This chapter examines the potential of local environmental taxes to support Bogotá’s green transition while generating fiscal revenue. It focuses on transport and public lighting taxes, highlighting opportunities to reduce greenhouse gas emissions and air pollution. Key measures include introducing a CO₂-based surcharge on the motor vehicle tax and reforming the Pico y Placa Solidario system, while addressing potential social impacts. The chapter also examines how implementing a public lighting tax in Bogotá could support the financing of energy-efficient LED and smart lighting systems. In addition, it explores other tax and financing options to foster the green transition in Bogotá. Drawing on international and regional experiences, it offers policy recommendations to align revenue generation with environmental and social goals, promoting sustainable urban development in Bogotá.
Reconnecting Bogotá
Abstract
Environmental taxes primary aim is to change behaviour rather than maximise revenue. In the short to medium term, however, environmentally related tax revenues (ERTR) can strengthen public finances while advancing environmental and social goals (OECD et al., 2024[1]). In cities such as Bogotá, these taxes can help address air pollution, traffic congestion, and greenhouse gas emissions while also generating additional revenues that can be channelled towards sustainable transport, energy efficiency, and other green initiatives. However, as green taxes successfully change behaviour and reduce emissions, the resulting decline in fiscal revenues underscores the need for adaptive strategies to ensure financial sustainability over time.
Bogotá’s environmental taxes have been implemented to reduce traffic congestion, GHG emissions, and water pollution. The local government manages transport taxes, such as the motor vehicle tax, with rates ranging from 1.7% to 3.7% of the vehicle’s commercial value for private cars, 1.7% for motorcycles over 125 cm³, and 0.7% for public service vehicles. New vehicles are taxed based on their purchase or import value, applied proportionally to the remaining fiscal year. Electric vehicles benefit from capped rates of up to 1.2% and tax incentives, including a 60% discount for electric vehicles and a 40% discount for hybrid vehicles, available until 2030. A fee-based permit system called Pico y Placa Solidario is also available for vehicle owners to drive during peak hours despite the city’s Pico y Placa restrictions. The cost of the permit varies depending on factors such as the vehicle's environmental impact, market value, and registration location. Revenue from the programme is reinvested into public transportation and sustainable mobility projects. Other local environmental taxes managed by Bogotá include a gasoline surcharge and a tax on water discharges, managed by the District and the Autonomous Regional Corporation of Cundinamarca, based on the type and volume of pollutants.
This chapter will first focus on assessing environmental transport taxes, such as the motor vehicle tax, through an analysis of Bogotá’s vehicle fleet. It will then provide recommendations for the potential implementation of a CO2-based tax and suggest possible improvements to the fee-based permit Pico y Placa Solidario. Finally, it will assess the public lighting tax and its importance for financing the city's green transition through a new, more sustainable, and more efficient lighting system.
Environmental transport taxes can play a crucial role in reducing greenhouse gas (GHG) emissions and traffic congestion by shaping consumer behaviour. Transportation-related pollution in Bogotá remains high as 40% of greenhouse gas emissions are due to the transport sector (Secretaría de Movilidad, 2024[2]). 65% of trips are still made using motorised transport modes that rely on fuels such as gasoline, diesel, and compressed natural gas. These vehicles are responsible for emitting local pollutants, such as particulate matter, which contribute to air pollution, as well as greenhouse gases that accelerate climate change (Secretaría de Movilidad, 2024[2]).
Bogotá's vehicle fleet is largely composed of older vehicles that primarily run on fossil fuels (Figure 6.1). Electric and hybrid vehicles make up only 5% of the total fleet, while 93% run on gasoline and 2% use other fuels such as diesel, natural gas, hydrogen, or ethanol. Many of these vehicles date back to the 2000s or earlier. SUVs and trucks constitute a significant portion of the fleet, with sport utility vehicles (SUVs) making up 77% of gasoline-powered vehicles and only 0.3% being electric. Trucks are mostly powered by gasoline or diesel, with a mere 0.03% being electric. Motorcycles are predominantly gasoline-powered, with medium and high engine displacement models being the most common. Specifically, motorcycles in the 501‑1 000 cubic centimetres (cc) range account for approximately 63%, while those with high displacement (1 001‑1 500 cc) represent around 23%. Motorcycles with the lowest displacement (0‑500 cc) make up about 18%, whereas those with very high displacement (1 501‑2 000 cc) constitute roughly 7%. Finally, motorcycles with extremely high displacement (more than 2 001 cc) represent less than 1% of the total.
Note: For the “others” category in automobiles, this includes hydrogen and ethanol. In SUVs, the “others” category includes hydrogen and Liquefied Petroleum Gas (LPG). SUVs include off-road vehicles.
Source: Authors’ own elaboration based on (Secretaría de Hacienda de Bogotá, 2024[3]).
Green transport taxes and fees have been implemented in Bogotá, but more can be done to account for CO₂ emissions
The motor vehicle tax
In Bogotá the motor vehicle revenues have been growing steadily. Motor vehicle tax revenues accounted for a notable 9.8% of the city's total tax revenues in 2024 (Figure 6.2). In comparison, in 2018, they represented 8.7% of the city’s total tax revenues. They accounted for a significant 0.34% of Bogotá’s GDP in 2024 – up slightly from 0.31% in 2018. Motor vehicle tax revenues in Bogotá represented 0.08% of Colombia’s GDP and 0.36% of total national tax revenues in 2023.
Note: GDP and tax revenues data for Bogotá and Colombia are in current prices. Data on tax revenues and GDP for Colombia come from OECD Revenue Statistics and are only available up to 2023.
Source: Own calculations based on (Secretaría de Hacienda de Bogotá, 2024[4]; DANE, 2025[5]; OECD et al., 2025[6]).
Bogotá’s current annual motor vehicle tax is solely based on vehicle ownership, primarily determined by the vehicle’s value. The amount of the tax varies based on the vehicle's value, type, and model year. The taxable base for new vehicles is determined by their purchase value (excluding VAT) or import declaration value, and the tax is applied proportionally to the remaining months of the fiscal year. Vehicles are categorised by fuel type, with private cars taxed between 1.7% and 3.7% of their commercial value, motorcycles over 125 cm³ taxed at 1.7%, and public vehicles at 0.7%. At the national level, there is a vehicle registration tax, which is calculated based on the type of vehicle. This is a one-time payment made when the vehicle is purchased and entered into the RUNT (National Vehicle Registry). After registration, owners pay the annual motor vehicle tax, which is a separate obligation.
Many European countries and cities link their vehicle registration and annual circulation taxes to CO₂ emissions. Vehicle registration taxes apply at the time of purchase, whereas annual circulation taxes are paid regularly and aim to influence long-term driving behaviour. In Bogotá, the annual motor vehicle tax functions primarily as an ownership tax, while in many European contexts, the annual vehicle tax, known as the circulation tax, is determined by factors such as vehicle weight, length, CO₂ emissions, and other considerations. European countries and cities also frequently link registration taxes to CO₂ emissions. 21 out of the 27 EU member states apply CO2-based taxation to passenger cars, with some applying varying rates depending on the city or region (ACEA, 2022[7]). A study of nine European Mediterranean countries shows that eight have implemented CO₂-based taxation for registration taxes (Croatia, Cyprus, France, Greece, Italy, Malta, Portugal, and Slovenia), seven apply it to annual circulation taxes (Croatia, Cyprus, France, Greece, Malta, Portugal, and Slovenia) and four to both (France, Greece, Malta and Portugal) (Table 6.1). France and Portugal stand out as examples of best practices due to their comprehensive and structured approaches. France employs a well-designed bonus-malus system for registration taxes, offering incentives of up to EUR 6 000 for low-emission vehicles while imposing penalties of up to EUR 20 000 for high-emission vehicles. For annual circulation taxes, a malus applies to vehicles emitting over 190 g CO₂/km. Portugal adopts a similarly robust framework by directly linking both registration and circulation taxes to CO₂ emissions and fuel type, with tiered rates that significantly increase for higher-emission vehicles (Meireles, Robaina and Magueta, 2021[8]).
Annual circulation vehicle taxes that account for CO₂ emissions tend to be more effective than registration taxes in reducing emissions and curbing the demand for new fossil fuel-based cars (Meireles, Robaina and Magueta, 2021[8]; Gass, Schmidt and Schmid, 2014[9]). Annual circulation taxes and registration tax instruments differ in their effects on emissions and fiscal revenues over the short and long term. Registration taxes influence the initial purchase decision, often encouraging the adoption of electric or hybrid vehicles through lower rates. In contrast, circulation taxes impose ongoing costs based on emissions, promoting sustained behavioural change. By targeting the operational costs of vehicles, circulation taxes directly influence decisions such as how much to drive and what type of car to own, providing a continuous incentive to choose cleaner, more efficient vehicles and reduce driving over time.
Calculation methods for CO₂-based taxation under the annual vehicle circulation tax vary widely across European cities. Paris, France applies fixed rates for vehicles exceeding CO₂ thresholds under the EU’s Worldwide Harmonised Light Vehicle Test Procedure (WLTP) standards (Table 6.2). Flanders, Belgium, adjusts rates based on CO₂ emissions, fuel type, and EU standards, increasing or decreasing by 0.30% per g/km above or below 122g CO₂/km. In the Netherlands, the rate varies according to vehicle weight, fuel type, and region (province). Fixed rates offer simplicity and predictability but often lack flexibility and fairness, whereas variable rates provide stronger incentives for lower emissions but are more complex and costly to administer. The choice depends on a country’s or city’s climate policies, administrative capacity, public acceptance, and the economic impact on vehicle sales.
For Bogotá to introduce a CO₂-based surcharge on the motor vehicle tax, several key factors would need to be considered
1. A mechanism to account for vehicle CO₂ emissions in the city
Colombia has yet to implement a CO₂ emissions testing framework like the EU's WLTP; therefore, alternative parameters, such as weight and mass, could be used to account for high-emission vehicles. Applying a CO₂-based surcharge to the existing vehicle ownership tax in Bogotá would require mandating CO₂ emissions certification for new cars, which is a national affair more than a municipal one. At the national level, importers are not currently required to declare certified emissions data, nor does the government enforce emissions testing during registration. In this context, weight is a key factor, especially given the rise of SUVs, which now make up nearly half of global car sales (IEA, 2024[12]). Heavier vehicles emit around 20% more CO₂ than medium-sized cars due to higher fuel consumption and resource-intensive manufacturing. SUVs alone accounted for over 20% of global CO₂ emissions growth in 2023, offsetting gains from improved fuel efficiency and EV adoption. Considering vehicle weight in a potential CO₂ surcharge to the motor vehicle tax would ensure that heavier vehicles, which contribute disproportionately to emissions, bear a greater share of the tax burden. This, in turn, would incentivise the adoption of lighter, more efficient vehicles, helping to reduce overall emissions from the transportation sector (IEA, 2024[12]).
Reducing vehicle mass can also help lower emissions from road transport (International Transport Forum, 2021[13]). A study for the European Union shows that returning vehicle mass to levels observed in the mid-1970s could significantly reduce emissions and support EU targets, such as a 60% reduction in transport-related CO₂ emissions by 2050 (International Transport Forum, 2021[13]). In January 2025, France introduced a mass-based tax on passenger vehicles exceeding a certain weight threshold to encourage the use of lighter, more fuel-efficient cars. The specific weight threshold and tax rates are yet to be defined (Direction de l'information légale et administrative, 2025[14]).
Harmonising emissions-based taxes within Colombia and across LAC could enhance cost-effectiveness by providing manufacturers with stronger incentives to reduce emissions. A study on France, Germany, and Sweden found that while CO₂-based purchase and circulation taxes were implemented, they did not significantly impact manufacturers' decisions to produce low-emission vehicles in the long run, likely due to the high fixed costs of redesigning vehicles (Klier and Linn, 2012[15]). However, the study suggests that harmonising emissions-based taxes across countries could improve their effectiveness by creating a larger market incentive. If multiple countries in the region adopted similar CO₂-based tax policies, manufacturers could distribute redesign costs across a broader customer base, making it more profitable to develop lower-emission models rather than merely adjusting prices.
2. Define the scope of the surcharge based on specific criteria
Defining the scope of the CO₂ surcharge based on specific criteria may help clarify its application and support its intended objectives. This includes determining whether it will apply only to new vehicles or if special rates will be introduced for company cars or heavy SUVs. International examples provide useful insights: in Chile, the surcharge applies exclusively to new vehicles, while in the Netherlands and Norway, employees who use a zero-emission company car, such as an electric vehicle, benefit from lower income taxes. These approaches highlight different strategies for structuring vehicle-related surcharges to promote lower emissions (Meireles, Robaina and Magueta, 2021[8]).
3. Consider addressing the potential regressivity of a CO₂-based surcharge
A CO₂-based vehicle surcharge could disproportionately impact lower-income consumers. However, if well-designed with criteria accounting for regressivity, it can be structured to primarily target higher-value vehicles. For instance, these criteria could focus on heavier, more expensive vehicles like SUVs or new vehicles with large mass. Nevertheless, any environmental taxation measure should be complemented by measures to mitigate unintended financial burdens. Targeted subsidies or financial support should be implemented to protect vulnerable populations. Strengthening compensation and mitigation measures, such as cash transfers, in-kind support, active labour market policies, and entrepreneurship programmes, is crucial to cushioning social costs and reinforcing social protection systems (OECD et al., 2024[1]).
4. Consider reassessing tax incentives for hybrid vehicles
Tax incentives for hybrid vehicles could take into account their actual environmental performance and adoption patterns among citizens. Bogotá’s motor vehicle tax provides incentives for electric and hybrid vehicles from 2021 to 2030, including a 40% tax discount for five years on new hybrid electric vehicles (excluding gas hybrids). However, these incentives could be reassessed based on CO₂ emissions, weight, and whether vehicles are plug-in (heavier) or non-plug-in (more reliant on combustion engines). Studies show that plug-in hybrid vehicles (PHEVs), if not regularly recharged, can have higher fuel consumption and emissions than fully electric vehicles and even some non-rechargeable hybrids (Degeilh and Prevost, 2022[16]; Dornoff, 2021[17]). For instance, the Netherlands reduced tax subsidies for PHEVs after improved CO₂ measurement methods revealed that these vehicles often fail to achieve the expected emissions reductions under real-world driving conditions (International Council on Clean Transportation, 2018[18]). Additionally, research in the United States (US) indicates that the CO₂ reduction potential of electric and hybrid vehicles is influenced by usage patterns, as these vehicles are often adopted as supplementary rather than primary cars in multi-vehicle households (Squalli, 2024[19]). This highlights the need for targeted policies that encourage the optimal use of hybrid and electric vehicles to maximise their environmental benefits (Squalli, 2024[19]).
5. Strengthen co-ordination with national taxes and policies, considering the existing taxes, fees, and policies already in place to reduce CO₂ emissions
Aligning vehicle taxation with national urban planning, energy and sustainable development policies could support a more coherent and sustainable policy framework. Taxation represents only one element of the broader climate policy toolkit, and achieving effective outcomes will require strong synergies and co-ordination with complementary policy instruments (OECD, 2023[20]). Integrating subnational vehicle taxation policies and annual incentives with national vehicle registration tax strategies will help maintain consistency and efficiency in the tax system. For example, taxes on ownership and fuel consumption at the national level, coupled with incentives for electric vehicle adoption at the local level, can lead to significant environmental benefits (Barros et al., 2021[21]).
Co-ordinating national and subnational policies that take green infrastructure into account may help support the shift towards cleaner transport mechanisms. As demand for low-emission vehicles, such as electric cars, increases, it is crucial to invest in the necessary infrastructure, such as expanded EV charging networks, to accommodate this change. By enhancing green infrastructure, cities can ensure that the transition to cleaner transportation is both practical and efficient, making sustainable mobility options more accessible while helping to reduce overall carbon emissions. This investment not only supports environmental goals but also fosters long-term sustainability in urban transport systems.
There are other taxes, fees, and policies in Bogotá that indirectly address the cost of pollution from vehicles at both the national and local levels. Any proposed CO₂-based surcharge on the motor vehicle tax should consider the existing tax burden on vehicles related to pollution. These include the Traffic Signal Fee (Derecho de Semaforización), SOAT (mandatory vehicle insurance), VAT, technical inspection fee, vehicle registration tax, and a 25% gasoline surcharge. Additionally, there are tariffs on gasoline vehicles, parking fees, tolls, VAT on private insurance, and the fee-based permit system, Pico y Placa Solidario (see next section on fee-based permit Pico y Placa Solidario).
6. Ensure a sustainable and adaptive tax system
A vehicle tax system that includes all vehicle types may help ensure that high-emission vehicles contribute proportionately more, potentially allowing for reduced rates on lower-emission alternatives. Regular adjustments, whether annually or biennially, will help the system remain effective by reflecting changes in market structure and vehicle technology (International Council on Clean Transportation, 2018[18]).
Impact on overall CO₂ emission reductions from a CO₂-based vehicle circulation tax may take years, as older cars are gradually replaced by newer, lower-emission vehicles. A CO₂-based vehicle circulation tax can drive behavioural change with long-term impacts but may have a limited effect on reducing CO₂ emissions in the short term. A study on Germany’s tax system found that while higher taxes on high-emission vehicles slightly reduced new car registrations – by an estimated 9 500 vehicles under the most stringent 2014 tax formula – the overall reduction in CO₂ emissions was minimal, at just 35 000 tonnes. This accounts for only 0.4% of the climate costs from newly registered cars and an even smaller 0.02% reduction in total climate costs from the country’s entire vehicle fleet. Since the tax only affects new purchases, the full impact on emissions will take years to materialise as older cars are gradually phased out (Malina, 2016[22]).
Leveraging and improving an existing CO₂-based contribution structure in the city, such as the fee-based “Pico y Placa Solidario” scheme, could serve as a transitional measure to reduce CO₂ emissions
Pico y Placa Solidario offers a tiered fee system that accounts for the environmental impact of cars in Bogotá. Pico y Placa Solidario is a voluntary congestion fee that complements the odd-even driving restriction known as the Pico y Placa, introduced in 1998 in Bogotá. Over the years, Pico y Placa has undergone several modifications aimed at expanding its scope, particularly in terms of the number of vehicles restricted per day. In 2020, a key change was introduced: the option to pay a congestion fee to be exempted from the restriction, a scheme known as Pico y Placa Solidario (Montero, Sepúlveda and Basso, 2023[23]). This policy is based on two main vehicle criteria: pollution rate and commercial value. The exemption fee for a given vehicle is calculated by multiplying a base rate, approximately USD 8 per day, by a coefficient that rises according to the vehicle's market value and its emissions, considering both local and global pollutants (Montero, Sepúlveda and Basso, 2023[23]). The pollutants assessed include nitrogen oxides, carbon monoxide, unburned hydrocarbons, carbon dioxide, and fine particulate matter (PM2.5), all of which affect public health (Secretaría de Ambiente, 2021[24]).
Unlike a CO₂-based motor vehicle tax, which would be mandatory and annual, this system operates on a voluntary basis, with higher fees for more polluting vehicles. Funds raised from the policy are allocated to the city's public transportation system. In addition to the Pico y Placa Solidario, individuals who wish to use their vehicle can benefit from the Shared Vehicle (Carro Compartido) exception, which exempts vehicles with three or more occupants, including the driver, from the Pico y Placa traffic restriction (Alcaldía de Bogotá, 2022[25]).
International experiences suggest that congestion charges, such as Bogotá's Pico y Placa Solidario can contribute to reducing CO₂ emissions in cities. In Stockholm, the congestion charge led to a 10-15% decrease in traffic-related emissions, including nitrogen oxides, carbon monoxide, unburned hydrocarbons, carbon dioxide, and fine particulate matter (PM2.5), thereby improving public health. Similarly, Milan’s “Area C” congestion charge resulted in a 30% reduction in black carbon levels within the restricted zone, enhancing air quality (Cruz Rodriguez and Olarte Aparicio, 2025[26]).
Including high-displacement motorcycles in the Pico y Placa Solidario scheme could further help reduce CO₂ emissions, as these vehicles contribute significantly to air pollution in Bogotá. With around 520 000 motorcycles in circulation, they account for 45% of carbon monoxide and 39% of volatile organic compound emissions among mobile sources (Alcaldía de Bogotá, 2021[27]). Additionally, 86% of motorcycles in Bogotá fall into the medium and high-displacement categories, with engine capacities ranging from 501 cc to 1 500 cc. Despite being the second most used fossil fuel-powered mode of transport after cars in Bogotá, Pico y Placa Solidario does not currently apply to motorcycles (Figure 6.3). Other Colombian cities, such as Medellín, Armenia, and Pereira, have implemented Pico y Placa restrictions for motorcycles to address congestion and environmental impact. However, complementary measures would be needed to mitigate the effects on vulnerable populations, as motorcycles are predominantly used by individuals in socioeconomic strata 1, 2, and 3, making them an essential mode of transport for economically disadvantaged groups (Observatorio de Movilidad, 2017[28]).
Source: Encuesta de Movilidad 2023 (Secretaría de Movilidad, 2023[29]).
Public lighting is a significant source of energy use in cities and a less visible but notable contributor to CO₂ emissions. Light pollution can disrupt ecosystems, affect human health by interfering with sleep patterns, and obscure our view of the night sky. In some municipalities, street and area lighting can consume up to 40% of total electricity use, while globally it represents approximately 1‑3% of overall electricity demand (Clean Energy Ministerial and IPEEC, 2025[30]). It is also estimated that public lighting contributes to approximately 6% of global CO₂ emissions (Novikova, Hessling and Stelmakh, 2018[31]). These figures highlight the urgency of transitioning from traditional lighting systems to more energy-efficient alternatives. To achieve this, local governments must prioritise public lighting within their sustainability strategies and adopt a well-defined, long-term plan to guide the transition (Pardo-Bosch et al., 2022[32]).
Switching from a conventional public lighting system to Light Emitting Diode (LED) technology can offer municipalities significant energy savings while reducing CO₂ emissions. Street lighting is typically one of the largest sources of energy consumption under a municipality’s direct control. By switching to LED streetlights, municipalities can achieve up to 50% energy savings (Clean Energy Ministerial and IPEEC, 2025[30]). Bogotá still needs to replace approximately 100 000 streetlights with LED technology, with lighting capacities adapted to different needs (UASP, 2025[33]). Upgrading public street lighting with more efficient fixtures at the right time can reduce CO₂ emissions by up to 7%, depending on the performance of the new lights (Cumo, Pennacchia and Sferra, 2025[34]). For example, in the municipality of São José dos Campos, Brazil, LED public lighting resulted in energy savings of around 70%, along with reduced energy and maintenance costs (Kivimäki, 2013[35]). The Costa Rican public electricity company, Compañía Nacional de Fuerza y Luz, announced a 73% reduction in public lighting costs following the replacement of 2 200 streetlights in San José. The new lights are nearly three times brighter and emit white light, enhancing public safety by reducing dark areas (Serrano, 2023[36]). By investing in better lighting, cities can take meaningful steps towards climate neutrality, protect biodiversity, and help reduce the impacts of climate change – all while improving energy efficiency in urban infrastructure (Cumo, Pennacchia and Sferra, 2025[34]).
Incorporating smart public lighting systems in parallel to LED technology can further enhance maintenance efficiency and reduce CO₂ emissions. Smart lighting systems, which combine LED technology with sensors and remote management, significantly reduce energy use, operational costs, and carbon emissions. Cities like Copenhagen and Chicago have achieved energy savings of up to 65% by upgrading to smart LED streetlights with real-time monitoring (Pardo-Bosch et al., 2022[32]). Beyond lighting, these systems generate valuable data to support integrated urban services such as traffic management, smart parking, EV charging, and environmental monitoring (Jin et al., 2016[37]).
A public lighting tax aligned with sustainability goals may contribute to increasing revenue, lowering CO₂ emissions, and advancing Bogotá’s green transition
Specific taxes on energy use, such as public lighting taxes, can play an important role in reducing CO₂ emissions in Bogotá (OECD, 2024[38]). By changing the relative prices of energy, and emission-intensive goods and services, energy use taxes can encourage more sustainable choices (OECD, 2024[38]). The levy acts as a Pigouvian tax, encouraging taxpayers to adjust their electricity consumption habits, since lower usage results in a lower tax burden. This mechanism is beneficial for the environment, as reduced electricity consumption is also associated with lower water use in Bogotá (Alcaldía de Bogotá, 2024[39]).
Several cities in Colombia already use a public lighting tax to finance LED technology, aiming to reduce energy consumption and CO₂ emissions. In Cali, Medellín, Pasto, and Cartagena, the public lighting tax has been used to finance the adoption of LED technology. In Pasto, the modernisation of the public lighting system is expected to reduce installed power by 7.83% (equivalent to annual energy savings of 950 MWh) and cut CO2 emissions by 362.28 tonnes per year. This decrease in energy consumption will contribute to further reductions in greenhouse gas emissions (Právne Consulting Group, 2020[40]).
Tax revenues from the public lighting tax are already an important source of income for some cities in Colombia that apply it. In Cali, revenues from the public lighting tax represent 0.18% of the city’s GDP and a significant 7% of its total tax revenue, amounting to COP 109 986 million (Figure 6.4). Similarly, in Bucaramanga, the tax also accounts for 7% of total tax revenues and 0.13% of the city’s GDP, amounting to COP 38 163 million. Barranquilla follows with the tax contributing 5% of total tax revenues and 0.12% of GDP, totalling COP 57 567 million. In both Cartagena and Pereira, the public lighting tax contributes 4% of total tax revenues, representing 0.09% and 0.10% of each city’s GDP, respectively. Lastly, in Medellín, the tax represents 2% of total tax revenue and 0.04% of the city’s GDP.
Source: Authors’ own elaboration based on (Ministerio de Hacienda, 2024[41]).
Among the cities in Colombia that apply this tax, it is primarily based on electricity consumption, with rates varying from percentages of consumption to fixed monetary amounts. The most common tax base used across municipalities with a public lighting tax in Colombia is electricity consumption (Table 6.3). Municipalities like Cartagena, Ibagué, Bucaramanga, Sincelejo, Sopó, Tocancipá, Buenaventura, Paz de Ariporo, and Cúcuta rely solely on electricity consumption for the public lighting tax. Other cities like Medellín, Cali, Chía, Manizales, Mosquera, Cajicá, and Pasto combine consumption-based charges with property taxes, creating a mixed model. Tax rates vary significantly, typically falling into two categories: percentages of consumption (KWh) and fixed amounts or UVT-based rates. For percentage-based taxes, rates range from low to moderate, such as Tocancipá (2.5%‑6%), Cajicá (2.5%‑8%), and Bucaramanga (5%‑15%). Some cities, like Medellín, apply much higher rates, with up to 96.757% of consumption taxed. Other municipalities, including Cartagena, Mosquera, and Buenaventura, use fixed rates in COP or UVT. For instance, Cartagena’s tax ranges from COP 0 to COP 35 883 (2023), while Buenaventura’s rate spans 0.04 to 101.17 UVT. This variety reflects how municipalities adapt their taxes to local needs, considering socio-economic factors, energy consumption patterns, and policy goals.
Colombian cities that employ a mixed model, combining a consumption-based public lighting tax with a property tax surcharge, demonstrate how this approach can enhance contributions towards the maintenance and improvement of public lighting services. This model includes a consumption-based public lighting tax alongside a property tax surcharge for properties not connected to the public utility network. In some municipalities, such as Manizales, this model is extended to cover developable but unurbanised land, as well as urbanised but undeveloped areas. For instance, in 2024, Manizales implemented an adjustment that included nearly 1 800 properties that had never been subject to this tax. This additional contribution is vital for sustaining and improving the public lighting service, which plays a crucial role in ensuring public safety and enhancing the quality of life in the city (Alcaldía de Manizales, 2024[42]).
Several municipalities around the world also use electricity consumption as the main tax base for the public lighting tax, often applying different rates depending on whether the user is residential, commercial, or industrial. In San José, the public lighting charge is applied per kWh, with two differentiated rates: one for residential users and another for industrial and commercial users (CNFL, 2025[43]). In Jakarta, a Street Lighting Tax is levied on individuals and classified as an electricity excise tax, set at a rate of 2.4%. Special tax rates are also applied to different types of industrial businesses (Berita Jakarta, 2020[44]). In Accra, a Public Lighting Levy of 3% and a National Electrification Scheme Levy of 2% are applied uniformly across all consumer types, based on the electricity price per kWh (OECD, 2024[45]). In Guatemala, the public lighting tax is also based on electricity consumption, with methods varying according to the Municipal Council. These methods may include a fixed amount, a tiered amount, a percentage of the electricity bill, or mixed methods. Planned reforms to the public lighting law aim to ensure more equitable charges by determining municipal rates based on the number of lamps per 100 users. Previously, methods such as fixed rates constituted up to 59% of the amount billed to users consuming up to 50 kWh per month (Maldonado, 2024[46]; Ministerio de Energía y Minas, 2014[47]).
Determining rates for a public lighting tax could involve considering multiple criteria, such as maintenance and investment costs. For example, in Manizales, new public lighting tax rates were introduced in 2024, based on infrastructure maintenance and investment in the modernisation of the public lighting system. These rates support the city’s transition to clean and renewable energy by fundamentally reforming how the tax is applied to energy producers and self-generators (Alcaldía de Manizales, 2024[48]). In Guatemala City, the criteria are similar and include the cost of public lighting energy charged by the distributor at the price set by the National Electricity Energy Commission, as well as the billing for energy consumption related to potable water pumps, municipal building energy use, and residual charges (CNEE, 2020[49]). The purpose of these criteria is to offer economic and legal certainty to users by ensuring the delivery of a high-quality public lighting service, with charges strictly reflecting operational costs.
Considering a citizen-centric lighting design model could support public acceptance of a potential environmental public lighting tax in Bogotá. Engaging citizens in the design of public lighting solutions is crucial, as it helps ensure their needs, preferences, and concerns are reflected in the final design (Castilla, Blanca-Giménez and Llinares, 2024[50]). This approach leads to more inclusive and well-rounded lighting solutions. By considering the perspectives of urban residents and users, planners can develop lighting systems that meet the varied needs of the community, foster sustainability, and enhance overall well-being. Public lighting should also evoke a sense of innovation and modernity, as these qualities contribute to the perception that the system is both energy-efficient and environmentally responsible. These insights can provide valuable guidance to municipal governments in designing solutions that are both efficient and environmentally sustainable (Castilla, Blanca-Giménez and Llinares, 2024[50]).
Environmentally related taxes are increasingly being adopted across OECD and LAC economies. They can provide substantial incentives for innovation, as businesses and consumers seek cleaner, more sustainable solutions in response to the financial costs associated with pollution. Among the policy tools available are: tradable permits (which allocate emission or resource extraction rights); deposit-refund systems, property tax incentives, and discounts to fees and charges (which create positive incentives to promote sustainable practices or increase the cost of polluting products or activities). This section presents examples of cities and subnational governments in LAC and worldwide that are using property taxes discounts and public service charges discounts that could help Bogotá further improve its tax structure while promoting a green transition.
Property taxes and incentives to promote a green transition at the subnational level
Property tax incentives can serve as a useful tool to promote sustainable practices at the subnational level. These fiscal benefits have been widely used to expand the use of renewable energies, to encourage cleaner technologies in production and construction, to reduce waste and to enhance energy efficiency and natural resource management. These incentives can also help foster the transition towards a circular economy and expand green areas to improve well-being in urban areas while increasing adaptation and resilience capacities to face extreme climate-related weather events.
Fostering renewable energies and energy efficiency
Experiences from cities across LAC highlight how property tax incentives can drive the green transition by increasing the demand of renewable energies (Table 6.4). In 2018, the Brazilian city of Salvador introduced the Yellow Property Tax Sustainable Certification Programme (IPTU Amarelo – Imposto Predial Territorial Urbano), a tax discount initiative designed for homeowners and businesses who install solar photovoltaic (PV) systems. The discount is determined by the proportion of energy generated by solar power relative to the property's total energy consumption. Properties that generate 90% or more of their energy from solar power receive a 10% discount, those generating between 70% and 90% receive a 7% discount, and properties generating at least 50% earn a 5% discount (SECIS, 2018[51]). The Municipal Secretariat of Sustainability, Innovation, and Resilience issues the IPTU Amarelo certificate after receiving and verifying the application from property owners (Sefaz, 2025[52]) and can be renewed annually (Salvador, 2018[53]). In 2024, the number of participants in the programme increased by 10% compared to the previous year and as a result, the amount deducted for taxpayers increased by 18% in that period (Sefaz, 2024[54]).
Salvador also created the Green IPTU initiative to promote sustainable construction standards and enhance energy efficiency in buildings. The Green IPTU offers a reduction in the property tax rate for construction and renovation projects based on their investments in sustainable technologies, water and waste management, energy efficiency and the use of renewable energies. The Green IPTU certification is issued by the Municipal Department of Development and Urbanism that oversees the implementation (Salvador Prefeitura, 2022[55]). Projects earn points towards achieving gold, silver, or bronze certification, which entitles them to property tax (IPTU) discounts of 10%, 7%, or 5%, respectively (Prefeitura Municipal do Salvador, 2023[56]). The certificate is valid for five years with the possibility of renewal for an equal period by presenting a report of compliance (Salvador, 2022[57]).
Source: Authors’ elaboration.
The city of Buenos Aires in Argentina offers a 10% discount on the Remuneration Rate for Lighting, Sweeping and Cleaning services (Tasa Retributiva de Servicios de Alumbrado, Barrido y Limpieza -ABL) to promote energy efficiency. To qualify for this reduction, businesses must adopt sustainable practices and demonstrate a reduction in energy consumption of at least 5%, over a period of 12 months, compared to the previous year, comply with environmental regulations and have no tax debt (APrA, 2022[58]). The tax reduction is applied annually for a three-year period and can be renewed through the same procedure, with an additional 5% reduction based on the previous consumption reported (APrA, 2022[58]). Furthermore, public or private entities that have a valid national or international environmental certification, accredited by the Argentinian Organisation for Accreditation (OAA – Organismo Argentino de Acreditación) can obtain a 5% discount on the ABL tax. The application must be submitted to the Agency for Environmental protection (APrA), accompanied by the relevant certification, the OAA accreditation certificate, and a signed statement confirming that the certification applies to the production process or to at least 30% of the products or services offered (APrA, 2022[59]).
The Fiscal Code of Mexico City grants a 20% reduction in the water supply tariff (Derecho de suministro de agua) for owners of real estate properties who install and use solar panels, rainwater harvesting systems, or other technologies that reduce by at least 20% the consumption of energy and/or potable water or allow for the treatment and reuse of running water. Owners must submit a certificate issued by the Ministry of Environment (Secretaria de Medio Ambiente), specifying the type of devices and benefits provided (Gobierno de la Ciudad de México, 2023[60]).
Protection and expansion of green areas
Brazilian cities have been at the forefront of using municipal property taxes as an incentive for environmental protection and the expansion of green spaces, making urban areas more livable and adaptable (Table 6.5).
Source: Authors’ elaboration.
Since 2000, the Municipality of Curitiba, Brazil, has been implementing a law that provides tax exemptions or reductions on land value for property tax (IPTU) calculations, based on the land’s forest coverage, verified by the Municipal Department of Environment (SMMA). The land value reductions are proportional to the percentage of forest cover (Table 6.6). Additionally, an isolated tree whose canopy covers at least 40% of the total property area qualifies for a 50% reduction on the land value and trees that are immune to cutting, as well as Araucaria angustifolia trees with a diameter greater than 0.5 meters, receive a 10% discount each, up to a maximum reduction of 50% per property (Câmara Municipal de Curitiba, 2000[61]).
Note: Native forests are vegetation masses with the flora of the Municipality of Curitiba, aiming at preserving existing water resources, wildlife habitats, soil stability, landscape protection, and maintenance of balanced distribution of forest masses. Relevant native forests are those that, due to their typology, location and size are registered in the Special Green Areas Sector registry of the Municipal Department of Environment (Câmara Municipal de Curitiba, 2000[61]).
Since 2009, the Municipality of Araraquara in Brazil has been implemented a Green IPTU programme, offering property tax discounts for built areas of less than 1 000 m and built and non-built areas larger than 1 000 m2, based on the percentage of the property covered by trees (Municipio de Araraquara, 2018[62]). A wooded cover exceeding 80% of the total property land qualifies for a 40% discount on the annual property tax, between 45% and 80% of wooded cover grants a 20% discount, and between 30% and 45% cover grants a 10% discount (Municipio de Araraquara, 2018[62]; Municipio de Araraquara, 2009[63]). This tax exemption is valid for five years, with the possibility of renewal (Municipio da Araraquara, 2023[64]). However, properties must comply with measures to ensure the good development of the vegetation, such as installing fences, fire prevention measures, regular irrigation, cutting and pest control, and erosion risk monitoring, among others (Municipio de Araraquara, 2024[65]). Finally, since 2018, the tax incentives under the Green IPTU legislation in Araraquara have been expanded to the areas mentioned above, beyond green space preservation. Taxpayers can be entitled to a cumulative discount on property tax (IPTU), with a maximum of 20%, if they install photovoltaic systems (10% discount), have a permeable area greater than 30% of the total property area (6% discount) and/or install solar hydraulic heating (4% discount) (Municipio de Araraquara, 2018[62]).
Mexico City has also made efforts to improve urban green areas by offering reductions of 10% or 25% on property tax (Impuesto Predial) payments. Individuals owning a residential property can receive a 25% reduction of the property tax if they have mature trees (only those planted directly in the ground qualify for the reduction) or green areas that cover at least one-third of the total land area and receive maintenance according to environmental regulations. Property owners who install green roofs in at least one-third of the total surface may receive a 10% reduction. In both cases, a certificate issued by the Ministry of Environment must be submitted (Gobierno de la Ciudad de México, 2023[66]).
Waste management and the circular economy
Cities and regions are using tax reductions, discounts and exceptions to improve waste management practices, reduce food waste and promote a circular economy (Table 6.7).
Source: Authors’ elaboration.
Reducing food waste
Since 2018, the municipal government of Milan, Italy, has introduced waste tax reductions for businesses as part of its strategy to combat food waste. A 20% tax discount is granted to businesses – including supermarkets, restaurants, canteens, and food producers – that donate surplus food to charitable organisations. This initiative is co-ordinated across multiple municipal departments, including fiscal, environmental, and food policy divisions. To date, approximately 10 000 businesses have benefited from the scheme, generating a financial impact of EUR 1.8 million in its first two years of operation.
Recycling and waste reduction
Mexico City, Mexico, grants payroll tax reductions to individuals or businesses that engage in recycling business activities or that reprocess part of the solid waste they generate. The tax reduction depends on the percentage of solid waste reprocessed or recycled: achieving between 33% and 44% is reflected in a reduction of 20% of the payroll tax. Between 45% and 59% qualifies for a reduction of 30%, while recycling between 60% and 100% of solid waste grants a reduction of 40% of the payroll tax. Taxpayers must submit a certificate issued by the Ministry of Environment, through its environmental audit programme stating the percentage of solid waste that has been reused and the total investment made to implement these measures (Gobierno de la Ciudad de México, 2023[60]).
The city of San Francisco, United States, implements a system of discounts and exemptions on waste management fees to incentivise recycling and waste reduction. Residents and businesses are required to pay a monthly waste collection fee, with financial incentives provided to encourage recycling efforts. Similarly, the city of Austin, United States, enables residents to reduce waste collection costs by opting for lower refuse services. Each household is provided with a large recycling bin, alongside the progressive rollout of a compost collection service, aimed at further minimising landfill waste (OECD, 2020[67]). Additionally, the waste collection fee is adjusted based on the size of the trash cart (Austin Texas, 2024[68]).
Organic waste
To promote the separate collection of organic waste, the city of San Sebastián, Spain, has provided households with designated organic waste bins installed on streets, accessible via a personal magnetic card. Households using these containers receive a 15% reduction on their waste collection fee, conditional upon depositing organic waste at least four times per month for a minimum of ten months per year.
Industrial waste
To reduce industrial waste, specifically, Kitakyushu City in Japan, applied an environmental “future tax” imposed on the landfill of industrial waste. Since the tax is not levied on intermediate treatments, it is also expected to promote company recycling activities and reduce any waste generated by them. Revenues are used for an environmental technology development grant. Mexico City offers property tax (Impuesto Predial) reductions to industrial and service companies that acquire, install, and operate technologies, systems, equipment, or materials designed to prevent or reduce pollutant emissions. A reduction of 30% to 39% in emissions qualifies for a 10% property tax discount; a reduction of 40% to 49% grants a 15% discount, and a reduction of 50% to 100% qualifies for a 20% discount (Gobierno de la Ciudad de México, 2023[69]).
Innovative financing instruments in Bogotá
The city of Bogotá is exploring different innovative financing instruments to promote a green transition. Bogotá has placed particular emphasis on several innovative financing options. First, the Public Works for Taxes (Obras por Impuestos) mechanism allows firms to pay part of their taxes in kind by executing and delivering public works. Second, the transfer of construction and development rights enables the city to acquire land to promote restoration and conservation processes, and to generate resources through auctions to create contemplative parks that encourage public use. Finally, Bogotá has been exploring land value capture (LVC) mechanisms, a public financing tool that allows governments to recover a portion of increases in land value.
Public Works for Taxes
The Public Works for Taxes mechanism can serve as a tool for public-private collaboration aimed at addressing infrastructure gaps. It allows private companies to advance their income tax payments by directly financing and executing public investment projects prioritised by national or subnational governments. This approach can accelerate investments in infrastructure while enhancing the competitiveness of both firms and their surrounding region. Projects should be subject to an ex-ante, auditing and ex-post evaluation by the relevant government authority to ensure alignment with public interest. Once completed, the infrastructure is handed over to the government, which assigns responsibility for its management and maintenance. A key risk lies in the potential for private firms to influence local priorities, that could lead to biased investments or conflicts of interest, although projects must be approved by the regional or local government.
Colombia is already implementing Public Works for Taxes. This instrument was made available to companies (both individuals and legal entities) through the 2016 Tax Reform (Law 1819 of 2016) and was regulated by Decree 1915 of 2017. The country is making use of these schemes in areas affected by the armed conflict (so-called Zomac), which cover 53% of the territory. Specialised firms, such as those in engineering or construction sectors, can execute the project themselves. Firms from other sectors can subcontract the execution of the project to specialised firms. Peru is the regional pioneer and launched these schemes in 2008, that can inform Bogotá’s initiatives (Box 6.1).
The city of Bogotá has issued Decree 054 in 2025, which regulates the Works for Taxes mechanism. Eligible projects will have to be aligned with the objectives of the Economic, Social, and Public Works Development Plan of the Capital District and must comply with the technical guidelines that will be established by the Operational Manual of the Works for Taxes Mechanism. To carry out the works, taxpayers will have to enter into agreements with public entities at the district level. In return, they will receive Titles for the Renewal of the District Territory, which may be used within a maximum period of two years either for the payment of district taxes or for negotiation in the market.
In 2008, the Peruvian government designed the mechanism Works for Taxes, with the objective of accelerating and improving the quality of public investments. This mechanism allows private firms to finance physical infrastructure and maintenance expenditures which are the responsibility of local governments in exchange for future tax credits.
Two laws serve as framework for Works for Taxes in Peru. First, a law encouraging regional and local public investment with the participation of the private sector, which introduces the contracting mechanism of Works for Taxes Law No. 29230, modified by Law No. 30138. Second, a law that modifies different laws to facilitate investment, propel productive development and corporate growth, which authorises the use of the mechanism of Works for Taxes for the Public Universities (Law No. 30056).
This type of policy secures local government support and aims to increase the efficiency of infrastructure investments. For local governments with limited capacity to carry out capital investment, Obras por Impuestos plays a key role in the execution of investment and the delivery of public goods at sub-national level. This mechanism appears to have benefited regional and local governments by increasing the execution of infrastructure projects, accelerating local infrastructure, using the know-how of private companies to increase the quality of their investments, and enhancing the reputation and image of local governments by helping them to reach their goals and objectives (OECD, 2017[70]).
Transfer of construction and development rights
This instrument aims to open opportunities for landowners in areas of the Main Ecological Structure (Estructura Ecológica Principal del Distrito Capital),1 where construction is not permitted, to be able to transfer construction and development rights in other areas of the city.
Decree 626 of 2023, which establishes the Transfer of Construction Rights in Bogotá, is a land management instrument introduced through the Bogotá Reverdece Territorial Organization Plan. It enables the District to acquire privately owned land located within the Ecological Structure—primarily in the Eastern Hills, the Thomas van der Hammen Northern Forest Reserve, and along the Bogotá River (Bogotá Secretary of Planning, 2023[71]). These lands are defined as “generating areas” (areas generadoras). These are properties to which construction and development rights are assigned and transferred, as indicated in the CG-3.2 “Main Ecological Structure” Map of District Decree 555 of 2021 (Bogotá Secretary of Planning, 2021[72]). The receiving areas (areas receptoras) correspond to lands designated as areas for major metropolitan service activities, located in urban land, in consolidation or urban renewal treatments, where residential uses are intended to be developed, as defined in the CU-5.2 “Activity Areas and Land Uses” Map of District Decree 555 of 2021 (Environment Ministry of Bogotá, 2024[73]).
The commercialisation of construction and development rights is carried out through auctions co-ordinated by the Planning and Finance authorities. The use of this instrument to finance the acquisition/improvement of cultural heritage assets is being discussed in Bogotá although it has not yet been regulated (Alcaldía de Bogotá, 2025[74]).
Land value capture mechanisms
Land value capture (LVC) is a public financing tool that enables governments to recover a portion of land value increases. This can result from public actions, whether through tangible investments – such as infrastructure for water, energy, housing, transport, and public facilities – or intangible measures, including planning and zoning decisions. For instance, access to public transport raised land values by 15‑20% in Bogotá, while piped water investments led to land price increases of USD 11.10 per square metre within 10 km of city centres in Latin America (OECD, 2022[75]).
The LVC process typically involves three stages. First, a public action – such as infrastructure investment or regulatory change – triggers land value increases; then, governments apply LVC instruments, or modify existing ones, to capture a share of this value for the common good of the public. Third, the revenues are reinvested in infrastructure, area improvements, or the general budget (OECD, 2022[75]).
LVC instruments can be tax-based or development-based. Tax-based instruments include the land tax (pure land value or split-rate property tax) and betterment contribution (levy or charge). Examples of pure land tax applications are Denmark, Australia and Estonia, while Colombia and Brazil have implemented betterment contributions. Colombia has long been cited as a classic example for the successful usage of betterment levies to fund infrastructure projects. However, the country has faced implementation challenges rooted in disputes over the assigned land value gains used as a basis to calculate levies. Moreover, Bogotá launched a programme in 2007 that attempted to fund citywide improvement of streets and related infrastructure (OECD, 2022[75]).
The OECD Compendium (2022) presents a taxonomy of LVC instruments and a global overview of their application, encompassing both tax-based and development-based tools (OECD/ITF, 2024[76]). It defined key LVC instruments as follows: infrastructure levies, imposed on landowners benefiting from public infrastructure investments; developer obligations, requiring cash or in-kind contributions to cover additional infrastructure or services triggered by private development; charges for development rights, collected in exchange for development potential beyond baseline densities; land readjustment, involving the consolidation and redistribution of land parcels for joint development, with a portion allocated for public use; and strategic land management, whereby governments acquire, develop, and dispose of land to capture value gains.
LVC can promote public transportation funding, for example through transit-oriented development (TOD) (OECD/ITF, 2024[76]). TOD integrates land use and transport planning around major transit investments. This approach promotes urban densification – such as higher floor area ratios near stations – boosting land value uplift (LVU) while fostering sustainable, mixed-use development and encouraging modal shift. Flexible regulations near transit hubs enable more integrated projects, increasing ridership and fare revenues. To maximise public benefit, the OECD recommends enabling intensive TOD around stations and ensuring an adequate portion of the resulting LVU is directed to public use through effective LVC strategies (OECD, 2022[75]). Countries applying this approach include France (Grand Paris), Japan (Tsukuba Express), Korea (Gyeongju), and the UK (Crossrail 1/Elizabeth Line).
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← 1. As defined in Bogotá’s Territorial Organization Plan (POT, for its acronym in Spanish) 2022-2035, the Main Ecological Structure refers to all the natural elements that maintain and support biodiversity in the Capital District, including the Thomas van der Hammen Northern Forest Reserve, the Eastern Hills of Bogotá, and new Mountain Ecological Parks (Secretaría Distrital de Ambiente de Bogotá, 2024[77]).