Modelling low-carbon transitions in Colombia: macrofinancial opportunities and risks

With over fifty percent of its total exports consisting of petroleum and coal, Colombia remains highly vulnerable to both global and domestic energy transitions. With the aim of fostering policy dialogue, this book assesses these long-term macro-financial risks, opportunities and vulnerabilities as it contends with the global shift towards a low-carbon economy and the domestic emission reduction initiatives outlined in the latest Nationally Determined Contribution (NDC). To this end, the authors develop an empirical macroeconomic Stock-Flow model of Colombia (GEMMES - General Monetary and Multisectoral Macrodynamics for the Ecological Shift) to analyze the implications of various global and domestic transition scenarios. The model distinguishes itself from existing literature by its strong focus on the financial system and the explicit feedback loops between the real and financial sectors of the economy. The authors present a comprehensive macroeconomic analysis of the complex interplay between the transformation of the real economy and the dynamics of the financial sector and public balances. The effective development and implementation of the GEMMES model for Colombia have been achieved through a strong collaboration between key domestic institutions, such as the National Department of Planning (Departamento Nacional de Planeación), the Ministry of Finance (Ministerio de Hacienda y Crédito Público), the National University of Colombia (Universidad Nacional de Colombia), and the GEMMES modelling team at the French Development Agency (Agence Française de Développement). The findings from this collaborative effort highlight the importance of coherent industrial, monetary, and fiscal policies in managing the transition effectively in Colombia. Both to mitigate adverse effects and to accelerate the country's socioeconomic development path, the transition represents an opportunity to diversify the productive structure, integrate into the value chains of new green industries, strengthen public infrastructure, generate quality jobs and reduce dependence on natural resource-based industries.