In 2021, Colombia ranked sixth largest net exporter of coal in the world, behind Indonesia, Australia, the Russian Federation (hereafter “Russia”), United States, and South Africa. Colombia’s reserves of coal are the largest in South America and are scattered across the nation’s three mountain ranges. At least 85% of the indigenous production of coal were exported in the last ten years, with Europe and the United States being its main export partners. Colombia is endowed with modest oil and gas resources. Its proven reserves of oil stood at 2.074 billion barrels at the end of 2022. It serves as a net exporter of crude oil with the United States as its main destination. Hydroelectric generation dominates the power sector with around 83.6% of electricity being generated from hydric resources in 2022. Climatic variability impacts hydroelectric generation, which is substituted with thermal generation, mainly from natural gas, in times of drought.
OECD Inventory of Support Measures for Fossil Fuels: Country Notes
Colombia
Energy resources and market structure
Source: IEA (2022), “World energy statistics”, IEA World Energy Statistics and Balances (database).
Electricity generation and marketing are liberalised and carried out in a competitive market, while the regulation of the transmission and distribution favours centralisation. Interconexión Eléctrica S.A. ESP is the major transmission company, owning 75% of the assets comprising the national power grid Sistema de Transmisión Nacional. Electricity users are divided among regulated and non-regulated with regulated users paying electricity according to a formula determined by the Comisión de Regulación de Energía y Gas (CREG), while non-regulated ones pay market-set prices.
In 2003, the hydrocarbons sector was restructured to address the continuing depletion of the country’s crude oil reserves, which would have turned it into a net oil importer. To increase competitiveness, the regulatory role of the national oil company Ecopetrol (Empresa Colombiana de Petróleos) was removed, with the then newly established National Hydrocarbons Agency taking over this role.
Energy prices and taxes
In 2007 through Law 1151, the Fuels Prices Stabilisation Fund (Fondo de Estabilización de Precios a los Combustibles, FEPC) was established to limit international fuel price fluctuations with the Ministry of Finance and Public Credit (Ministerio de Hacienda y Crédito Público) as the administrator. In its onset, FEPC received its initial capital from 10% of Ecopetrol’s assets from the previous oil stabilisation fund FAEP (Fondo de Ahorro y Estabilización Petrolera). The FEPC was then mandated to finance itself through the following means: i) using the proceeds of its investments; ii) collecting from hydrocarbon importers and producers a calculated positive differential between a reference price (Ingreso al Productor) set by the Ministry of Finance and the international reference price (Precio de Paridad); and iii) as a temporary measure, resources allocated by the state budget. A March 2017 ruling of the country’s Supreme Court struck down item (ii) as void, disabling the FEPC to fund itself through this means with prices still being regulated by the government.
Electricity prices are divided into regulated and non-regulated. Regulated prices are set by the Comisión de Regulación de Energía y Gas (CREG) and the subsidised rates are financed largely by high-income customers and industrial and commercial users. The Wholesale Energy Market is divided in short-term and long-term markets, where the latter allows energy users to manage their risk on short-term price volatility.
Figure 2. Total tax rebates and support for fossil fuels in Colombia
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Recent developments and trends in support
Electricity and gas subsidies targeting underprivileged parts of the population amounted to around COP 1.3 billion annually between 2012 and 2020, with COP 2.85 billion earmarked for 2023.
Despite rationalising the modalities of the Fuel Price Stabilisation Fund (FEPC) to improve its sustainability, the Fund remains a strain on the country’s public budget, which has registered a deficit of almost COP 18 trillion in 2022 (1.2 % of GDP). In August 2018, a presidential decree was issued to enhance the transparency around the structure, financing of the fund including the reference prices used to calculate compensation differentials to producers. Direct transfer figures in 2019 for the FEPC show a significant -60% year-on-year decrease, which drove the declines seen in Colombia’s Total Support Estimates in Figure 2. For 2020, the government announced plans to eliminate the reference pricing system through which the monthly reference prices are derived, with the aim of phasing out the Fuel Price Stabilisation Fund in the next couple of years. Although in 2020 the FEPC had a small surplus (COP 171 billion) due to the collapse in the price of crude oil in the wake of covid-19 lockdown measures, 2021 FEPC transfers reached a record COP 3.65 trillion, which have increased due to exogenous circumstances (such as Russia’s war of aggression against Ukraine, together with the post-pandemic effects on crude oil production levels). This increase, along with the depreciation of the Colombian peso, affected the price differential of the FEPC. At present, the FEPC transfers is responsible for more than 50% of the country’s total support estimate.
Due to the COVID-19 pandemic, the Colombian government adopted measures in order to counteract the negative effects on the production and consumption of hydrocarbons. One of their first actions was the reduction in the price per gallon of gasoline (-13%) and diesel (-9%). The Ministry of Mines and Energy also established a relief programme in the payment of gas and electricity bills for strata 1 and 2 of residential consumers, which would allow to defer, without additional surcharge, the cost of basic consumption up to a period of 36 months. In effect, the amount allocated for this measure (Subsidies to the Underprivileged Share of the Population) increased more than four-fold, reaching COP 3.6 trillion, around 24% of the country’s total support estimate.
Credit lines were also approved for energy and gas for public service providers affected by the pandemic. These credit lines, worth COP 300 billion in liquidity and working capital, were implemented into two tranches: the first (COP 100 billion) allows for financing bill deferrals of strata 1 and 2 residential consumers that are above the basic or subsistence consumption; the second (COP 200 billion) provides for the financing of the total cost of the bill for strata 3 and 4 residential consumers.
Various projects related to gas supply have been approved under the Plan de Abastecimiento de gas natural 2019-2028 The state oil company, Ecopetrol, plans investments to ensure the supply of natural gas including offshore activities in the Caribbean, infrastructure of transport and the expansion of the Cartagena refinery as well as research pilots for fracking.
Gustavo Petro's government began adjusting gasoline prices in October 2022. By May 2023, a gallon of gasoline was 28% more expensive than seven months earlier. The gasoline price hike is an urgent response by the government to reduce the fiscal spending generated by the FEPC. The aim is to eliminate this burden on the state and use the freed-up resources to improve social investment, as the gap in the FEPC amounts to USD 7.82 billion. The government estimates that in 2023 it will spend around USD 5.82 billion to cover the debt generated by the FEPC. So far, the measure has not touched diesel prices to avoid further impact on inflation.
The fiscal cost of support measures for fossil fuels in Colombia was estimated at COP 22858.66 billion in 2022 (Table 1). Eighty-nine per cent (89%) was directed at end user beneficiaries, as opposed to 10% directed to firms. Support was mainly given out in the form of direct transfers (COP 20372.44 billion) accounting for 89% of the total fiscal cost of support measures. Tax expenditures amounted to COP 2486.22 billion.
The fiscal cost of support measures for fossil fuels has increased by 342% since 2017. Since last year, tax expenditures have increased by 1%, from COP 2 473.35 billion to COP 2 486.22 billion and direct transfers increased by 787%, from COP 6 440.69 billion to COP 20 372.44 billion. All growth rate percentages above are expressed in terms of nominal national currency amounts.
Table 1. Fiscal cost of support measures for fossil fuels (in billions of national currency)
|
|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
|---|---|---|---|---|---|---|
|
Tax expenditures |
1776.119 |
1780.880 |
2151.219 |
1741.258 |
2473.350 |
2486.219 |
|
Direct transfers |
3392.695 |
5094.044 |
3119.445 |
1770.099 |
6440.694 |
2.0e+04 |
|
Total |
5168.814 |
6874.924 |
5270.663 |
3511.357 |
8914.044 |
2.3e+04 |
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.
Table 2. Selected support measures for fossil fuels with a large fiscal cost (in billions of national currency)
|
Measures associated with large fiscal cost in 2022 |
2022 |
2017 |
Variation since 2017 |
|
|---|---|---|---|---|
|
Tax expenditures |
|
|||
|
Sales Tax Exemption on Crude Oil, Natural Gas, Uranium and Thorium |
817.000 |
414.000 |
403.000 |
|
|
Partial Tax Deduction for Investments Made in Fixed Assets for Electricity Generation, Natural Gas Production, Heat Generation |
523.677 |
283.360 |
240.317 |
|
|
Tax Credit for Companies Producing Electricity, Natural Gas and Heat |
516.632 |
134.258 |
382.374 |
|
|
Direct transfers |
||||
|
Fuel Price Stabilisation Fund (FEPC) |
1.8e+04 |
2276.000 |
1.6e+04 |
|
|
Subsidies to the Underprivileged Share of the Population |
1126.961 |
373.528 |
753.433 |
|
|
Public Funding of the National Agency of Hydrocarbons (ANH) |
907.459 |
674.279 |
233.180 |
|
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports).
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 3. Description of selected support measures for fossil fuels
|
Sales Tax Exemption on Crude Oil, Natural Gas, Uranium and Thorium |
Modified by the Law 1607 of 2012, this measure exempts crude oil, natural gas, uranium and thorium from the general sales tax rate of 16% (19% since 2017). Since 2017, crude oil is no longer exempt from the general sales tax. For some years, the figures have been estimated by multiplying the estimated revenues forgone per each percentage point of tax rate exemption (as calculated by the Ministry of Finance and Public Credit) by the total number of percentage points which were exempted. In order to allocate this measure, we considered both the predominant role of crude oil and natural gas among the four products concerned and the fact that reliable estimates of the production of uranium and thorium in Colombia are not available. As a consequence, we allocated it to crude oil and natural gas based on production data from the IEA’s World Energy Balances. |
|
Partial Tax Deduction for Investments Made in Fixed Assets for Electricity Generation, Natural Gas Production, Heat Generation |
This measure was introduced in 2004 and it established that companies could deduct 30% of the value of their investments in fixed productive assets from their taxable income. The deduction rate was raised to 40% between 2007 and 2009, and then it was lowered to 30% for 2010. This measure refers to the value of revenues forgone due to tax-deductible investments made in fixed assets for the companies who have the electricity generation, natural gas production and heat generation as their main economic activity. According to Law 1430 of 2010, this measure ended in 2011, except for two situations. First, for those companies that included this measure in the legal stability contracts they had already signed with the public sector before 2011. These companies can use this measure during the term of the subscribed contract. Second, for those companies that were applying to this kind of contracts before 1 November 2010, with the inclusion of this measure as part of the norms subject to stability. The use of this measure was allowed for three years for these companies. |
|
Tax Credit for Companies Producing Electricity, Natural Gas and Heat |
This measure refers to the value of tax credits allowed by the Colombian tax code that companies focused to produce electricity, natural gas and heat have been using. The figures are estimated yearly by the Dirección de Impuestos y Aduanas Nacionales (DIAN) based on the income declarations for that year. This tax credit must be considered in addition to the partial tax deduction for investments made in fixed assets mentioned in the previous measures. |
|
Fuel Price Stabilisation Fund (FEPC) |
The FEPC (Fondo de Estabilización de Precios de los Combustibles) was introduced in 2007 by Decree 1151 in order to mitigate the impact of international oil price volatility on domestic retail prices of petroleum-derived products used as transport fuels, such as motor gasoline and diesel. Fuels used in the commercial aviation and marine sectors are excluded. The FEPC has been designed as a self-funding mechanism. The fund accumulates resources when the reference price (precio de referencia) is higher than the parity export price (precio de paridad). Conversely, when the reference price is lower than the parity export price, the fund draws upon its resources to compensate producers for higher international prices without passing them on to final consumers. The reference price is the price received by refiners and importers for motor gasoline and diesel, while the parity export price represents the opportunity cost of selling these petroleum-based products on the international markets. The parity export price is calculated monthly by the Ministry of Mines and Energy (MME) as the average of international prices for motor gasoline and diesel adopted in the Gulf of Mexico. The price of motor gasoline and diesel is set considering the income received by the refiner, the transportation costs and the margin of the wholesalers. Each refiner and importer of motor gasoline and diesel operating in the domestic market holds an account in the FEPC that is offset every three months based on the calculations made by the MME.The fund was initially funded with savings from Ecopetrol, the national oil company, and the Fondo de Ahorro y Estabilización Petrolera (FAEP), to which Ecopetrol transferred a share of its annual dividends. The FEPC has systematically been in deficit since its inception. The fund has, thus, funded its operations by drawing upon national budget resources or by receiving loans with a payback period of less than one year from the Ministry of Finance and Public Credit. The Law (Decreto) 2713 of 2012 established that if the FEPC is unable to abide by the repayment schedule, it is possible to extend the payback period. High international oil prices combined with a formula which did not estimate adequately the producers’ income deriving from their output of diesel and motor gasoline led to the exhaustion of FEPC’s resources already in 2010. As a result, new formulas for estimating producers’ income were introduced in November 2011 with the aim of making the price-setting mechanism more transparent and sustainable. In 2013, the Constitutional Court deemed unconstitutional the Fund’s resource accumulation mechanism that came from the negative differences between the parity export price and the reference price, which is known as diferencial de participación. Later, Law 1819 of 2016 created the parafiscal contribution to fuel as a new source of financing for FEPC. Another source of funding for FEPC is the bonds or other public debt securities issued by the Government in favor of the Fund to cover its obligations. In this regards, Law 1955 of 2019 authorized the extinction of public debt between FEPC and the Government, which is understood as such since 31 December 2019. Law 2294 of 2023 modifies the FEPC in order to stabilize the price of fuels. The Ministry of Finance and Public Credit and the Ministry of Mines and Energy, or the delegated entity, will establish the methodology for calculating the value of the income to the producer of liquid fuels and biofuels, as well as the rates and margins associated with the remuneration of the entire chain of transport, logistics, marketing and distribution of such fuels that are part of the market. |
|
Subsidies to the Underprivileged Share of the Population |
Introduced by the Law 142 of 1994, this measure grants subsidies for the domestic consumption of electricity and natural gas among the three poorest brackets (estratos) of the population, as defined by the Colombian Constitution. The first bracket refers to extremely low-income families, while brackets two and three refer to low-income and middle-low income families respectively. The public utility companies providing natural gas and electricity are entitled to a refund for selling to these brackets of the population at below-market prices. If the budget allocated for refunding public utility companies is greater than the subsidies which were effectively granted, local governments are obliged by law to accumulate this surplus in a solidarity and redistribution fund. The fund then allocates it to neighbouring municipalities in order to compensate public utility companies for their local subsidies. Subsidies cannot exceed 15%, 40% and 50% of the electricity and natural gas consumption for brackets three, two and one respectively. The fiscal cost of this measure is partially offset by higher tariffs per unit cost of the service paid by middle-high and high-income families (brackets 5 y 6) and commercial activities. |
|
Public Funding of the National Agency of Hydrocarbons (ANH) |
In 2003, the Colombian Government redefined the role of the public sector in the oil and gas industry by Decree 1760, and contextually created the National Agency of Hydrocarbons (Agencia Nacional de Hidrocarburos – ANH). The ANH operates under the authority of the Ministry of Mining and Energy and assesses the country's hydrocarbon potential, manages the procurement of exploration and exploitation contracts in the oil and gas industry, promotes the national policy on hydrocarbons and encourages the development of the oil and gas industry. This measure concerns the amount of public resources assigned to the ANH for performing its functions. A significant share of the total funding is employed for hydrocarbons exploration projects and for 2D mapping of areas of Colombia whose potential in terms of hydrocarbon resources is still unexplored. |
Data sources
Note on the Methodology
Aggregate numbers from the Inventory represent the fiscal cost of support measures for fossil fuels. They should not be interpreted as a level of support for fossil fuels, nor as an indicator of the extent to which the considered policies are favourable or unfavourable to climate mitigation.
The Inventory reports tax expenditures as estimates of revenue foregone due to measures that reduce or postpone tax payments relative to a jurisdiction’s benchmark tax systems to the benefit of fossil fuels producers or users. Tax expenditure estimates can thus increase over time due to either an increase in the offered concession (relative to benchmark tax systems) or an increase in the benchmark itself. Cross-country comparisons of tax expenditures can also be misleading due to differences in countries’ benchmark tax systems.