Authored by
Mr. Gary Clyne, Dr. Deborah Cornland and Dr. Peter Pembleton

The Caribbean nation states are well positioned to make a transformational shift toward low-carbon development, but lack the investment capital required to do so. The idea of a Caribbean carbon market (CCM) was originally mooted within the Energy Chamber of Trinidad and Tobago (ECTT), an energy sector NGO, representing the oil, gas, petrochemical and heavy industrial sectors in 2014. The idea stemmed from a search for a way to monetize the carbon offset potential of the Petrotrin Oil Fields Associated Gas Recovery and Utilization Programme of Activities (Petrotrin PoA) registered under the Clean Development Mechanism (CDM), given the crash of the international market for carbon credits. ECTT’s Board of Directors subsequently approved the concept of a CCM and continued to examine issues related to establishing such a mechanism, but by the end of 2015 no concrete actions had been taken to make the transition from idea to reality.

Early in 2016, the ECTT, represented by Mr. Gary Clyne (Carbon Asset Developer Associates Limited/ CADA), initiated discussions with Dr. Deborah Cornland (Cornland International/ CI) and Dr. Peter Pembleton (Carbonergy BCS/ CBCS), on possible next steps to elaborate upon the idea of a Caribbean carbon market drawing upon their wide and lengthy experience as well as their development of carbon crediting platforms that could also be used within the regional market. Mr. Clyne and Dr. Cornland had previously co-authored the Petrotrin PoA, and Dr. Cornland and Dr. Pembleton had co-authored the complementary RE2Grid PoA for greenfield renewable investment.

Throughout the first quarter of 2016, the three companies (CADA, CI and CBCS) prepared a five-year plan for designing, developing and launching a Caribbean Carbon Market (CCM). As part of this process, we approached the UNFCCC Regional Collaboration Centre (RCC), St. George’s and regional experts for support. A one-year funding proposal for an initial phase was subsequently submitted to the U.S. Bureau of Land Management (BLM) and is awaiting their decision. Recently, following discussions with donors, we have renamed the effort the ‘Caribbean Carbon Pricing Initiative’ (CCPI, rather than Caribbean Carbon Market as previously christened) to reflect the need for flexibility in its design.

Since submitting the BLM funding proposal, we have met with ECTT and stakeholders in Trinidad and Tobago and in Grenada, and are collaborating under agreement with ECTT to further the initiative. We have obtained the agreement of the Government of Grenada to sponsor and host early stages of developing the Initiative, starting with a regional stakeholder consultation to discuss the way forward that is planned to be held in Grenada in 2017. RCC is spearheading an effort to establish a centralized regional hub in the Caribbean for Monitoring Reporting and Verification (MRV) that is of relevance to the CCPI, and has agreed to provide seed money to sponsor the first stakeholder consultation event.

The CCPI is intended to put a price on carbon emissions in the Caribbean and generate capital for renewable energy and methane-emission-reduction investments in the region, thus resulting in transformation of the region’s energy sector. The CCPI envisages the development of a voluntary market-based mechanism that aims to provide finance and equity for climate mitigation activities in the region and carbon offset opportunities for investors; i.e. a new cooperative approach that facilitates upfront ‘carbon finance’ for the mitigation efforts rather than paying for carbon credits after the fact.

The activities envisaged will address international concerns for reducing greenhouse-gas emissions as described in the Paris Agreement under the UNFCCC, which supports the international exchange of carbon credits as a vehicle for countries that ratified the Agreement to cost-effectively comply with their commitments under their Nationally Determined Contributions (NDCs). In particular, the Initiative adopts the concept of international “cooperative approaches” defined in Article 6 of the Agreement, which states that “The use of internationally transferred mitigation outcomes (ITMOs) to achieve nationally determined contributions under this Agreement shall be voluntary and authorized by participating Parties.” Under the CCPI, demand for such ‘mitigation outcomes’ (aka offsets or carbon credits) will be driven by large-scale fossil-fuel-industry emitters operating in the region and in the USA, while the potential for low-carbon development in Caribbean and neighbouring countries creates opportunities to supply those outcomes that could inter alia be generated through the two PoAs.

By providing finance, technology transfer and capacity-building to Caribbean nations the CCPI will promote investment in renewable energy and methane-reduction measures, thereby strengthening the economies of, and sustainable development in, the Caribbean region. Helping to ‘set a price on carbon’ emissions in the Caribbean will:

  • Facilitate transformational change in the way energy services are provided in the Caribbean and the greening of the Caribbean energy sector;
  • Generate ITMOs from and link with foreign carbon markets and, potentially, with national and sub-national cap-and-trade carbon markets;
  • Strengthen the economies of, and sustainable development in, Caribbean states and dependent territories; and
  • Increase the overall mitigation of global greenhouse-gas emissions.

Establishing the Caribbean Carbon Pricing Initiative is intended to provide the capital needed to set the Caribbean solidly on a low-carbon development path.

Significance in the Caribbean region

The table below presents an overview of the electricity sector and greenhouse-gas (GHG) emissions in Caribbean Community (CARICOM) member countries and overseas territories with data derived from various sources.

A recent paper presented to the Alliance of Small Island States (AOSIS), introduced data on electricity consumption (column 2) and the associated CO2 emissions (column 3), showing that electricity generation in CARICOM countries and overseas territories produces almost 13 Mt CO2/year, much of which could be avoided by introducing renewable energy. Columns 4 and 5 show that there is over 5,000 MW of fossil-fuel-based installed capacity that could be replaced with renewable energy in the region.[4]

The total emissions of CO2-eq from all sources (carbon-dioxide equivalent emissions, aggregating carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O) emissions) from those countries and overseas territories are much higher (columns 7 and 8): in total above 156,000 Mt CO2-eq excluding land use change and forestry (LUCF); and almost 124,000 Mt CO2-eq including LUCF.[5] Considering that these GHG emissions are far greater than for the electricity sector alone, the emission reduction potential from renewable energy and other mitigation measures (e.g. energy efficiency, fuel-switching [i.e., for transport], waste management) could generate significant business under the Caribbean Carbon Pricing Initiative.

Our review of data extracted from the more recent ‘Intended Nationally Determined Contributions’ (INDCs) of the same countries (excluding Montserrat for which there is no INDC), in the region shows that all but one explicitly envisage the use of carbon market mechanisms (column 6). In several of the INDCs reviewed, countries stated that they have already identified opportunities for (increased) utilization of renewable energy in their power grids. For instance: Antigua and Barbuda is targeting 50 MW; the Bahamas 30 MW; and Grenada is planning to install 15 MW of geothermal, as well as solar and wind power. In most cases, such opportunities are ‘conditional’ upon receiving support and investment from the international community. Other areas where emission reductions are envisaged are in the transport, waste, industry and agriculture sectors, while a few of the countries reviewed are more focused on the forestry sector (see the INDCs for more details).

Other countries in and bordering the Caribbean region that are not CARICOM members (e.g. Cuba, Curaçao, and the Dominican Republic, as well as Mexico and a few countries from South America) could also be included in the Initiative. 

Stakeholders

The oil and gas companies operating in North America and the Caribbean region that are subject to increasing limitations of their methane emissions are expected to be major stakeholders for the CCPI. These companies will generate the demand for offsets that would be transacted through the Initiative as well as potentially being major investors in low-carbon development efforts. The Initiative will be an important tool to assist them in complying with emissions regulations as economically as possible.

The developers/ owners of emission-reducing projects (e.g. renewable energy, energy efficiency, fuel switching, etc.) comprise a second major stakeholder group, as their projects will generate the supply of offsets required by oil and gas operators as well as other sectors that are significant emitters of GHGs. Their primary benefits will come from increased flows of investment/ financing for their projects.

These investments will be of major benefit to the host countries in which the projects are located and will assist inter alia in reducing dependence on fossil fuel imports, resulting in stronger and more sustainable economic development as well as a cleaner environment.

Apart from those primary stakeholders, there will be a wide range of others throughout the Caribbean and neighbouring countries that will be involved in and are likely to benefit from the Initiative, such as: carbon market players (brokers/ traders, information technology companies); technology companies (engineers, contractors, equipment suppliers); financial institutions (banks, investors); and participants in donor-funded programs and projects.

Related work in progress elsewhere

As previously-mentioned, the Caribbean Carbon Pricing Initiative will inter alia build upon two UNFCCC-registered PoAs under the CDM that were developed to generate carbon credits.[6] CDM standards and methodologies are considered the most demanding and resilient regulated frameworks for producing carbon credits in the world.

It is envisaged that carbon credits generated under these PoAs, and from other vehicles that lead to emission reductions, will be used by oil and gas facility companies operating in the Caribbean and surrounding regions to partially offset their emissions, in compliance with increased regulation. The PoAs are: the Petrotrin Oil Fields Associated Gas Recovery and Utilization PoA and the RE2Grid PoA, the first currently operating in Trinidad and Tobago, the second established in the Philippines but under consideration for use by renewable energy developers in Caribbean countries.

The Petrotrin PoA

There are no laws or regulations in Trinidad and Tobago prohibiting the venting of waste gas in oil production activities, and recovery and utilization of associated gas is not obligatory. However, Trinidad and Tobago’s national petroleum company, Petrotrin, recognized that the success of any oil company’s long-term business requires its commitment to the principles of sustainable development. To that end, they established the Petrotrin Oil Fields Associated Gas Recovery and Utilization PoA under the UNFCCC Clean Development Mechanism in order to provide the revenue necessary to invest in mitigation measures that avoid venting and flaring of methane emissions associated with Petrotrin oil production.

There are plans in collaboration with local firms to design, construct, and operate project activities in 30 oilfields in Trinidad and Tobago under this registered PoA. These project activities will be included in the Petrotrin PoA.

The RE2Grid PoA

The RE2Grid PoA aims to promote the utilization of renewable energy resources by supporting investment in greenfield projects (wind, run-of-river hydroelectric, geothermal, solar PV, wave and tidal energy) that feed electric power into a grid. This PoA enables developers of such projects to overcome financial and other barriers to developing and implementing their projects, by harnessing the financial support made available through the sale of carbon credits.

While initially developed for the Republic of the Philippines, discussions are currently underway with renewable energy developers in Caribbean countries and expansion to additional host countries in that region is anticipated in the near future.

The PoA will contribute to reducing Caribbean host countries’ heavy and increasing dependence on fossil fuels for electricity generation while helping to mitigate global climate change.