## Projected Fossil Fuel Production and Prices—Global Scenarios

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---

### Background and context
- Petro administration aims to reduce reliance on oil and coal and diversify toward non-traditional, higher value-added exports while expanding renewables.
- Fossil fuels represent 10 percent of Colombia’s fiscal revenues, 35 percent of exports, and around 4 percent of GDP of the economy’s value added.
- Reserves-to-production ratio for oil stands at around 7 years, implying that without new discoveries, production is expected to cease in about 30 years.
- Gas production amounted to about 3 trillion cubic feet (Tcf) in 2020 and is projected to last 6.5 years.
- Recent offshore discoveries could begin production only after 2030.
- Oil production is concentrated: of more than 400 producing fields, 17 fields had production exceeding 10,000 barrels per day (bpd) in 2023, and only 8 fields with production greater than 20,000 bpd.
- Ecopetrol accounts for 60 percent of production.

### Global scenarios and modeled approach
- Staff use IEA forecasts under three scenarios: Stated Policies Scenario (STEPS), Announced Pledges Scenario (APS), and Net Zero Emissions by 2050 (NZE).
- Project-level (bottom-up) modeling methodology: IMF’s FARI project-level cash flow model combined with detailed asset-level data (notably from Rystad Energy for oil).
- Historical revenues reflect authorities’ reported royalty and income tax collections for 2015–2023.

### Oil production projections (selected exact figures from staff analysis)
- Current estimated oil production: 736 thousand barrels per day (bpd).
- STEPS scenario projections:
  - 510 thousand bpd by 2030
  - 184 thousand bpd by 2040
  - 44 thousand bpd by 2050
- APS scenario projections:
  - 460 thousand bpd by 2030
  - 150 thousand bpd by 2040
  - 35 thousand bpd by 250
  - APS converges to a production level 20 percent lower than the STEPS scenario in 2050.
- NZE scenario projections:
  - 350 by 2030
  - 18 thousand bpd by 2040
  - 3 thousand bpd by 2050

### Fiscal implications for oil
- Under NZE, royalty and income tax revenues from oil production would fall to 0.14 percent of GDP by 2030, and to near zero by 2050.
- A steep decline in oil production would reduce Colombia’s royalties and income tax revenues by 0.9-1.2 ppts of GDP per year by 2030.
- Losses would be higher once lower dividends from Ecopetrol are factored in.

### Coal production projections and costs
- Colombia peaked at 91.5 million tons in 2017; production reached 54.5 million tons in 2023.
- Mining production costs range from US$40 to US$70 per ton.
- Staff analysis assumes operating cost in the range of US$30-45 per ton, with an additional US$20 per ton in transportation costs.
- APS accelerates decline in 2025-2030 with early closure of Cerrejon mine (4 years earlier than in STEPS) and all other mines by 2040.
- Under NZE, all Colombian coal production is assumed to cease by 2032, when the European coal price is projected fall to US$54/ton.

### Fiscal implications for coal
- Government coal revenues under APS amount to 0.07 percent of GDP by 2030 and 0.01 percent of GDP in 2039 before mining activity ceases.

### Subnational fiscal impacts
- Royalties distributed to subnational departments and municipalities decline due to lower commodity prices and production under APS.
- Regions such as Antioquia, La Guajira and Huila will see more marked declines due to mine closures and depletion of oil fields.
- Major oil and coal regions such as Meta, Casanare and Cesar would see a decrease in their direct allocation of royalties in the range of 38 to 46 percent by 2030.

### Labor market impacts — oil and coal sectors
- Direct employment in oil and coal production (2023): around 105,000 jobs in both sectors, accounting for about 1 percent of Colombia’s total labor force.
- Many industries are linked upstream and downstream:
  - For oil, input provision (support services, land transport, refining and fuel blending) accounts for 75 percent of total value of inputs; refining and fuel blending and gas distribution account for 91 percent of total value of outputs.
  - For coal, storage and complementary transport services, support services for extractive industries, oil refining and fuel blending, land transport and vehicle repair and maintenance account for 70 percent of inputs; oil refining and electricity generation account for more than 80 percent of total outputs.
- Total job losses could rise sharply when considering interlinkages:
  - Preliminary estimates under APS suggest annual job losses could average over 10,000 over the next decade.
  - Indirect job losses account for roughly half of total job losses in any given year.
  - Most indirect job losses occur in land transport and pipelines, support services for extractive industries, storage and complementary transport, oil refining, fuel blending, and gas distribution.

### Electricity sector expansion and renewable jobs
- Colombia’s electricity generation matrix: hydroelectric about two thirds of installed capacity; thermal energy about 30 percent; solar and wind about 4 percent.
- Mining and Energy Planning Unit estimates generation capacity could increase by almost 65 percent with respect to 2023 by 2037 if planned renewable projects are completed timely.
- Staff use an average of four hypothetical scenarios of electricity generation capacity over the next 10 years.
- Key job figures for power sector expansion:
  - Current employment in power sector: nearly 70 thousand workers.
  - Expansion could be associated with about 135 thousand additional jobs over the next 5 years (subject to high uncertainty).
  - Estimates suggest an additional 40 thousand full-time jobs could be created if planned renewable projects are completed.
  - Only 3.3 percent of new jobs would be permanent (operation and maintenance, O&M).
  - About 65 percent of new job positions would come from construction and installation of plants.
  - About one third of total new employment would come from indirect employment.
  - In the subsequent decade, average new job creation could reach 22 thousand per year, mostly linked to construction and installation.

### Net labor market balance and policy implications
- Net impact in year T could be around 24 thousand new full-time jobs when accounting for new electricity sector jobs and oil/coal job losses.
- If construction and installation jobs are not considered, the net outcome could be a net loss of 2.5 thousand jobs.
- Results driven by ambitious expansion of solar and wind; without such growth the positive impact of the electricity sector would be lower.
- Policy recommendations implied by staff analysis:
  - Implement targeted reskilling programs for workers from the oil and coal industries and related sectors.
  - Consider unemployment insurance and comprehensive active labor market policies to support transition-affected workers.
  - Complement energy transition with domestic, financial, and export-oriented reforms to foster diversification, productivity gains, and stronger competitiveness.

### Regional labor-market impacts from energy transition
- Coal worker concentration: La Guajira, Cesar, Boyacá, and Cundinamarca.
- Oil worker concentration: Santander, Meta, Casanare, Putumayo, Antioquia, and Bogota.
- Renewable potential:
  - Wind energy potential concentrated in La Guajira (Angel-Sanint et al. (2023)).
  - Solar potential distributed across Santander, Tolima, Atlántico, Magdalena, Cesar, and La Guajira.
- Expected outcomes (subnational analysis, three-year horizon):
  - Job losses in La Guajira and Cesar could be offset by new electricity sector jobs if UPME projects proceed as planned.
  - Antioquia and Tolima likely to benefit from hydroelectric and solar potential.
  - Boyacá, Huila, Norte de Santander, and Bogotá expected to face net job losses without compensation from the electricity sector.
- Data sources: GEIH 2023, DANE’s IO, Ministry of Energy’s Indicative Expansion Plan of Electricity Generation (2023); Angel-Sanint et al. (2023); ERA5 Copernicus dataset; UPME energy atlas.

### Subnational analysis assumptions and limitations
- Analysis relies on national input-output tables and assumptions about electricity generation expansion; subject to uncertainties.
- Renewable potential mapping assumptions:
  - Solar and wind potential evaluated using Angel-Sanint et al. (2023) and ERA5 Copernicus.
  - Biomass, biogas, and hydro resources mapped per UPME energy atlas.
- Key limitation: assumption that renewable projects proceed as planned by UPME despite significant local opposition (e.g., wind energy in La Guajira), which could lead to unbalanced job impacts.
- Time horizon limitation: analysis restricted to three years due to uncertainties in renewable energy development.

### Skills, community support, and social protection (policy recommendations)
- Two key issues to address for positive labor-market impacts:
  - Developing future skills: government must actively cultivate a skilled workforce to meet industry demands; assess skill gaps to ensure workforce can take advantage of opportunities.
  - Securing local community support: indigenous and local community consent for generation plants and transmission lines is crucial; monetary compensation like the 'Electricity Transfer' is insufficient.
- Recommended measures:
  - Targeted skill programs and tailored support addressing community concerns.
  - Effective communication to maximize local benefits.
  - Use social safety nets in the short run to limit impact on vulnerable households.
  - Set up reskilling programs in the medium term, with government support conditional on participation in reskilling programs.
  - In regions facing net losses: focus on diversification, developing new advantages, and strengthening social safety nets for affected households.
- Gender dimension: transition presents a chance to tackle gender inequalities in energy markets.

### Macroeconomic modeling of oil depletion and reform scenarios (GIMF-GVC results)
- Baseline depletion assumption: oil production declines by 95 percent over 30 years; depletion fully anticipated by forward-looking agents.
- Counterfactual setup: impulse responses are deviations from scenario where oil production remains constant at current levels.
- Key macro outcomes without policy reforms:
  - Real GDP: 12 percent lower compared to counterfactual where oil production remains constant.
  - Potential growth: declines by 0.4 percentage point annually over 30 years.
  - GDP component impacts: exports lower GDP by 6 percent; consumption lower GDP by 5 percent; investment lower GDP by 2 percent.
  - Capital decline: capital in oil, coal, and energy sector would decline by 20 percent of GDP.
  - Capital income share: 23 percent (explains around half of long-term GDP losses).
  - Labor impacts: total labor supply reduced by 0.8 percent as workers shift to tradables and nontradables.
  - GDP losses attributable to:
    - Lower labor productivity overall: 9 percent.
    - Labor reallocation away from oil, coal, and energy: 3 percent.
  - Sectoral share: oil, coal, and immediate downstream sectors accounted for 6.3 percent of GDP in 2023 (4 percent for oil and coal and 2.3 percent for downstream sectors).
  - Real exchange rate: would weaken by about 12 percent; including “news” effects of future depletion total depreciation is 21 percent.
  - Government finances: revenue losses of about 3 percent of GDP; government debt broadly stable under the fiscal rule; reduced transfers lower consumption among liquidity-constrained households.

### Policy reform packages and quantitative impacts
- Three reform packages evaluated:
  - (i) Domestic reform package (30-year implementation): higher TFP (5 percent), higher labor productivity, lower markups in tradables and non-tradables.
  - (ii) Financial reform package (15-year implementation): lowers verification costs and borrower riskiness by 100 bps in tradables and non-tradables.
  - (iii) Export reform package (30-year implementation): increases Colombia’s trade weights in partners’ import demand for tradables by 50 percent.
- Outcomes by reform type after 30 years:
  - (i) Domestic reforms:
    - GDP decline reduced from 12 percent to 4 percent.
    - Government debt declines from around 53 percent of GDP to around 49 percent of GDP.
    - Domestic inflation down; further real exchange rate depreciation supports current account.
  - (ii) Financial reforms:
    - GDP around 10.5 percent below baseline (around 1.5 percent higher than oil depletion with no policy scenario).
    - Relative improvement arises from higher consumption and investment in broadly equal proportion.
    - Muted impact on real exchange rate compared to domestic reforms.
  - (iii) Export reforms:
    - GDP 9.5 percent smaller than baseline after 30 years.
    - Larger contributions from consumption and exports.
    - Exchange rate decline reduced: instead of falling by 12 percent, declines by 4.5 percent after 30 years.
- Combined reforms:
  - When all three packages implemented together, real GDP would be 0.8 percent larger than the baseline (instead of 12 percent losses).
  - About 40 percent of export losses from oil depletion are compensated by higher tradables exports.
  - Peso depreciates by around 13 percent, broadly similar to the depreciation in the no-reform scenario.
  - Strong responses of consumption and investment, both exceeding baseline levels.

### Financing the energy transition and ESG finance findings (Annex I)
- Investment needs:
  - Colombia would need about US$92 billion in additional investment by 2050 to finance the energy transition.
  - This amount represents 1.2 percent of the country’s discounted cumulative GDP over 2030-2050 (World Bank, 2023).
  - Staff estimates that the private sector would need to contribute at least 80 percent of Colombia’s additional investment needs.
- Institutional developments:
  - National Climate Change System coordinates climate finance across levels.
  - Regional Climate Change Nodes link local governments, businesses, and financial institutions.
  - Since 2019, SFC’s biennial ESG and climate risks and opportunity survey assesses financial institutions’ progress; prioritizes tools like the Green Taxonomy.
- Current market metrics (as of 2023 and 2020-2024):
  - Green portfolio accounted for 2.4 percent of total loans as of 2023.
  - Between 2020 and 2024, Colombia issued US$15.3 billion in ESG bonds—nearly 60 percent in social bonds.
  - Around 80 percent of ESG bonds were issued by the government; private sector accounted for 18 percent of total issuances.
  - Colombia’s ESG bonds market accounted for only 6 percent of total ESG issuance in LAC.
- Pricing advantage and empirical results:
  - Dataset: 2105 bonds issued by 17 Latin American countries during 2016-2024 from Refinitiv Eikon.
  - Propensity-score matching and ATT results:
    - Full sample: ESG bond YTM 6.38 versus Non-ESG bond YTM 7.38; ATT = -1.0 (T-Statistics -2.51, P-Value 0.01).
    - Before Covid: ESG 7.9, Non-ESG 7.67; ATT = 0.24 (T-Statistics 0.18, P-Value 0.86).
    - After Covid: ESG 6.05, Non-ESG 7.96; ATT = -1.9 (T-Statistics -3.65, P-Value 0.0).
    - By Issuer (selected): Corporate ESG 6.77, Non-ESG 7.73; ATT = -0.97 (T-Statistics -2.02, P-Value 0.04).
  - Interpretation: ESG bonds have yields to maturity that are, on average, 100 basis points lower than matched non-ESG bonds in full sample; post-COVID the differential widened to 190 basis points less.
- ESG disclosure regulation and spreads:
  - Composite ESG disclosure framework score constructed via Principal Component Analysis across four dimensions: disclosure approach, applicability, assurance requirements, and materiality perspective.
  - Regression results: stronger ESG disclosure frameworks associated with average reduction of 33 basis points in ESG bond spreads (Panel A: Disclosure -0.33***; t-statistic -6.19).
  - Effect stronger post-COVID, and more pronounced for agency issuers, domestic currency bonds, and high-yield instruments (Panel B examples: Domestic Currency Disclosure -0.65***; High Yield Disclosure -0.56***).
- Policy priorities to strengthen ESG market:
  - Ensure macro-financial stability.
  - Improve regulatory framework and standardized reporting; third-party verification to enhance transparency.
  - Expand issuer participation: support municipalities and SMEs via credit enhancement and technical assistance.
  - Foster regional and international cooperation and partnerships with multilateral institutions for technical and financial support.

*Source: IMF staff estimates and analysis as presented in the IMFs Selected Issues paper: “MACRO-FISCAL IMPACTS OF COLOMBIA'S ENERGY TRANSITION PLAN” (content unit: sipea2025145).*

### 1.   Projected Fossil Fuel Production and Prices—Global Scenarios  ______________________ 4

### 1.   Projected Fossil Fuel Production and Prices—Global Scenarios

### Background and context
- Petro administration aims to reduce reliance on oil and coal and diversify toward non-traditional, higher value-added exports while expanding renewables.
- Fossil fuels represent 10 percent of Colombia’s fiscal revenues, 35 percent of exports, and around 4 percent of GDP of the economy’s value added.
- Reserves-to-production ratio for oil stands at around 7 years, implying that without new discoveries, production is expected to cease in about 30 years.
- Gas production amounted to about 3 trillion cubic feet (Tcf) in 2020 and is projected to last 6.5 years.
- Recent offshore discoveries could begin production only after 2030.
- Oil production is concentrated: of more than 400 producing fields, 17 fields had production exceeding 10,000 barrels per day (bpd) in 2023, and only 8 fields with production greater than 20,000 bpd.
- Ecopetrol accounts for 60 percent of production.

### Global scenarios and modeled approach
- Staff use IEA forecasts under three scenarios: Stated Policies Scenario (STEPS), Announced Pledges Scenario (APS), and Net Zero Emissions by 2050 (NZE).
- Project-level (bottom-up) modeling methodology: IMF’s FARI project-level cash flow model combined with detailed asset-level data (notably from Rystad Energy for oil).
- Historical revenues reflect authorities’ reported royalty and income tax collections for 2015–2023.

### Oil production projections (selected exact figures from staff analysis)
- Current estimated oil production: 736 thousand barrels per day (bpd).
- STEPS scenario projections:
  - 510 thousand bpd by 2030
  - 184 thousand bpd by 2040
  - 44 thousand bpd by 2050
- APS scenario projections:
  - 460 thousand bpd by 2030
  - 150 thousand bpd by 2040
  - 35 thousand bpd by 250
  - APS converges to a production level 20 percent lower than the STEPS scenario in 2050.
- NZE scenario projections:
  - 350 by 2030
  - 18 thousand bpd by 2040
  - 3 thousand bpd by 2050

### Fiscal implications for oil
- Under NZE, royalty and income tax revenues from oil production would fall to 0.14 percent of GDP by 2030, and to near zero by 2050.
- A steep decline in oil production would reduce Colombia’s royalties and income tax revenues by 0.9-1.2 ppts of GDP per year by 2030.
- Losses would be higher once lower dividends from Ecopetrol are factored in.

### Coal production projections and costs
- Colombia peaked at 91.5 million tons in 2017; production reached 54.5 million tons in 2023.
- Mining production costs range from US$40 to US$70 per ton.
- Staff analysis assumes operating cost in the range of US$30-45 per ton, with an additional US$20 per ton in transportation costs.
- APS accelerates decline in 2025-2030 with early closure of Cerrejon mine (4 years earlier than in STEPS) and all other mines by 2040.
- Under NZE, all Colombian coal production is assumed to cease by 2032, when the European coal price is projected fall to US$54/ton.

### Fiscal implications for coal
- Government coal revenues under APS amount to 0.07 percent of GDP by 2030 and 0.01 percent of GDP in 2039 before mining activity ceases.

### Subnational fiscal impacts
- Royalties distributed to subnational departments and municipalities decline due to lower commodity prices and production under APS.
- Regions such as Antioquia, La Guajira and Huila will see more marked declines due to mine closures and depletion of oil fields.
- Major oil and coal regions such as Meta, Casanare and Cesar would see a decrease in their direct allocation of royalties in the range of 38 to 46 percent by 2030.

### Labor market impacts — oil and coal sectors
- Direct employment in oil and coal production (2023): around 105,000 jobs in both sectors, accounting for about 1 percent of Colombia’s total labor force.
- Many industries are linked upstream and downstream:
  - For oil, input provision (support services, land transport, refining and fuel blending) accounts for 75 percent of total value of inputs; refining and fuel blending and gas distribution account for 91 percent of total value of outputs.
  - For coal, storage and complementary transport services, support services for extractive industries, oil refining and fuel blending, land transport and vehicle repair and maintenance account for 70 percent of inputs; oil refining and electricity generation account for more than 80 percent of total outputs.
- Total job losses could rise sharply when considering interlinkages:
  - Preliminary estimates under APS suggest annual job losses could average over 10,000 over the next decade.
  - Indirect job losses account for roughly half of total job losses in any given year.
  - Most indirect job losses occur in land transport and pipelines, support services for extractive industries, storage and complementary transport, oil refining, fuel blending, and gas distribution.

### Electricity sector expansion and renewable jobs
- Colombia’s electricity generation matrix: hydroelectric about two thirds of installed capacity; thermal energy about 30 percent; solar and wind about 4 percent.
- Mining and Energy Planning Unit estimates generation capacity could increase by almost 65 percent with respect to 2023 by 2037 if planned renewable projects are completed timely.
- Staff use an average of four hypothetical scenarios of electricity generation capacity over the next 10 years.

Key job figures for power sector expansion:
- Current employment in power sector: nearly 70 thousand workers.
- Expansion could be associated with about 135 thousand additional jobs over the next 5 years (subject to high uncertainty).
- Estimates suggest an additional 40 thousand full-time jobs could be created if planned renewable projects are completed.
- Only 3.3 percent of new jobs would be permanent (operation and maintenance, O&M).
- About 65 percent of new job positions would come from construction and installation of plants.
- About one third of total new employment would come from indirect employment.
- In the subsequent decade, average new job creation could reach 22 thousand per year, mostly linked to construction and installation.

### Net labor market balance and policy implications
- Net impact in year T could be around 24 thousand new full-time jobs when accounting for new electricity sector jobs and oil/coal job losses.
- If construction and installation jobs are not considered, the net outcome could be a net loss of 2.5 thousand jobs.
- Results driven by ambitious expansion of solar and wind; without such growth the positive impact of the electricity sector would be lower.
- Policy recommendations implied by staff analysis:
  - Implement targeted reskilling programs for workers from the oil and coal industries and related sectors.
  - Consider unemployment insurance and comprehensive active labor market policies to support transition-affected workers.
  - Complement energy transition with domestic, financial, and export-oriented reforms to foster diversification, productivity gains, and stronger competitiveness.

*Source: IMF staff estimates and analysis as presented in the IMFs Selected Issues paper: “MACRO-FISCAL IMPACTS OF COLOMBIA'S ENERGY TRANSITION PLAN” (content unit: sipea2025145).*

### 18. Regions in Colombia are set to experience heterogenous labor market impacts. The

### sipea2025145 - 18. Regions in Colombia are set to experience heterogenous labor market impacts. The

### Regional labor-market impacts from energy transition
- Coal worker concentration: La Guajira, Cesar, Boyacá, and Cundinamarca.
- Oil worker concentration: Santander, Meta, Casanare, Putumayo, Antioquia, and Bogota.
- Renewable potential:
  - Wind energy potential concentrated in La Guajira (Angel-Sanint et al. (2023)).
  - Solar potential distributed across Santander, Tolima, Atlántico, Magdalena, Cesar, and La Guajira.
- Expected outcomes (subnational analysis, three-year horizon):
  - Job losses in La Guajira and Cesar could be offset by new electricity sector jobs if UPME projects proceed as planned.
  - Antioquia and Tolima likely to benefit from hydroelectric and solar potential.
  - Boyacá, Huila, Norte de Santander, and Bogotá expected to face net job losses without compensation from the electricity sector.
- Data sources: GEIH 2023, DANE’s IO, Ministry of Energy’s Indicative Expansion Plan of Electricity Generation (2023); Angel-Sanint et al. (2023); ERA5 Copernicus dataset; UPME energy atlas.

### Subnational analysis assumptions and limitations
- Analysis relies on national input-output tables and assumptions about electricity generation expansion; subject to uncertainties.
- Renewable potential mapping assumptions:
  - Solar and wind potential evaluated using Angel-Sanint et al. (2023) and ERA5 Copernicus.
  - Biomass, biogas, and hydro resources mapped per UPME energy atlas.
- Key limitation: assumption that renewable projects proceed as planned by UPME despite significant local opposition (e.g., wind energy in La Guajira), which could lead to unbalanced job impacts.
- Time horizon limitation: analysis restricted to three years due to uncertainties in renewable energy development.

### Skills, community support, and social protection (policy recommendations)
- Two key issues to address for positive labor-market impacts:
  - Developing future skills: government must actively cultivate a skilled workforce to meet industry demands; assess skill gaps to ensure workforce can take advantage of opportunities.
  - Securing local community support: indigenous and local community consent for generation plants and transmission lines is crucial; monetary compensation like the 'Electricity Transfer' is insufficient.
- Recommended measures:
  - Targeted skill programs and tailored support addressing community concerns.
  - Effective communication to maximize local benefits.
  - Use social safety nets in the short run to limit impact on vulnerable households.
  - Set up reskilling programs in the medium term, with government support conditional on participation in reskilling programs.
  - In regions facing net losses: focus on diversification, developing new advantages, and strengthening social safety nets for affected households.
- Gender dimension: transition presents a chance to tackle gender inequalities in energy markets.

### Macroeconomic modeling of oil depletion and reform scenarios (GIMF-GVC results)
- Baseline depletion assumption: oil production declines by 95 percent over 30 years; depletion fully anticipated by forward-looking agents.
- Counterfactual setup: impulse responses are deviations from scenario where oil production remains constant at current levels.
- Key macro outcomes without policy reforms:
  - Real GDP: 12 percent lower compared to counterfactual where oil production remains constant.
  - Potential growth: declines by 0.4 percentage point annually over 30 years.
  - GDP component impacts: exports lower GDP by 6 percent; consumption lower GDP by 5 percent; investment lower GDP by 2 percent.
  - Capital decline: capital in oil, coal, and energy sector would decline by 20 percent of GDP.
  - Capital income share: 23 percent (explains around half of long-term GDP losses).
  - Labor impacts: total labor supply reduced by 0.8 percent as workers shift to tradables and nontradables.
  - GDP losses attributable to:
    - Lower labor productivity overall: 9 percent.
    - Labor reallocation away from oil, coal, and energy: 3 percent.
  - Sectoral share: oil, coal, and immediate downstream sectors accounted for 6.3 percent of GDP in 2023 (4 percent for oil and coal and 2.3 percent for downstream sectors).
  - Real exchange rate: would weaken by about 12 percent; including “news” effects of future depletion total depreciation is 21 percent.
  - Government finances: revenue losses of about 3 percent of GDP; government debt broadly stable under the fiscal rule; reduced transfers lower consumption among liquidity-constrained households.

### Policy reform packages and quantitative impacts
- Three reform packages evaluated:
  (i) Domestic reform package (30-year implementation): higher TFP (5 percent), higher labor productivity, lower markups in tradables and non-tradables.
  (ii) Financial reform package (15-year implementation): lowers verification costs and borrower riskiness by 100 bps in tradables and non-tradables.
  (iii) Export reform package (30-year implementation): increases Colombia’s trade weights in partners’ import demand for tradables by 50 percent.
- Outcomes by reform type after 30 years:
  - (i) Domestic reforms:
    - GDP decline reduced from 12 percent to 4 percent (instead of 12 percent losses, GDP would decline by only 4 percent).
    - Government debt declines from around 53 percent of GDP to around 49 percent of GDP.
    - Domestic inflation down; further real exchange rate depreciation supports current account.
  - (ii) Financial reforms:
    - GDP around 10.5 percent below baseline (around 1.5 percent higher than oil depletion with no policy scenario).
    - Relative improvement arises from higher consumption and investment in broadly equal proportion.
    - Muted impact on real exchange rate compared to domestic reforms.
  - (iii) Export reforms:
    - GDP 9.5 percent smaller than baseline after 30 years.
    - Larger contributions from consumption and exports.
    - Exchange rate decline reduced: instead of falling by 12 percent, declines by 4.5 percent after 30 years.
- Combined reforms:
  - When all three packages implemented together, real GDP would be 0.8 percent larger than the baseline (instead of 12 percent losses).
  - About 40 percent of export losses from oil depletion are compensated by higher tradables exports.
  - Peso depreciates by around 13 percent, broadly similar to the depreciation in the no-reform scenario.
  - Strong responses of consumption and investment, both exceeding baseline levels.

### Financing the energy transition and ESG finance findings (Annex I)
- Investment needs:
  - Colombia would need about US$92 billion in additional investment by 2050 to finance the energy transition.
  - This amount represents 1.2 percent of the country’s discounted cumulative GDP over 2030-2050 (World Bank, 2023).
  - Staff estimates that the private sector would need to contribute at least 80 percent of Colombia’s additional investment needs.
- Institutional developments:
  - National Climate Change System coordinates climate finance across levels.
  - Regional Climate Change Nodes link local governments, businesses, and financial institutions.
  - Since 2019, SFC’s biennial ESG and climate risks and opportunity survey assesses financial institutions’ progress; prioritizes tools like the Green Taxonomy.
- Current market metrics (as of 2023 and 2020-2024):
  - Green portfolio accounted for 2.4 percent of total loans as of 2023.
  - Between 2020 and 2024, Colombia issued US$15.3 billion in ESG bonds—nearly 60 percent in social bonds.
  - Around 80 percent of ESG bonds were issued by the government; private sector accounted for 18 percent of total issuances.
  - Colombia’s ESG bonds market accounted for only 6 percent of total ESG issuance in LAC.
- Pricing advantage and empirical results:
  - Dataset: 2105 bonds issued by 17 Latin American countries during 2016-2024 from Refinitiv Eikon.
  - Propensity-score matching and ATT results:
    - Full sample: ESG bond YTM 6.38 versus Non-ESG bond YTM 7.38; ATT = -1.0 (T-Statistics -2.51, P-Value 0.01).
    - Before Covid: ESG 7.9, Non-ESG 7.67; ATT = 0.24 (T-Statistics 0.18, P-Value 0.86).
    - After Covid: ESG 6.05, Non-ESG 7.96; ATT = -1.9 (T-Statistics -3.65, P-Value 0.0).
    - By Issuer (selected): Corporate ESG 6.77, Non-ESG 7.73; ATT = -0.97 (T-Statistics -2.02, P-Value 0.04).
  - Interpretation: ESG bonds have yields to maturity that are, on average, 100 basis points lower than matched non-ESG bonds in full sample; post-COVID the differential widened to 190 basis points less.
- ESG disclosure regulation and spreads:
  - Composite ESG disclosure framework score constructed via Principal Component Analysis across four dimensions: disclosure approach, applicability, assurance requirements, and materiality perspective.
  - Regression results: stronger ESG disclosure frameworks associated with average reduction of 33 basis points in ESG bond spreads (Panel A: Disclosure -0.33***; t-statistic -6.19).
  - Effect stronger post-COVID, and more pronounced for agency issuers, domestic currency bonds, and high-yield instruments (Panel B examples: Domestic Currency Disclosure -0.65***; High Yield Disclosure -0.56***).
- Policy priorities to strengthen ESG market:
  - Ensure macro-financial stability.
  - Improve regulatory framework and standardized reporting; third-party verification to enhance transparency.
  - Expand issuer participation: support municipalities and SMEs via credit enhancement and technical assistance.
  - Foster regional and international cooperation and partnerships with multilateral institutions for technical and financial support.

*Source: IMF staff estimates and analysis as presented in the provided content unit.*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025145.pdf_