Economic, energy and social impacts of a carbon tax in Colombia: Analysis of rates, applications and redistribution mechanisms

Details

Supervisors

Contino, Francesco

Faculty

Ecole polytechnique de Louvain

Degree label

Master [120] : ingénieur civil mécanicien, à finalité spécialisée

Abstract

enIn the face of climate urgency, carbon pricing policies have emerged as a key instrument to support energy transitions. This master thesis analyzes the energy, economic and social impacts of a carbon tax in Colombia using a novel coupling between two models: EnergyScope Pathway, a cost-optimization energy planning tool, and GEMMES, a stock flow consistent macroeconomic model. Colombia presents a particularly complex case study due to its dual role as both a fossil fuel exporter and a nation committed to achieving carbon neutrality by 2050. Although a carbon tax was introduced in 2016, it remains narrow in scope and relatively low in rate, covering only a fraction of emissions and generating limited revenues. This study therefore explores several potential reform scenarios. Three main categories of scenarios are analyzed. The first explores various carbon tax rate trajectories, linear and sigmoid profiles with both early and delayed implementations to assess how different timing and intensities affect emissions, costs, energy mix and macroeconomic indicators. The second scenario group evaluates government strategies to reinvest tax revenues into renewable energy, either through fixed subsidies or subsidies proportional to carbon tax revenues. The third focuses on redistributive mechanisms, simulating income based transfers to households by disaggregating them into income quantiles, allowing for an equity focused assessment of tax burdens and welfare effects. Results demonstrate that higher carbon taxes accelerate emissions reductions but increase total transition costs and economic impacts. An early increase in the carbon tax rate yields the best climate outcomes but causes economic shocks, while delayed action preserves stability at the cost of higher cumulative emissions. Subsidies to renewables have limited energy impact but moderately stimulate investment and raise public debt. Socially, targeted redistribution to low-income households reduces inequality most effectively, while regressive schemes worsen it. Although all scenarios indicate a growing trend in inequality over time.