Colombia’s carbon tax has long stood out in Latin America as a policy that explicitly integrates domestic carbon credits. Under its “no causación” mechanism, companies can reduce their tax bill by retiring eligible offsets. Until recently, they could offset up to 100% of their liability. But in late 2022, the Petro administration capped this at 50%, with plans to gradually reduce the share further.
New data from the Ministry of Environment, analyzed by Carbon Pulse, show how challenging this balance has become. In the first half of 2025, taxable entities offset more than half of their liability — above the legal threshold. Revenues from cash tax payments fell sharply, even as carbon credit retirements rose.
Why? In a word: price. Colombian carbon credits have been trading at some of their lowest levels since 2021, averaging around USD 4/t, compared with a tax rate of just over USD 7/t. That price gap made it more economical for companies to offset, as ClearBlue Markets’ Offset Price Discovery Tool has tracked.
“The savings made it worth it for most players to decide to offset, and there also has been more activity from intermediaries trying to push credits,” ClearBlue analysts told Carbon Pulse.
But prices are only part of the story. ClearBlue’s Bogotá-based Associate Director, Nature-Based Solutions, Juan Manuel Cardona, pointed to administrative gaps at the Ministry of Environment. “When cabinet changes happen, the people who do the heavy work — calculations, verifying that things work, maintaining platforms like RENARE — they are very few,” Cardona explained. Market participants, he added, had not been formally notified of the release of new carbon tax figures even a week after publication.
The political backdrop is equally important. The Petro administration has already proposed reducing the offset cap to 30%, arguing that more of the tax should be paid in cash. Project developers, meanwhile, are looking for opportunities abroad to secure higher prices, especially for certain vintages and project types.
With offset retirements above the legal cap, low domestic prices, and a government intent on changing the rules again, Colombia’s carbon tax remains at a turning point. Whether it can balance fiscal needs, emissions goals, and the development of a credible domestic credit market will be critical to watch in the months ahead. It remains to be seen how the Colombian government will address the offsetting above the carbon tax legal cap, as enforcing mechanisms preventing this to happen were supposed to be in place.