Chief Impact Officer Charles Bedford recently spent a week in Colombia reviewing current and future investments and shares his reflections on his experience.
The Fund has made investments in nature-based carbon credits in Colombia. Based on our analysis we formed the view that Colombia provides a rare combination of complementary policy, high quality projects with significant co-benefits and an overlooked but high integrity local carbon standard, CERCarbono, and that these attributes make it an attractive investment destination that will lead to higher carbon prices in the longer term.
Paradoxically, the Colombian voluntary carbon market is thriving despite the country’s recent history of conflict. This success has been propelled by innovative strategies like a domestic carbon fuel tax, a native set of carbon certification standards, registries, and project developers, investment in carbon projects and data by the international community and the Colombian government, and, perhaps most importantly, an entrepreneurial spirit un-bowed by years of conflict.
These factors are mutually reinforcing: the carbon tax incentivizes businesses to explore carbon offset options, stimulating demand for credits issued by CERCarbono, which further catalyses landowners and indigenous peoples to develop more carbon projects. This dynamic environment encourages start-up companies in forest conservation, renewable energy, and sustainable agriculture, aligning financial returns with conserving and restoring Colombia’s rich ecological assets and natural spendour. The level of activity is testament to Colombia’s proactive approach to combating climate change through nature-based solutions, which is unusual in the developing world.
CERCarbono has recently been approved as a standard by ICROA (International Carbon Reduction and Offsetting Accreditation), which is the global ‘standard for standards’ and has received conditional approval for use by airlines under the United Nations CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) program, which further enhances the standard’s credibility. ICROA certification ensures the standard’s adherence to rigorous criteria, instilling trust among businesses seeking reliable carbon credits. Meanwhile, CORSIA certification positions CERCarbono as an option for airlines seeking carbon credits to achieve compliance with their global emission reduction obligations.
Nevertheless, challenges persist, requiring sustained attention. Ensuring regulatory coherence is pivotal for the market’s longevity. Colombia’s government has yet to nail down a national or regional deforestation rate against which future carbon projects can be benchmarked or finalise its plan for the transfer of credits under the UN’s Paris Climate agreement’s Article 6, which governs how countries will count and manage international trade in emissions reductions. But it is clear that Colombia’s unique biodiversity and ecosystems present a wealth of opportunities for generating high-quality carbon credits, and the market infrastructure that has been built up in just the last few years has cemented the market’s significance in the global landscape.
The integration of taxation with carbon offsetting highlights Colombia’s innovative approach to corporate responsibility. Companies have the option to fulfil their tax obligations through carbon credits, fostering a symbiotic relationship between compliance and sustainable practices. This forward-thinking policy incentivizes investment in emission reduction projects, nurturing a culture of environmental responsibility among corporates. And the embrace and endorsement of global standards like CORSIA and ICROA have put Colombia on the map as a global innovator and go-to locale for quality carbon projects.
Colombia’s voluntary carbon market thrives on the innovative foundation of the carbon fuel tax, showcasing the country’s commitment to environmental sustainability. The dynamic entrepreneurial landscape, coupled with market infrastructure and innovative taxation and regulatory policies, propels market growth. Continuous efforts to refine regulations and diversify offset projects will be essential in ensuring the market’s enduring impact and further reinforcing Colombia’s leadership in climate action through natural climate solutions like preserving and restoring forests. Other countries like Chile and Brazil are already following Colombia’s lead.
This leadership from the developing world is greatly needed as these countries figure out how to skip over the fossil fuel phase of development on their way to economic advancement and the conservation of the world’s most important tropical forest and accompanying biodiversity.