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Keeping global warming under 1.5°C: The role of private actors and regulation in Colombia

23 Dec 2022 FinTech

Climate change is an irrefutable reality and the world is turning to an energy transition in order to mitigate its effects. Unfortunately, this transition is not happening as fast as it should. Some of the consequences of climate change are already irreversible and experts have stated that its external phenomena will increase in frequency. In this scenario, it is imperative that global warming is kept below 1.5 degrees Celsius. To achieve this goal, humanity needs to reduce their Global Greenhouse Gas Emissions (GHG). This means that GHG Emissions must peak by 2025, and they must be reduced by 43% by 2030, according to the latest IPCC report.

With these objectives in mind, one of the most significant results of the 27th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP27), which took place in Shram el-Sheij (Egypt), was not to increase mitigation ambition, instead the main result was a new agreement on a new loss and damage fund for those countries that experience the worst climate catastrophes. With this scenario in mind, and as part of the countries that participated in the COP27, it is important to evaluate the instruments that exist and those that are being discussed in Colombia to achieve the goal of GHG Emissions reduction.

In Colombia there are different instruments that seek carbon neutrality and discourage the use of fossil fuels, mainly through legislation and financial mechanisms that seek to incentivize or benefit the private sector. For example, Law 2169 of 2021, also known as the Climate Action Law, contains instruments for climate change management, such as National Greenhouse Gas Inventories and the National Climate Change Policy, among others. This Law also includes financial mechanisms such as the tradable quota of GHG emissions, which constitutes a tradable right that entitles its holder to emit one ton of CO2 or other GHGs for an amount equivalent to one ton of CO2.

The aforementioned Law specifically mentions a fair transition, having as pillars (i) carbon neutrality, (ii) climate resilience and (iii) low carbon development. This Law also establishes that the Ministry of Labor will determine, no later than 2023, the strategies and actions for a just transition of the workforce in the country’s transit towards carbon neutrality.

In this scenario, financing sustainable development becomes a great opportunity for the private sector to contribute, specifically through bonds. Although Colombia’s framework does not indicate a closed list, there are two main categories: (i) green bonds and (ii) blue bonds. Through green bonds, the funds are used exclusively for financing and refinancing projects, new or existing investment plans, research and development activities, or use funds that may relate to actions to mitigate climate change or adapt to its effects, or generate positive effects. With blue bonds, the funds are aimed at projects that seek conservation of maritime ecosystems and the protection of rivers and coastal communities.

Colombia became the first country in Latin America, in April 2022, to publish a green taxonomy that seeks to facilitate the identification of those projects with environmental objectives, develop green capital markets and promote the effective mobilization of private and public resources for investments that allow the country to accomplish its multiple commitments regarding climate change.

Despite the different laws and mechanisms that are being adopted and promoted, it is necessary for the private sector to assume a leading role in the achievement of global goals, which, beyond a regulatory effort, must be an act of entrepreneurial will to make a fair and equitable transition, hand in hand with technological innovation. This means that we must find a connection between stricter obligations for those sectors that produce more GHG emissions, which raises a very important question as to whether they should be allocating money to repair losses and damages.

Therefore, there is an imperative need to start a discussion about the role of the companies that have historically emitted the highest GHG emission levels, the need for them to direct a portion of their profits to climate financing and, in particular, to actions related to loss and damage. Moreover, those instruments that are being developed to discourage GHG emissions need to include the assignment of the resources collected to the repair of the ecosystems, the management and repair of damages caused by climate phenomena, conservation and nature-based solutions, as well as to face the challenges of an energetic transition, the climate crisis and the containment of deforestation, as warned by the Delegate Attorney for Environmental and Agrarian Affairs.