Markets and sustainable development: two coins and a goal

The recently enacted Law on Climate Action stipulates, among many other measures, the full implementation of the National Program of Quotas, Tradable (PNCT) for the year 2030, and with it the establishment of the Emissions Trading System (SCE) in Colombia as a marketing tool for management of climate change.

The program has its beginnings regulatory Act 1931 to 2018 or the Law of Climate Change and looking – just like the carbon tax – the internalization of environmental costs in the economy. Under this logic, both the carbon tax as the PNCT aim to encourage the reduction of emissions to generate a cost associated to the emission of Greenhouse Gases (GHG) emissions in the production process. In other words, “contaminate me costs” or “if contamino payment” and, to the extent that the quotas become more scarce and the tax is more expensive, it is more economic for companies to implement measures to reduce their emissions.

Now, we need to understand the difference between the carbon tax with the mechanism of non-causation and the PNCT. In the first of these, the government sets the value associated to the emissions from fossil fuels and businesses have the option of paying this tax, or buy an offset -bond carbon – which commonly has a lower value than the tax. In this case, is paid by the ton of CO2 (tCO2eq) reduced or captured. 

In the PNCT, the government sets a limit or ceiling on emissions and assigned a quotas that can be assigned to the companies free of charge – in the early stages of implementation – or through auctions where the price is given by the free market. Here is paid for the right to emit one tonne of CO2, and these quotas are reduced over time according to the environmental objectives. In summary, the offset is compensated for and the price is given by the carbon tax, and with the quota you have the permission to issue and the price is given by supply and demand.

In this way, we have two mechanisms of distinct market for the fulfilment of the environmental objectives and whose increase in price determines the opportunity cost between issuing or investing in measures of mitigation of GHG emissions. This causes the reduction of emissions is conducted in an cost-efficient way.

The above brings with it many questions in front of their implementation, sectoral scope, pricing structure, and other factors related to the joint and the operation between them. Otherwise, “if I have already paid the carbon tax, do I have to pay the quota?”.

The answer is not so direct, the joint must be clear in front of the scope and find a complementarity between them. Currently the tax covers the CO2 emissions associated with fossil fuels and you are now about 27% of the total emissions in Colombia with around 157 million tons.

Economist, National University of Colombia and is a student of master's degree in Energy and Sustainability from the Pontificia Universidad Javeriana.
The collection derived, would go into the treasury.
Contributions Nationally Determined (NDC).

With this, there is a margin of action for the PNCT of about 73% of the total emissions, however, the majority of these emissions come from the AFOLU (Agriculture, Forestry and other Land uses) and the inclusion of this sector to the PNCT presents multiple technical difficulties, institutional and policy by the characteristics of the sector in our country and at the global level. In fact, at present the only country that includes within its SCE – PNCT in Colombia - is New Zealand, with the forest sector

However, this is not a constraint to conservation that nearly 84% of the compensation made by the mechanism of non-causation from initiatives in the forestry sector and projects for Reducing Emissions from Deforestation and forest Degradation (REDD+). 

While it is true that the sector presents challenges to its inclusion within the PNCT the impact that it has had the mechanism is not causation has strengthened the conservation of forests, reforestation, participatory, and the development of multiple communities throughout the national territory. 

From Biofix Consulting, along with the Indigenous reserves and Community Councils, we have been able to protect nearly 1.3 million hectares and have also been able to benefit approximately 50,000 families where the execution of resources by the communities focuses on strengthening the institutional and governance; health, education, and infrastructure; monitoring and reforestation participatory and green business and biodiversity protection. The example is clear and the market has allowed that close to 9 community councils and 16 indigenous reserves to become part of the bet for the sustainable development.

Under this situation, the alternative seems clear, and it is to search for the complementarity between mechanisms because of the lack of regulation is not exclusive to the environmental objectives, or with commitment to sustainable development. The implementation and design of the PNCT should go up to where it is needed and the strengthening of the current market to the extent possible. In a practical way, “what works with one that complements the other.” We are aware of and working on pro-environmental and looking for alternatives, optimal for the functioning of the markets.

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