GEMMES Colombia: understanding macroeconomic vulnerabilities and opportunities related to low carbon transition

Highly exposed to the effects of climate change and to the degradation of natural resources, Colombia is strengthening its climate policy, considering a green growth strategy, particularly since the 2014-2018 National Development Plan. Nevertheless, the country's dependence on raw material exports and its strong integration into international financial markets generate monetary, financial and commercial vulnerabilities. 

AFD is supporting Colombia in its efforts to tackle climate change through the GEMMES Colombia project, which is part of the third climate policy loan since 2018. The GEMMES programme, by integrating the impact of climate change into its forecasts, is developing a general theoretical model on the one hand, and national models applied to concrete cases and adapted to the characteristics of each country on the other, including the GEMMES Colombia model. 

About GEMMES: AFD and Macroeconomic Modelling Tools for the Ecological Transition

The GEMMES Colombia project, which is fully in line with AFD's commitment to strong sustainability, aims to :

• Highlight potential fragilities in the Colombian economy through a better understanding of the interactions between fiscal, monetary and trade policies and the country's NDC objectives;
• Identify the opportunities generated by the energy transition in Colombia: structural changes and financing methods under the best possible conditions;
• Quantifying the macroeconomic impact of NDC-related investments, particularly in the financial and tax sectors;
• Promoting public policy dialogue on Colombia's energy transition:

- Providing a decision-making tool for decision-makers on climate policies, with a view to limiting the consequences identified without compromising the implementation of Colombia's NDC objectives;

- By promoting the appropriation and sustainability of the GEMMES modelling tool within the partner institutions.

Read also: Diego Guevara: "We cannot develop sustainably if we lack the resources"

In addition to its specific transdisciplinary approach, which makes this project one of the few to integrate the notion of strong sustainability, the originality of GEMMES lies in its consideration of macro-financial imbalances and the impact of the low-carbon transition on all elements of the balance of payments.

Moreover, GEMMES Colombia is part of a partnership initiative that is organised around two phases:

• The first phase is based on the development of the model and the macroeconomic analysis of the Colombian NDC trajectory, in partnership with the National Planning Department (DNP) and the Ministry of Finance (MHCP) supported by AFD's modelling teams.
• The second is intended to ensure the sustainability of the project after the end of the support, with the analysis by the National University of Bogota (UNAL) of the interactions between trade, fiscal and monetary policies and the NDC trajectory, as well as the training of students in sustainable development through the Catedra course as well as in the GEMMES methodological approach.

The first results of the project have been presented at the virtual congress "Conexión DNP: transfiriendo conocimiento para innovar" on 2 and 3 December 2021. The project partners expressed their satisfaction, with the MHCP showing a particular interest in modelling after a year of remote work due to the Covid-19 pandemic.A university course on sustainable development (Catedra), partly based on the results of the GEMMES Colombia project, was launched on 7 March 2022 at UNAL to raise awareness of the issue.

In March 2022, a university course on sustainable development (Catedra), partly based on the results of the GEMMES Colombia project, was launched at UNAL. As a continuation of this initiative, a second course on the modelling of ecological transitions in the Global South was given in 2023.

The GEMMES Colombia model, enriched by academic expertise and integrated into decision-making processes through Colombian ministries, has become a key tool for public policy dialogue. These exchanges continue thanks to the GEMMES Strategic Committee, composed of the Ministry of Finance and Public Credit (MHCP), the National Planning Department (DNP), the Ministry of Mines and Energy (MME) and the Banco de la República.

 

At the request of the Colombian authorities, GEMMES was added to the MHCP macroeconomic models in 2023 and was coupled to the Energyscope energy model, an energy assessment and planning tool. Ownership of the model continued in 2024 with executive training on the use of the model provided to MHCP officials.

The research resulted in a collective book published in June 2024, presenting the scientific findings and policy recommendations from the GEMMES Colombia project: Modelling low-carbon transitions in Colombia: Macrofinancial opportunities and risks project. This work also led to the launch of a new project: the creation of a serious game to support multi-stakeholder dialogue around the NDC in Colombia.

Watch the replay of the GEMMES Colombia book launch (in Spanish)

The GEMMES Colombia model, by developing scenarios on fossil fuel exports and alternative policies for the 2023-2050 period, as well as financing scenarios of the NDC trajectory, contributes to informing decision-makers in their political strategy to fight global warming. The model also allowed the National Planning Department (DNP) to analyze the consequences of economic shocks such as the loss of the country’s investment quality, the reduction of coal exports or the bankruptcy of Evergrande in China.

The conclusion is clear: a diversification of the production structure and a transformation of public finances are essential if Colombia is to meet the challenges of a global low-carbon transition and ensure its own energy transition. The GEMMES model highlights the importance of using a combination of private investment and public green bonds to finance Colombia's climate ambition. 

Download the publications related to GEMMES Colombia: 

• Can Colombia cope with a global low-carbon transition? (June 2023)
• Low-carbon transition and global macroeconomic vulnerabilites: A multidimensional approach in tracing vulnerabilities and its application in the case of Colombia (July 2023)
• Modelling low-carbon transitions in Colombia: Macrofinancial opportunities and risks (July 2024) 

Contact:  

• Antoine Godin, economist at AFD, head of the Macroeconomic Modelling Unit

Contacto:  

• Antoine Godin, economista, responsable de la célula de modelización macroeconómica GEMMES, AFD