A Strategic Phase-out of Colombia’s Diesel Subsidy to Support the Energy Transition

The document examines the fiscal burden of Colombia's Fuel Price Stabilisation Fund (FEPC), which saw a deficit of 2.5% of GDP in 2022. It highlights the tension between the government's goal to align fuel prices with global markets and the transport sector's skepticism regarding the feasibility of energy transition alternatives. The brief identifies structural issues in the freight sector, such as a high rate of self-employment (63%) and an aging vehicle fleet (average age of 26 years), as barriers to reform. It recommends resuming stakeholder dialogue, implementing social mitigation programs via Sisbén, and restructuring the transport sector through cooperatives to facilitate the transition to electric and hydrogen-powered vehicles.

• The Fuel Price Stabilisation Fund (FEPC) has created a severe fiscal burden for Colombia, with a total accumulated deficit of COP 100.3 trillion (approximately USD 26.2 billion), 73% of which occurred in the last three years. In 2022, these subsidies represented 2.5% of the national GDP.
• The Colombian transport sector is highly dependent on diesel, with diesel-powered vehicles moving 96% of the country's goods. This dependency gives the sector significant bargaining power, and previous protests in 2016 demonstrated the potential for national strikes to cause food shortages.
• The freight transport sub-sector faces deep structural inefficiencies, characterized by a high proportion of self-employed truckers (63%) and a significant investment gap that has left the average truck age at 26 years.
• Transport sector representatives are skeptical of the government's energy transition plans, viewing proposed incentives for electric and hydrogen vehicles as inadequate and unfeasible due to the high cost and limited availability of the technology in Colombian markets.
• State-owned enterprise Ecopetrol is critically linked to the subsidy process, as it has temporarily covered the costs of deflated fuel prices. If the government adopts a pricing formula based only on production costs as suggested by the UNIDOS association, Ecopetrol would be forced to assume substantial losses.
• To successfully phase out subsidies, the government is advised to implement short-term social mitigation measures, such as using the General Participation System (SGP) and the Sisbén database for cash transfers to vulnerable households.
• Medium-term recommendations include restructuring the freight sector using a cooperative model—similar to successful experiences in the passenger transport sector—to reduce investment risks and encourage the adoption of a cleaner fleet.

APA

Gutierrez, M. B., Araújo, J. V., & Arond, E. (2024). A Strategic Phase-out of Colombia’s Diesel Subsidy to Support the Energy Transition. Stockholm Environment Institute. https://www.sei.org/wp-content/uploads/2024/07/colombia-diesel-subsidy-transition.pdf

Chicago

Gutierrez, Mauricio Böhl, José Vega Araújo, and Elisa Arond. A Strategic Phase-out of Colombia’s Diesel Subsidy to Support the Energy Transition. Stockholm Environment Institute, 2024. https://www.sei.org/wp-content/uploads/2024/07/colombia-diesel-subsidy-transition.pdf.

Wikipedia

{{cite report |last1=Gutierrez |first1=Mauricio Böhl |last2=Araújo |first2=José Vega |last3=Arond |first3=Elisa |title=A Strategic Phase-out of Colombia’s Diesel Subsidy to Support the Energy Transition |publisher=Stockholm Environment Institute |date=2024 |url=https://www.sei.org/wp-content/uploads/2024/07/colombia-diesel-subsidy-transition.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{gutierrez2024strategic, author = {Gutierrez, Mauricio Böhl and Araújo, José Vega and Arond, Elisa}, title = {{A Strategic Phase-out of Colombia’s Diesel Subsidy to Support the Energy Transition}}, institution = {Stockholm Environment Institute}, year = {2024}, url = {https://www.sei.org/wp-content/uploads/2024/07/colombia-diesel-subsidy-transition.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }