Covid-19 has hit the Caribbean hard but there is a silver lining. With the right policy mix of investments and carbon taxes, the region will not only recover but grow faster and better than before.
The economic slowdown caused by the pandemic has cut energy-related greenhouse gas emissions. However, without explicit government intervention to consolidate transition to a clean, sustainable energy future, emissions risk rebounds once the pandemic is over. For your information, carbon dioxide (CO2) emissions fell by 400 million tonnes following the 2009 financial crisis, only to rise to 1.7 billion tonnes in 2010, the most significant increase ever recorded, according to the International Energy Agency.
A strong emissions rebound is not inevitable if certain policies are implemented to promote new technologies. Renewable wind and solar options, and some disruptive energy storage solutions such as lithium-ion and green hydrogen batteries produced by water electrolysis, are cheaper than ever and ready to be implemented on a larger scale.
The main constraint for the growth of unconventional renewables is no longer priced as they are competitive compared to fossil fuels, but their intermittency. The existing reservoirs of hydroelectric dams are a great asset for integrating unconventional renewable energy. Energy storage with other technologies will also be economically feasible in regions with limited hydro potential, such as in the Caribbean islands.
According to the IDB, if Caribbean Community (CARICOM) countries invest optimally in renewable electricity generation, they could save US $ 5.7 billion in production costs between 2020 and 2040. As a result, the share of renewable generation will increase by a factor of almost. four, while reducing electricity costs, oil imports and CO2 emissions. These options may be feasible with storage options different from hydroelectric dams. In fact, energy storage is forecast to grow rapidly, reaching 53 gigawatts per year in use by 2030.
The good news is that some countries are moving in the right direction. Leaders have ambitious renewable energy targets. For example, Dominica and Barbados have promised a 100% renewable energy target by 2030, and Guyana by 2040.
In Guyana, the government has invested significantly in solar PV mini-grids with battery storage in nine isolated hinterland communities. In Suriname, the electricity company has launched a tender to install 10 small solar networks to electrify homes, schools, medical centers, water pumping stations and other facilities.
Similarly, Barbados, supported by IDB, is using renewable energy to promote greater energy efficiency in public buildings, retrofit public lighting nationwide, and promote the transition to EV in the public fleet.
These investments will have an even more significant impact if combined with reforms that eliminate fossil fuel subsidies, and, at the same time, taxes on carbon emissions, a fee that government imposes on any company that burning fossil fuels. The International Monetary Fund (IMF) estimates that Latin America and the Caribbean allocated approximately US $ 213 billion in fossil fuel subsidies in 2017. Low oil prices offer a unique opportunity to remedy this.
As well as providing a price signal in favor of clean energy, a carbon tax would generate resources to fund recovery packages and compensate the poorest populations for the rise in the price of fossil fuel dependent activities. Part of the income collected from carbon prices may return as compensation to vulnerable people. Recognition would give lower income households a more substantial profit than the loss of income caused by the carbon tax. This rate would be fairer and would make fuel rises more acceptable.
Subsidies policy distorts prices and is regressive. Otherwise, social policy aimed at allowing equivalent transfers directly to a target population has important implications for consumers and taxpayers. Well-designed transition mechanisms meet two objectives: to reduce economic distortions and effectively support the proportion of the population to whom the support is aimed.
The depth of the current crisis and the breadth of recovery packages mean that the measures being taken now are likely to have lasting effects on the global economy and shape societies in the coming decades, affecting emissions and the planet’s climate. The Caribbean is well placed to actively participate in the much needed energy transition.
Mauricio T. Tolmasquim is a Full Professor at the Federal University of Rio de Janeiro
Ariel Yépez is the Head of the Energy Division at the Inter-American Development Bank.