producing 19,000 tons of cathodic material (El Mercurio 2018). The strategy aimed to strategically attract global players to Chile for the production of value-added products, facilitating a transition from the refined minerals value chain to that of lithium-ion batteries. However, this ambitious plan failed to materialize, as the selected projects terminated their agreements in 2019 and chose not to proceed with plant construction (Diario Financiero 2019).

In response to this, CORFO launched a new tender for SQM’s lithium quota, including lithium hydroxide, in 2022 (InvestChile 2023). The first allocation was awarded to the car and battery manufacturer BYD, which plans to begin cathode production in 2025 while also strategizing to enter the Chilean electric vehicle market. Through this quota and an additional contract with SQM for increased access to lithium hydroxide, BYD aims to produce 50,000 tons of cathodic material annually. According to an industry expert, this plant is part of BYD’s broader strategy to establish an electric bus manufacturing facility in Brazil, with the goal of distributing them across South America. This plan aligns with the type of cathode used by BYD (LiFePo4 or lithium iron phosphate), as all required minerals can be sourced from the region. Additionally, the Chinese conglomerate Tsingshan secured another quota and is set to construct a plant to produce 120,000 tons of cathodic material annually, also using LiFePo4 (BNamericas 2023). Similar to BYD, interviewees noted that Tsingshan’s plan is part of a larger regional strategy, particularly involving its operations in Argentina. The lithium extracted in Argentina may be exported to the cathode plant in Chile, potentially supplying the regional market or being exported through the port of Mejillones. However, in May 2025, the Chilean government announced that both companies had abandoned their plans to build cathode plants in Chile. Yet, two days later, the Chinese embassy in Chile issued a statement indicating that, following consultations with both firms, neither had formally withdrawn their investment plans. Instead, they reaffirmed their interest in maintaining dialogue with Chilean authorities.

While the creation of new capabilities in the upstream segments was not central to Bachelet’s lithium policy, it became a focal point during the implementation of the National Lithium Strategy enacted by Boric’s government (2022–2026). As a member of the government pointed out, “The strategy that was presented now is (..) almost identical to, what was proposed in this commission (Bachelet commission)”. Among the most notable aspects of the new strategy is the shift from CORFO to CODELCO as the entity responsible for negotiating the contract with SQM. Under this strategy, the state company will participate in operations between 2025 and 2030, and take the lead in operations between 2030 and 2060. In addition, there are significant advances in initiating operations in other salt flats through public-private partnerships, including Maricunga (led by CODELCO) and Alto Andino salt flats (led by ENAMI, a state-owned company supportive of small-scale mining), as well as leasing new exploration and exploitation contracts to private actors in other salt flats.

In addition to shift from CODELCO to SQM, “there is another new feature in the current strategy that was not present in the previous one: the development of new projects with direct lithium extraction” (Interviewee, member of the government). A relevant component of this strategy is the commitment to develop direct lithium extraction (DLE) methods that are more efficient in terms of water consumption and have a lower environmental impact on the salt flats, and thus, reconfigure the upstream segment. To support this effort, the National Institute for Lithium and Salt Flats initiated formal operations in January 2025, with backing from the existing lithium contracts managed by CORFO. This institute–integrating basic and applied research approaches, with a distinct orientation toward applied research and technological development-will be dedicated to building baseline information about the salt flats and their dynamics, as well as advancing technologies for salt flat mining. DLE is central to the industry’s current challenges in improving resource efficiency during extraction, reducing environmental impacts, and increasing the percentage of lithium recovery. Currently, only one industrial-scale project operates with DLE (Centenario Ratones, in Argentina), but many other companies have announced plans to implement it in the coming years. The two key commitments of this research center are crucial for advancing towards DLE because its implementation requires not only technological development but also a detailed understanding of each salt flat to optimize the processes of extraction, processing, and water reinjection. Additionally, the Ministry of Science has allocated resources to create research centers focused on lithium and salt flats, which will enhance existing knowledge about these unique ecosystems.^[3]

While the aforementioned instruments clearly interact with the lithium value chain, significant efforts are also being made to use lithium rents to build new productive capabilities in other value chains – referred to here as offstream segments. The special legal status of lithium enabled the introduction of a specific clause for transferring resources to enhance research and development (R&D) capabilities through annual funding defined in each contract. The first center, CIRCULARTEC, was funded through the R&D clause of the contract with Albemarle and aims to advance the transfer of technological solutions from universities to industry in the area of the circular economy, as well as to create a foundation for potential entrepreneurs in this field. However, the center associated with the R&D clause of the SQM contract has garnered the most attention due to the substantial amount of resources involved.

This investment would represent the largest ever made for a research institute in Chile (Girardi 2022). Given the substantial financial resources involved, this policy instrument pursued multiple objectives: creating advanced technological infrastructure, developing a portfolio of R&D projects tailored to the industry, and, crucially, generating materials and innovations that would enhance the value of lithium within the supply chain for electromobility and green growth (CORFO 2020). In this context, the center – designated as the Institute of Clean Technologies (ITL, in Spanish) – was envisioned as a key entity to address historical knowledge barriers faced by resource-rich countries in building technological capacities to improve their positions in the value chain. As its name suggests, the ITL–predominantly an applied research institute with a strong orientation toward technology transfer and industrial implementation-does not aim to focus specifically on the lithium value chain, as the preferential rate clause does, but rather to foster R&D across multiple value chains related to the energy transition. Downstream and off the lithium value chain, the goal is to scale up innovation in various clean technologies at an industrial scale, including metallic mining, solar energy, and energy storage.

Despite serious issues related to due process during the tender and the potential co-optation of benefits by rent-seeking actors – as explained in the next section – the ITL was awarded to a consortium of national universities in collaboration with industry partners called ASDIT, and commenced operations formally in June 2025. The institute will not work at the downstream stages of lithium extraction but allocate lithium rents into R&D activities related to clean technologies, broadly defined. A key decision in the institute’s managerial strategy is to allocate resources to projects that are at more advanced stages of the Technology Readiness Level (TRL), which ranges from 1 to 9. While national universities have made significant progress in research, their prototypes typically fall between TRL 1 and 4 – far from the industry standard of TRL 9. Therefore, the institute aims to fund projects at TRL 5 or higher, promoting collaboration between universities and industry actors in R&D beyond current national benchmarks (Alta Ley 2023).

4.1 State Autonomy and Embeddedness

State capacity – defined as the ability of the state to effectively exercise its authority, fulfill legal duties, and achieve policy objectives – is a crucial determinant of the success of industrial policy and the attainment of sustainability goals (Carrasco 2024; Collington 2025). This has been a central issue in Chile’s attempts to develop value-added production from lithium, a key objective of both the 2016 Lithium Policy and the ongoing National Lithium Strategy. The challenge is particularly evident given what one interviewee described as the most disruptive shift in Chile’s historical approach to mining policy. In 2019, private companies withdrew from a lithium-related industrial project, citing the requirement to produce lithium hydroxide – a more refined product than brine or lithium carbonate – as the primary reason. Albemarle, the company involved, only produced lithium carbonate, and the contractual terms did not explicitly mandate the production of hydroxide (El Mercurio 2018). This case illustrates that linking resource extraction with new productive capabilities through contractual conditionalities ultimately hinges on the state’s capacity to effectively negotiate and enforce such terms – particularly when operators are reluctant to undertake activities not clearly specified in agreements.

The relative slowness of the state apparatus, compared to the agility of industry actors, provides fertile ground for private firms to leverage and reinterpret policy instruments in ways that deviate from their intended purpose. In Chile, the state has been entangled in legal disputes with both major lithium producers. Albemarle faced accusations of selling lithium at discounted rates to its subsidiary and contested the definition of preferential prices, while SQM was challenged over contractual allocations and the payment of mining royalties. Although both cases were settled – just prior to new contract negotiations or the reallocation of production quotas, they reveal how limited state autonomy can undermine industrial policy and its associated conditionalities, especially in domains that require institutional innovation. The current administration has acknowledged these challenges. As one interviewee stated in 2022, “the project is to examine everything that has been brought before national and international courts, including a good portion of the problems the State has had in defining and supervising contracts.” Yet, the recurrence of disputes over quota allocations in 2025 echoes the 2019 episode, where companies won tenders only to withdraw without consequence. While this issue cannot be attributed solely to limited state capacity, as subsequent sections will address – it underscores the discrepancy between the pace at which regulatory capacity is developed and the rapid timeline of industrial actors.

Another important dimension of state capacity is its societal embeddedness. As Evans (1995) argues, embedded autonomy is crucial for enabling a developmentalist state to engage with private actors while maintaining technocratic independence. Without such autonomy, resources intended to build productive capabilities are vulnerable to capture by interest groups. Chile’s recent lithium experience offers illustrative cases. During the first Piñera administration, a lithium contract awarded to SQM led to the resignation and prosecution of Undersecretary of Mining Pablo Wagner, accused of falsifying documents – a process that ended in the contract’s cancellation. During the second Piñera administration, the Supreme Court annulled the allocation of a research and development initiative linked to lithium contracts, citing procedural irregularities in the tendering process. The bidding began in October 2019, but the results were delayed until year-end, raising concerns over transparency. A key issue was the funding reduction to $50 million, which ultimately benefited the North American consortium AUI, linked to Chilean universities with ties to right-wing political circles. Although CORFO awarded the bid to AUI, a competing Chilean university consortium appealed. While no corruption was officially proven, the case highlights how domestic political networks can shape resource allocation, opening space for rent-seeking and undermining the implementation of industrial policy.

Governance matters and subnational politics are changing. In the twenty-first century, the embedded autonomy of the state implies engaging not only with business interests but also with local actors (Evans 2010). At the subnational level, political demands increasingly call for green development to align with local concerns about the distribution of benefits and potential socio-environmental impacts of new investments (Delamaza et al. 2017). This has been particularly relevant for green hydrogen, where local communities have raised issues related to both environmental risks and benefit-sharing. As one government official responsible for sustainable development policy noted: “Our idea is to achieve this vision of the industry developing in a specific way that properly respects environmental considerations without blocking projects and with a layer of high productive linkage and innovation.” The place-based industrial policies discussed above respond to these political pressures. Environmental politics are especially salient in sectors such as mining and renewable energy, where actors contest the socio-environmental consequences of industrial expansion (Irarrazaval et al. 2023). In both lithium and green hydrogen policy frameworks, state agencies have introduced participatory and consultative mechanisms. However, the accelerated pace of project implementation often clashes with the slower timelines of democratic participation and environmental review (Irarrazaval et al. 2023, 2024). Developing new productive sectors under the energy transition is not merely a matter of state capacity to impose projects, but of crafting effective environmental safeguards and fostering meaningful local participation in development planning.

4.2 Global Political Economy

The implementation of industrial policies aimed at fostering new productive capabilities in peripheral economies is unfolding amidst a broader restructuring of the global economy and an intensified race among developed countries to define and lead the emergent green economy. In this context, the success or failure of such policies must be understood through a comprehensive analysis of the global interplay between economic and political forces. As noted by Lebdioui (2024), the industrial policies pursued by major actors such as the United States, the European Union, and China under the energy transition are primarily oriented toward enhancing their positions within global production networks. To date, none of these countries or economic blocs have signaled a willingness to support the development of productive capabilities in peripheral economies. On the contrary, as illustrated by the modernization of the EU-Chile Free Trade Agreement, instruments such as preferential pricing mechanisms have been constrained. While the revised agreement allows for the continuation – and regulation – of existing preferential price quotas, it simultaneously restricts the deployment of alternative industrial policy tools (Dünhaupt et al. 2025).

This scenario reaffirms a long-standing structuralist insight: there are no ‘free lunches’ in the global economy, and market forces alone are unlikely to foster development in latecomer regions. The aforementioned legal disputes between the Chilean state and lithium producers SQM and Albemarle exemplify the limited willingness of incumbent firms to align with policy goals aimed at enhancing local value capture. Similarly, efforts to develop downstream activities – such as cathode production – have been hampered by structural constraints including geographic remoteness from core markets, dependency on foreign capital, and the volatility of global commodity prices. The failure of two recent attempts to establish cathode plants in Chile underscores the limits of relying solely on comparative advantage. As one industry expert observed: “Who has the incentive to make batteries? Moving up the value chain when all you have is lithium… you really have to understand the battery value chain.”

The case of BYD is illustrative: while the company criticized the Chilean state’s slow response and emphasized the difficulty of aligning global corporate strategies with national industrial policy, it ultimately redefined its strategy for South America, relegating Chile to a secondary role. In addition, recent declines in lithium prices have further reduced the attractiveness of preferential pricing clauses, adding to the challenges facing downstream development. Despite these setbacks, Chile retains important comparative advantages as one of the world’s leading low-cost lithium producers, which may still provide leverage in shaping value chain dynamics. The recent statement by the Chinese Embassy in Chile affirming continued interest from Chinese firms, alongside CORFO’s renewed call for companies to invest in value-added lithium products, suggests that the ambition to climb the value chain remains alive – though increasingly uncertain.

This contrasts with the green hydrogen sector, where potential comparative advantages remain uncertain and undefined in an industry that is still in its formative stages and characterized by intense global competition among countries with production ambitions. At the regional level, local authorities have voiced skepticism: “All this industrial policy looks very good, but for this to happen, projects must actually be built. For example, in Magallanes, we see many announcements and promises, but the reality seems very distant.” In this region – where current developments are focused on mega-projects oriented toward export – only three initiatives have entered environmental assessment, yet they already project a combined installed wind capacity of approximately 6.8 GW, surpassing the total wind capacity currently installed across the entire country (approximately 5 GW). These projected 6.8 GW, considering only the projects first phases.

This scenario highlights the difficulty of sustaining large-scale investments in the face of volatile market conditions and rapid technological change. These dynamics are particularly challenging for emerging technologies such as green hydrogen, which lack a stable global demand, clear market structures, and confront a documented global implementation gap between project announcements and final investment decisions (IEA 2024b). Even national demand appears limited. As one government interviewee noted: “Sectors where there could be potential local demand, such as mining in the north, are no longer interested in hydrogen projects, but rather in direct electrification, which is simpler and more efficient.”

This uncertainty also resonates with the struggles of public programs aimed at co-financing the production of electrolyzers and related components in Chile. As one interviewee stated: “The largest actors struggle to acquire the technology, and going from there to electrolyzers arriving here or being built wholly or partially – I believe that is unrealistic. The cost of the technology makes it unviable.” These emerging challenges expose how prospective green hydrogen-producing countries like Chile risk being excluded from the capital-intensive race for electrolyzer production, given the highly uneven global geography of technological capabilities, which are concentrated in China, the EU, and other advanced economies. This creates new forms of technological dependency (Gabor and Sylla 2023; Scholvin et al. 2025).