Equitable and Green Path Development Policy Financing II

The Equitable and Green Path Development Policy Financing II (DPF 2) loan for Colombia was adopted to (i) promote more equitable and green fiscal policies, (ii) establish the institutional framework to increase access to productive assets for vulnerable groups, and (iii) establish non-price incentives to promote climate action. Approved by the World Bank Board in February 2025 and closed in April 2026, it was the second in a two-part program series which followed the Equitable and Green Path Development Policy Financing (DPF 1).

This DPF operation contains positive and much needed reforms for Colombia, including: reductions in fossil fuel subsidies (transport is the largest emitter of greenhouse gases in Colombia); measures to address the regressive tax system; support for Colombia’s environmental-service payment system, which gives money or goods to farmers and landowners who protect and restore natural areas; and, legalizing the status of irregular migrants. 

However, research conducted by BIC’s partner, Asociacion Ambiente y Sociedad, found that the DPF loan did not meaningfully change or influence policy outcomes in Colombia. Policy improvements were often independent of the World Bank’s intervention and were already in advanced stages of implementation when the loan was approved. Consequently, the World Bank devoted significant time and resources to supporting actions Colombia was already undertaking, rather than using the DPF to build on those efforts and drive more ambitious progress toward the country’s development and climate goals.

BIC’s monitoring has identified the following concerns:

1. Unverified climate co-benefits in Colombia’s DPF: Both DPFs in Colombia included the reductions of fuel subsidies as Prior Actions. However, these measures were already underway, and included within Colombia’s 2020 National Determined Contributions (NDC) and its 2022-2026 National Development Plan. The World Bank has provided no evidence linking its DPFs in Colombia to policy implementation around fuel subsidy removal or enhanced climate outcomes resulting from higher fuel prices.  The Bank counts the climate benefits associated with the fuel subsidy reform toward the operation’s climate results, but it is unclear how much, if at all, the DPF contributed to those outcomes. This makes it difficult to distinguish between climate progress that Colombia would have made anyway and additional progress resulting from the Bank’s support. The same issue arises across four of the operation’s Prior Actions, leaving the Bank’s actual contribution to the reported climate benefits difficult to assess.

2. Replacing a substantive reform with an action already underway: According to project documents, DPF 1 initially included  the enactment of a “Decree regulating the Emissions Trading System (Programa Nacional de Cupos Transables de Emisiones)” as a Prior Action, which the Bank later removed due to “technical complexities.” In DPF 2, the Bank substituted this Prior Action with a measure to support Payments for Environmental Services for the protection of valuable landscapes. In replacing this Prior Action, the Bank shifted from supporting industrial and energy-sector decarbonization to an existing initiative focused on land-based ecosystem conservation. Although we acknowledge the importance of conservation as a part of climate finance, this adjustment replaced a more ambitious reform with support for a program that was already underway and expanding. Implementation of the Payments for Environmental Services program began in Colombia in November 2023, fifteen months before the World Bank approved the DPF 2 loan.

3. Fuel subsidy reform disconnected from a broader climate strategy: The case study shows that gasoline subsidy cuts improved fiscal stability, but failed to reduce fuel consumption if isolated from broader climate reforms. Project design aimed to lower fuel consumption and reduce greenhouse gas emissions; however, because these policy changes were not coupled with measures to promote a switch to lower carbon transportation, fuel consumption levels remained stable, with little shift toward low-carbon alternatives. BIC’s review confirms that holistic transport decarbonization requires blending price instruments with technological incentives, market-preference measures, and infrastructure investments for public and active transit.

4. Underestimated political and social risks:  The DPF also did not adequately account for the social and political risks associated with higher fuel prices, as gasoline price increases were expected in the project documents to have a “negligible effect” on inflation. The Bank rated stakeholder risk as low and political risk as moderate, yet in September 2024, nationwide cargo union strikes protesting the price increases paralyzed key transport corridors and threatened major cities with food and fuel shortages. The Petro administration subsequently modified fuel subsidies. According to Asociación Ambiente y Sociedad, higher fuel costs drove inflation, disproportionately impacting low-income consumers and small transport businesses. These events show the importance of addressing the political and social implications around fuel subsidy reforms alongside climate objectives.

5. Lack of meaningful stakeholder engagement around key reforms: The project team confirmed that no consultations with civil society or marginalized groups occurred before or during this operation. While legal reforms were made available for public comment period, these steps do not replace active institutional dialogue. Consultations could have helped the government, in collaboration with communities, identify viable alternatives to reduce greenhouse emissions beyond price incentives. Particular measures could include support for low-carbon transport adoption, electrification of existing public transportation, zero-emission zones for private vehicles, and charging stations, among others. Without public participation, the Bank and the Colombian Government missed crucial data which may have improved the design and the implementation of this DPF.

6. Lack of progress beyond formal policy adoption: Project documents tied Prior Actions—including methane-flaring reduction and an open finance platform—to the adoption of government resolutions. However, the subsequent Implementation and Status Report found limited progress on some of these measures following DPF approval, highlighting a gap between policy adoption and implementation on the ground.

BIC’s recommendations are as follows:

• Open structured consultation before any new DPFs in Colombia: During project preparation of any new DPFs, the World Bank should consult affected stakeholders, inviting all communities and other organizations potentially affected, to improve the design and implementation of the project.
  
• Strengthen contextual risk assessments: The Bank should require deeper analysis of the broader environmental and social factors that intersect with a DPF’s proposed Prior Actions. This analysis should be publicly disclosed and much more robust than the brief descriptions currently found in most DPF operation documents.
  
• Increase ambition in future operations: The Bank should use Prior Actions to support more ambitious transport decarbonization in Colombia by identifying locally appropriate measures that incentivize or remove barriers to low carbon mobility. These measures should complement fuel subsidy reform and could include incentives for zero emissions vehicles, battery charging infrastructure, public transit electrification, and urban zero-emission zones.
  
• Track behavior in results indicators: DPF progress indicators should measure whether reforms are changing practices and producing results on the ground, rather than simply tracking the adoption of regulations or other government measures.