Governments around the globe are continuously adapting their regulations to shape their domestic carbon markets and their participation in the Paris Agreement’s Article 6 architecture. In the lead-up to COP29 and the flurry of announcements emerging from Baku, Latin American countries have made some progress in advancing their Article 6 frameworks and carbon pricing initiatives. Recent developments in Argentina, Bolivia, Brazil, Colombia, Panama, and Peru are poised to further drive the growth of high-integrity carbon markets in a region that stands as one of the world’s largest providers of carbon credits, with an enormous potential for nature-based solutions.
This update provides a high-level overview of key regulatory developments in the Colombian carbon market during the past few months, including (i) a Constitutional Court decision that may impact the regulatory landscape around REDD+ projects in Colombia; (ii) the country’s progress towards the establishment of an Emissions Trading Scheme (ETS); and (iii) proposed amendments to the carbon tax.
REDD+ projects
Judicial review will be a critical factor to consider in Colombia, especially in relation to the participation of Indigenous Peoples and Local Communities (IP & LCs) in REDD+ projects. Last July, the Colombian Constitutional Court issued a landmark decision (T-248/2024) addressing various legal issues relating to IP & LCs and carbon projects, including property rights, safeguards, benefit sharing, private due diligence standards, free, prior and informed consent (FPIC), and the role of governmental control and oversight.
The Court concluded that there were no culturally appropriate legal frameworks in place for IP & LCs to participate in the voluntary carbon market through REDD+ projects and ordered the Ministry of Environment to create a protocol, following an ethnic perspective, clarifying the requirements for the development of REDD+ projects in IP & LCs’ territories. The construction and enactment of this protocol, to be issued by the Ministry of Environment within a 6-month period, will need to be closely monitored by all carbon market stakeholders in Colombia.
ETS progress
In September, the Colombian government published for comment its draft regulation for the roll out of the ETS—Programa Nacional de Cupos Transables de Emisión de Gases de Efecto Invernadero (PNCTE).
- Phased approach: The ETS will be developed through a phased schedule to test and adjust the rules of the system before full operation. The schedule is as follows: Preliminary Phase (2025-2026), Second Phase (2027-2028), and Third Phase (2029-2030).
- Allocation: Allowances will be acquired through public auction, direct allocation, or “other transactions” between market participants.
- Allowances for voluntary carbon market projects: Up to 10% of the allowances may be allocated by the Ministry of Environment to “registered holders of voluntary GHG reduction or removal initiatives”, i.e., voluntary carbon market projects.
Importantly, the ETS draft regulation does not specify the system’s emissions cap, its covered emitters and economic sectors, or its integration with the existing national carbon tax, among others. These gaps are yet to be filled in by the Ministry of Environment with a fast-approaching 2025 deadline for the proposed commencement of the Preliminary Phase.
Potential changes to the carbon tax
A new tax bill introduced by the government in September proposes to increase the carbon tax from COP 25.800 (approx. USD 6) to COP 75.000 (approx. USD 18) per tonne of CO2 equivalent. Although the bill still has to make its way through Congress, these developments underscore the current momentum for carbon markets in the administration’s regulatory agenda.
At Pollination, we keep a finger on the pulse of developments worldwide. As a firm with global presence, our team brings extensive experience in countries like Brazil, Colombia, and Mexico. This regional expertise positions us to effectively collaborate with our clients across Latin America at large.
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