Courtesy of Foreign Policy, a look at how oil-rich Colombia is trying to go green:

In a giant parking lot on the outskirts of Colombia’s capital, national oil company Ecopetrol is running an experiment.

The over 400,000-square-foot expanse is where Bogotá keeps part of its municipal bus fleet. Hundreds of those vehicles are electric and are powered up regularly with battery chargers. But one bus is fed instead by green hydrogen, a fuel created on-site. Green hydrogen is made with renewable energy and is carbon-free to burn, though using it in buses is expensive with current technology. Government funds helped Ecopetrol partner with Colombian auto parts firms to build the turquoise bus, which will soon be the first of its kind to carry passengers through the capital city.

The bus is one of at least 28 low-emission hydrogen projects under development in Colombia. For the country, whose top export in 2022 was oil, hydrogen could become a greener source of fuel—and revenue. The Colombian Mines and Energy Ministry has projected that low-emissions hydrogen exports could in future decades bring in $5 billion annually—over a quarter of the amount oil exports earned last year.

A key factor to the bus’s development was that “the national government is directly involved, not just with the creation of public policies but with financial support for this project,” said Yeimy Báez, a former Ecopetrol vice president then overseeing low-emissions projects, as she surveyed the lot under the blistering Andean sun in July. While the fuel for the prototype bus was created using electricity from hydropower, the premises will soon be equipped with solar panels to create hydrogen bus fuel. Baez noted that hydrogen projects had turned several former Ecopetrol oil and gas engineers into “workers of the energy transition.”

Colombia’s research and development funding for clean hydrogen is an example of industrial policy—a type of government intervention that aims to grow specific activities within the economy. Industrial policy has gained increasing global attention in recent years as China and the United States have rolled out hundreds of billions of dollars in subsidies and other government benefits for low-carbon business. Other rich countries—from those in Europe to Canada to Australia—are now scrambling to keep up. For developing nations like Colombia, the question is how to do the same when they have relatively little money available to spend up front.

Since Gustavo Petro—Colombia’s first avowedly left-wing president in history—took office in August 2022, Colombian policymakers have sought to plan for a future where a smaller portion of the country’s revenue comes from oil, which accounted for about a third of Colombia’s exports that year.

Petro’s decision to halt the issuance of new oil exploration contracts has made international headlines. But it’s not the only component of his government’s economic transition strategy. Bogotá is also crafting industrial policies that aim to boost activities including biotech, industrialized agriculture, and airplane parts. It’s a marked shift in a traditionally free-market country that has generally shied away from large-scale industrial policies for over 30 years. (The green hydrogen strategy is one of the few such policies enacted by the previous conservative government.)

The success of Petro’s green industrialization push is far from guaranteed. Political instability has slowed the rollout of his policies. And some private investors—whose buy-in is important to industrial policies’ success—say the president’s left-wing agenda has created an uncertain business environment.

After over a year of planning, officials in the Petro government are preparing to announce their flagship suite of industrial policies this month. “We have to do magic with the little that we have,” Colombian Technical Deputy Minister of Finance María Fernanda Valdés said.

An aerial view shows an oil field in Rubiales, eastern Colombia, on Oct. 5, 2011. EITAN ABRAMOVICH/AFP VIA GETTY IMAGES

In August, multinational consulting firm WTW and Bogotá’s University of the Andes published a study on how a decline in global fossil fuel demand over the coming decades would impact Colombia. If countries around the world decarbonize in line with the Paris Agreement—and if Colombia does not take financially proactive steps such as developing export alternatives to coal, oil, and gas—it could lose more than $88 billion in economic output by 2050, the analysts wrote. They concluded that Colombia’s government should work to diversify its exports swiftly and with “no regrets.”

The analysts stopped short of providing a full recipe for how to do so, saying it was beyond the scope of their research. They may have also been wary of wading into contentious waters: Industrial policies are tricky to evaluate and have been relatively little-studied by mainstream economists in the past few decades, though that is changing. They have also long been shunned by global agenda-setters such as the International Monetary Fund (IMF). During and beyond the free-trade heyday of the 1990s, the IMF instead told policymakers to focus on priorities that included opening up to international trade and keeping state spending under tight control, a formula often known as the Washington consensus.

Especially since the 1990s, Colombia has aimed to adhere closely to those IMF prescriptions. The country grew an average of 3.4 percent per year in the 30 years prior to the COVID-19 pandemic—a rate above the regional average. But during that same period, Colombia’s productivity remained low and stagnant as an increasing portion of its growth came from oil and coal extraction.

“We were very methodical at opening up and making trade deals,” said Olga Salamanca, a partner at Colombian trade consultancy Araújo Ibarra. But contrary to what Colombian exporters hoped for, “a lot of economic sectors have disappeared.” Economic planning was also hampered by a decadeslong internal conflict that blocked patches of the country from the government’s administrative reach and led much of the public purse to be spent on the military.

Now—as China, the United States, and European powers embrace industrial policies to speed their energy transitions—it makes increasingly less sense for Colombia to spurn them. Industrial policies “are back in developed countries, but also in developing ones,” said Colombian economist Marco Llinás of the United Nations Economic Commission for Latin America and the Caribbean.