This post was origionally published on 15 June, 2017. It has been updated to reflect recent developments.
Colombia has taken a significant step in addressing climate change and supporting carbon markets. In December 2016, as part of an overall tax reform package, Colombia approved a tax on fossil fuels (Part IX, Impuesto Nacional al Carbono) equivalent to approximately US$5/tCO2e payable by producers and importers of fuels. On 1 June 2017, the same day that Trump shortsightedly pulled the US out of the Paris Agreement, Colombia demonstrated leadership in approving an innovative measure that allows high-quality carbon credits to be used against the new carbon tax. Unlike other proposals where the use of carbon credits is limited, Colombia allows entities to offset 100% of their tax liability, which of course could provide a huge boost to projects generating credible GHG emission reductions.
The decree setting out the rules for using offsets to comply with the new carbon tax establishes some high-level criteria that projects have to meet. The main criteria require that emission reductions or removals must:
- Have been verified by auditors accredited by either the UNFCCC, Colombia’s National Accreditation Body (Organismo Nacional de Acreditación de Colombia, or ONAC), or a member of the International Accreditation Forum (IAF) that has accreditation services for greenhouse gases under ISO 14065;
- Have taken place in Colombia (Chapter 2, Article 126.96.36.199.1, Item 1), noting that Paragraph 4 of the same chapter allows for non-CDM emission reductions or removals from outside of Colombia until the end of 2017;
- Have been issued by GHG certification programs that have a publicly available registry (Chapter 2, Article 188.8.131.52.1, Item 2);
- Rely on methodologies that have either been approved by the UNFCCC, or have undergone a public stakeholder consultation and can be audited by properly accredited auditors (Chapter 2, Article 184.108.40.206.1, Item 3);
- Meet regulatory surplus requirements (Chapter 2, Article 220.127.116.11.1, Item 4);
- Be retired in the originating GHG certification program before being issued in the National Registry of Emission Reductions (Chapter 2, Article 18.104.22.168.1, Item 5), noting that Article 4 sets out procedures for complying with the law prior to the operation of the National Registry;
- Be certified by the accepted GHG certification program;
- Have been generated on or after 1 January 2010 (Chapter 2. Paragraph 1); and
- Only be ex post, meaning that projections of/for emission reductions or removals will not be accepted.
From an environmental perspective, we think the Colombian approach has a number of benefits. First, it provides for a direct transfer of resources from a polluting sector of the economy (i.e., transportation) to projects that are protecting the environment. In the case of projects that are protecting standing forests or are reforesting areas of the country, this could mean a transfer of needed resources to poor and marginalized rural communities. Second, these projects are likely to generate sustainable development benefits, such as reduced poverty, increased economic activity, and the promotion of sustainable cities and communities. Finally, the mechanism is noteworthy in that it will operate with minimal government involvement, suggesting confidence in the results-based financing model embodied by carbon markets.
This is also a great opportunity for projects that have chosen to certify against the VCS Program because the program meets the requirements set out under the decree. VCU’s from VCS projects are already being retired under the Colombian carbon tax program. However, project proponents should note that VCU’s from VCS projects also registered with CDM are not eligible. Projects using both registeries will have to delist from CDM for their VCU’s to be eligible in Colombia’s program.
To enable the submittal of cancelled VCUs for compliance against the carbon tax, we have prepared a template certification statement (from VCS) that can be submitted to the Ministry of Environment and Sustainable Development outlining all of the information we currently think the Ministry would need to approve such submittals. You can find those templates by clicking on the following links –Certification and Proof of VCU Retirement Form and Formato de Certificación y Comprobación de Retiro de VCUs.
If you have any questions about the Colombia carbon tax and how carbon offsets can be usd to comply, please let us know.