Economic Growth and Environmental Sustainability: The Colombian Case

Colombia is one of the richest countries in the world in terms of biodiversity, and it is generously endowed with forests, water, and mineral resources. It is considered one of the world’s mega-diverse countries and has abundant renewable and non-renewable resources. However, this natural wealth is increasingly under threat from extractive industries, livestock grazing, urbanization, and motorization. Internal armed conflict has undermined the rule of law, exacerbated environmental pressures, and restricted access to protected areas and the management of natural resources found in these regions. Environmental policies and institutions have been rather weak and, until recently, have failed to properly address the main concerns that jeopardize the environmental sustainability of the country.

In the last decade, two significant climate phenomena have prompted a strengthening of environmental governance. The first, La Niña, in 2010-2011 caused serious economic and social damage (OECD, 2014). The second, El Niño, beginning in in 2015 and extending well into 2016, was one of the worst climatic events in the last fifty years. The effects of this phenomenon were mainly on the supply of agricultural products and food prices, where the annual variation in food prices went from 4.7% in 2014 to 10.9% in 2015, peaking at 15.7% in 2016 (Central Bank of Colombia, 2017:6). These two events have demonstrated that environmental awareness is needed and that adequate measures must be taken. Most importantly, a series of reforms are needed to strengthen environmental governance, phase out environmentally harmful subsidies, and limit the environmental damage caused by the mining industry.

The main question being asked here is whether economic growth in Colombia is environmentally sustainable. The short answer is no. According to research on wealth accounting and social welfare, the adjusted net saving indicator is a proxy for sustainability, and shows the true rate of savings in an economy after accounting for natural resource depletion and pollution damages (Hamilton, 2000). Negative adjusted net savings for several years in a row suggests that economic growth is unstainable from an environmental perspective because a nation ́s total wealth is in fact being depleted (Hamilton and Ruta, 2009). Intuitively, these savings tend to be lower in resource-rich economies, and in the case of Colombia, these have fluctuated around zero in the past few years as energy production has increased (World Bank, 2014: 125).

The 2014 OECD Environmental Performance Review on Colombia highlights a series of policy frameworks that are not providing the necessary tools to deal with the environmental challenges. The most significant of these are green tax reforms, subsidy reforms, and environmental enforcement towards mining practices. Regarding green tax reforms, revenue from environmentally-related taxes is low, contributing 0.7% of GDP and 3.7% of total tax revenue in 2011. The low revenue tax base is mainly due to various tax exemptions and preferential tax treatments. Transport fuel prices and taxes also fail to take into account the environmental impact of fuel use (OECD, 2014: 6).5 In order to provide a comprehensive environmental tax base, a fiscal reform to strengthen green taxes is much needed.

There continues to be poor co-ordination between economic sectorial plans and environmental goals, and economic sectors are not accountable for their environmental performance. A contributor to this problem is the current subsidy framework. Most of Colombia’s fuel subsidies were environmentally damaging and deterred consumers from using resources efficiently. Subsidies for electricity and gas, water and waste aimed to benefit the poor, yet only a small share of subsidies reached the poor and the majority of them were used by the major consumers. Furthermore, the adverse environmental impacts of cattle ranching are reinforced by agricultural subsidies. As noted by the OECD (2014:7) the exemption of agrochemicals from VAT generates both fiscal and environmental costs: Lower taxes on diesel than petrol have seen demand for the more environmentally damaging diesel more than double over the past decade. “Colombia has one of the highest rates of fertilizer use in Latin America, with 70% of the nitrogen applied wasted. Low irrigation charges give farmers virtually no incentive to use water efficiently ̈. The removal of these environmentally damaging subsidies would save money, produce resources for investment, and incentivize the efficient use of resources.

Finally, in order to promote socially inclusive and environmentally sustainable growth, Colombia must strengthen is environmental governance to enforce environmental practice, mainly in regarding the mining sector. Over the first decade of the millennium, the area covered by mining titles rose from 1 million ha to 8.5 million ha (about 8% of the land area) (OECD, 2015). However, the majority of these mining titles were not subject to environmental authorization.6 Environmental impacts of mining are not sufficiently monitored, which makes it difficult to assess the related costs. Mining is responsible for large releases of hazardous chemicals to the environment; as much as 150 tonnes of mercury a year in artisanal and small-scale gold mining alone, according to UNIDO estimates (OECD, 2014: 14).