Colombia's voluntary carbon credit market meant to offset greenhouse gas emissions continues see lower prices and demand, suppressed by a 2023 cap on domestic credits that limited any potential boost from this year's expansion of a green tax.
The lack of development is making it harder for companies to use credits to meet emissions-reduction commitments, and on communities as social unrest has grown, affecting investments.
Colombia's carbon tax, which aims to reduce greenhouse gas emissions, initially levied Ps15,000 ($5)/metric tonne of CO2 equivalent (CO2e) produced by most motor fuels and natural gas and LPG for industrial uses, among others. The producer or importer of the fuel pays the tax at the wholesale level.
Starting in 2025, the "green tax" extended to coal-fired power generators and industries that burn coal. The tax rate now is Ps27,399.14/tCO2e.
But the inclusion of coal came after President Gustavo Petro introduced a cap in 2023 on the amount of taxed emissions that can be offset with domestic credits, limiting the voluntary carbon credit market sharply, industry sources said. Otherwise, additional demand from coal users could have buoyed the carbon market.
When Colombia created a voluntary carbon credit market, entities could offset their carbon tax liability by 100pc through credits. But Petro in 2023 reduced the limit for using credits to offset to 50pc, leading to a sharp rise in green tax revenue as the government has struggled with finances. The lower demand depressed voluntary carbon credit market prices, said Camilo Trujillo, policy adviser to the International Emissions Trading Association.
The market price of Colombia's carbon credits has fluctuated from Ps12,000-16,000, equivalent to 46pc-58pc of the tax, sharply lower from a peak of Ps22,000, said Lina Gamboa, co-founder and chief operating officer at the carbon credit trader Neuttro.
"Since this [cap] measure was neither foreseen nor planned, it generated changes in demand, and since demand was not the same as before, this generated an oversupply of credits," Trujillo said at the Colombia Carbon Forum.
Still, the tax has curbed some CO2 emissions. The 236 projects certified to offer credits in Colombia's carbon market have cut 231.29mn tCO2e since 2002, according to carbon association Asocarbono.
Yet the cap on tax emissions reduced the amount compensated. Companies compensated 14.3mn t of CO2 emissions through carbon credits in 2023, down from 20.8mn t of CO2 emissions in 2022, according to Asocarbono figures.
As supply of carbon credits outstripped demand, the number of available carbon credits rose. As of September 2024, Colombia had some 63.7mn carbon credits pending to be sold, rising from 57.5mn as of June 2024, Asocarbon figures showed.
"Now, the ones who hold the reins are the buyers, since they can set the prices," Trujillo noted.
Community impacts
Foundations such as Agro Impulso, which oversees 33 communities and 700,000 hectares in the departments of Valle del Cauca and Nariño, with a long presence of guerrilla and illicit groups, said the tax emissions cap has devastated their projects.
Agro Impulso has more than 3.2mn credit certificates pending sale because of lower prices and fierce competition, Agro Impulso's general manager Francis Cornejo told Argus.
In 2022, Agro Impulso sold 60pc of its 3.7mn credit certificates in one project to companies such as the Davivienda bank, state-controlled Ecopetrol, Ecopetrol's transportation unit Cenit and fuel supplier Primax.
"If we don't sell the certificates we have left, many of our social and infrastructure projects will continue to be in limbo," she said. "Many farmers will return to planting coca or deforesting, because they will have to make a living somehow."
Indigenous leader Levy Andoque, who represents the Aduche indigenous group in the department of Amazonas, said a project there sold 1.5mn credits since 2023, although they have 2mn credits pending sale.
"Funds are not arriving," Andoque said. "Communities will return to illegal gold mining, deforestation and selling wild animals."
