OPIS Insights

Colombia has launched its long-awaited emissions trading system. In one of her final acts as environment minister before the change of government, Irene Vélez on Aug. 4 signed three decrees – 971, 973 and 969 – that lay out the framework for the country’s new carbon market and set a 2027 start date for its emissions trading system, known as Program of Tradable GHG Emission Allowances (Programa Nacional de Cupos Transables de Emisión – PNCTE). The system was authorized by Colombian law back in 2018 but had languished without the regulations needed to make it operational.

Colombia’s push comes as the national carbon market has faced criticism over credits that didn’t represent real, lasting emissions cuts due to a lack of safeguard compliance, alongside a dip in demand for carbon offsets.

Establishing a legal and institutional framework to carbon markets, paired with tighter verification rules, is expected to strengthen the market inwards and outwards. The legislative package will help avoid the credibility problems on Colombian carbon offsets and will enable the country to participate in global carbon markets. It also aligns with the national efforts to transition away from fossil fuels (subscription required).

The country isn’t starting from scratch: its carbon tax, in place since 2016, already helped to develop quantification and monitoring capacities and infrastructure, verification firms, national protocols and carbon project developers, giving Colombia a head start.

Decree 971 – Definitions for NDC Ambitions

Decree 971 spells out definitions and outlines the mechanism to increase the country’s nationally determined contributions under the Paris Agreement aligned with national climate policy.

Decree 973 – The Carbon Market and Carbon Pricing Framework

Decree 973 establishes Colombia’s National System of Carbon Market Mechanisms and Carbon Pricing Instruments, providing the overarching principles, criteria, institutional structure and procedures for strengthening carbon markets and carbon-pricing instruments.

The decree identifies all the active instruments, the national carbon tax and its offset mechanism, the voluntary carbon market, internationally transferred mitigation outcomes (ITMOs) and the compliance carbon market (PNCTE) as the economic instruments supporting Colombia’s carbon market.

Decree 973 establishes Colombia’s carbon market framework around two pillars: a set of 11 guiding principles aimed at strengthening market integrity, including transparency, credibility, environmental and social safeguards, climate ambition and the avoidance of double counting; and a formal institutional structure integrating the carbon market into the national administrative and legal system. The Ministry of Environment and Sustainable Development (MADES) will coordinate the system and serve as Colombia’s Article 6 National Designated Authority, while IDEAM – the hydrology institute – will accredit verification bodies, the Ministry of Interior and SIC will oversee methodologies, verification, consultations and market integrity, respectively.

For international transfers, ITMOs will require a Letter of Authorization and a corresponding adjustment in Colombia’s GHG inventory, with transfers prohibited for vintages before 2021.

For all carbon offsets in the compliance and voluntary carbon market, the decree establishes 22 eligibility criteria covering registration, safeguards, biodiversity and alignment with climate policy. It establishes crediting periods, ranging from up to 15 years for emission-reduction projects to 40 years for removals, with additional limits for Article 6 activities. It also standardizes the mitigation project cycle from feasibility through closure, requiring registration and reporting in GHG Emissions Reduction National Registry. Existing projects at the feasibility stage will have an 18-month transition period, extendable by six months, to comply with the new requirements.

Decree 969 – PNCTE

Decree 969 sets the general rules for the PNCTE. By December 2026, MADES shall publish the cap and the regulated entities based on the criteria outlined in this decree.

Allowances

Allowances will be acquired by regulated entities via auctions, trading with other regulated entities or through free allocation. Compliance offsets may also be purchased, generated from emissions-reduction projects. Within the first six months of each year, MADES will publish the auction rules, budget allowances, floor price, frequency, direct allocation, among other elements.

Direct allocation cannot cover 100% of an entity’s compliance obligation. However, during the transitional compliance period (2027-2029), special conditions on direct allocation may be considered by MADES.

Verified and certified emission reductions or removals that meet eligibility and quantification requirements established by MADES could be used toward compliance. However, only up to 3.3% of the emission’s obligations can be covered with carbon offsets issued per compliance period. The conditions under which these carbon offsets will be accepted for
compliance are pending to be determined by MADES.

Furthermore, allowances are valid only within the phase in which they are acquired. Unused allowances expire at the end of each phase and cannot be banked into the following phase.

Prices

The reference price for allowance auctions will be linked to Colombia’s national carbon tax rate. In accordance with Laws 1819 and 2277, Colombia’s National Directorate of Taxes and Customs has announced, through Resolution No. 00003 of 2026, updated carbon tax rates for 2026 was set at COP 29,070.49 (USD 9.29) per metric ton of CO2. MADES will set the annual auction starting price, which may take the reference rate into account.

As a price-control mechanism, MADES may also withhold and reserve a percentage of allowances during each compliance period for subsequent auction or direct allocation, as needed to support the program’s emissions-reduction objectives.

Phases

The rollout will be gradual. The first phase, running from 2027 through 2029, is designed to test the system’s rules before Colombia moves to full implementation in 2030. Phase two will run from Jan. 1, 2030 to Dec. 31, 2031 and will be 100% implementation.

What’s Next

MADES is required to determine essential details between the end of 2026 and the first half of 2027 to effectively have the PNCTE running – including who the regulated entities will be subject to the rules by the end of 2026, budget allowances, free allowances, credit offsets conditions and floor price. However, establishing a formal framework for all the carbon market and carbon pricing instruments is a huge milestone for Colombia and the region.