Rescue Law: blow to the Environment sector through changes to the carbon tax

The Rescue Law changes both the tax break and the destination of the money collected. Companies would face a carbon-tax exemption capped at 25%, rather than the 100% exemption announced by Environment Minister Fabio Arjona. The law also removes the specific rule that reserved 80% of carbon-tax revenue for the Environment sector.

That 80% currently flows to the Fondo para la Vida, the sector’s largest pool of resources. About half a trillion pesos had been assigned to pay Amazonian communities for keeping forests standing, although only 60 billion pesos had been disbursed by last year. The tax was therefore a direct funding channel for conservation.

The change leaves the Environment sector without that dedicated revenue and weakens the planned revival of Colombia’s carbon market. It comes as the Ministry already faces sharply lower investment resources, making forest protection more dependent on other funding sources during a fiscal crisis.

Colombia’s carbon tax is a charge linked to carbon emissions. Companies can use carbon certificates to obtain an exemption from part of that charge. In general, a certificate represents one tonne of carbon dioxide reduced, avoided, or removed by a qualifying project. The article discusses this mechanism through the tax exemption, rather than defining the tax in detail.

The basic exchange is simple. A company buys certificates generated by a carbon project and presents them under the applicable rules. Instead of paying the corresponding tax amount, it uses the certificates to cover that obligation. This creates demand for projects such as forest conservation and gives them a potential source of funding.

The policy matters because the exemption level shapes the market. A 100% exemption could use the available stock faster, while a 50% exemption leaves more certificates unsold. The Rescue Law now sets a 25% limit, further reducing the tax-linked demand described in the article.

The immediate estimated loss from eliminating the carbon tax is 606 billion pesos, according to Andrés Herkrath, director of the Ideam. Herkrath contrasted that amount with as much as 2 trillion pesos that could potentially reach territories each year through the carbon market. The article notes that Javier Sabogal questioned those calculations.

The Ministry of Environment is also losing investment capacity. Compared with the budget effectively assigned for 2026, its investment resources fall by 53%, from 867 billion pesos to nearly 407 billion. The total budget is 1.24 trillion pesos, and operating expenses remain practically unchanged. These figures include Parques and the environmental licensing authority, Anla.

Together, the figures show two pressures. The sector loses a dedicated tax stream while its project funding is more than halved. The carbon market was expected to help fill that gap, but the new 25% exemption limit removes much of that planned financial support.

The Fondo para la Vida is the Environment sector’s largest resource pool. The article says 80% of the carbon tax currently goes into it. If that revenue is no longer specifically earmarked for Environment, the fund loses an important continuing source of money, especially after budget support weakened because of the fiscal crisis.

The missing flow directly affects forest-conservation plans. Around half a trillion pesos had been assigned to pay communities in the Amazonian deforestation arc for keeping forests standing. Yet actual disbursements reached only 60 billion pesos by last year. Those payments were therefore planned, but far from fully delivered.

The consequence is a double setback. The sector loses tax revenue, and the carbon-market revival loses its policy support. The article does not state that every conservation payment stops immediately, but it shows that the fund and community programs have less secure financing going forward.

The government and the carbon industry viewed carbon projects as a possible independent funding source for conservation. Andrés Herkrath, director of the Ideam, said the goal was not to depend on the national budget to protect forests. Instead, projects that generate carbon certificates would bring money into the territories.

The mechanism connects environmental results with financing. Projects that conserve forests or otherwise generate certificates can sell them to companies seeking the tax exemption. That demand could provide resources for conservation and help contain deforestation. The carbon market would therefore support forest protection while reducing pressure on public spending.

The scale was central to the argument. Herkrath said ending the tax meant losing 606 billion pesos, compared with as much as 2 trillion pesos annually that could reach territories through the market. The article notes that Javier Sabogal challenged those calculations, and the new law weakens this alternative by limiting the exemption to 25%.

Carbon certificates are in oversupply because demand weakened after the exemption was reduced by 50% in 2022. The article also points to reputational risks affecting the market. With fewer buyers willing or able to use certificates against the tax, available supply accumulated faster than it could be absorbed.

Mauricio Rodríguez of Asocarbono says the market currently has a stock of 41 million tonnes of certificates. Demand is only about 50 to 55 million tonnes under the conditions he describes, while the 50% exemption means the stock would take two years to use. A 100% exemption would use it in one year because demand would rise.

That imbalance has pushed certificate prices down sharply. The crisis is not abstract: Rodríguez says roughly 20 of Asocarbono’s 75 affiliated companies are in difficulty. The 25% exemption limit in the Rescue Law could further restrict demand and prolong the market’s weakness.

Carbon markets turn measured climate results into tradable certificates. A project establishes how much carbon dioxide would have been emitted without it, then measures the emissions avoided or removed. One verified tonne of difference can generate one certificate. The article does not explain this process, so this paragraph uses the standard meaning of carbon certificates.

For example, protecting a forest can prevent emissions that would have occurred if trees were cut. After the reduction is assessed under the relevant rules, the project may receive certificates for the tonnes avoided. Those certificates can then be sold to companies. The article identifies forest conservation and deforestation control as intended uses for the resulting finance.

Companies want certificates because Colombia’s system allows them to obtain an exemption from the carbon tax. Buying certificates creates demand for projects and can lower the company’s tax payment. The article shows the market’s vulnerability: when exemptions shrink, demand falls, certificates accumulate, and prices can collapse.