Global concerns about climate change and the emergence of potential new energy markets such as renewable energy have attracted a great deal of attention. Nothing concentrates the mind as much as crises do and this is why there have been ongoing debates about being climate resilient and meeting climate goals set in the Paris 2015 agreement.
Some of the key trends unfolding in the twenty-first century include; the gradual diffusion of renewable energy techniques, a higher reliance on natural gas, energy efficiency and the rising use of energy. These will continue to grow but there will also have to be some fundamental adjustments because there is a need to minimize the environmental impacts of energy use. Prevention of rapid global warming is the foremost concern and has proven to be one of the most difficult challenges that civilization faces mainly because of a lack of finance.
Energy systems are the most complex capital-intensive infrastructures of modern societies and the time span needed for significant market penetration of a new source of energy is dependent on the financing available for these energy infrastructures. The adoption of sustainable development measures and a new source of energy is tied to major infrastructural developments which require large capital investments. These investments however enable the formulated climate goals to be met.
The Organisation for Economic Co-operation and Development (OECD) estimates that $6.3 trillion of investment in infrastructure is needed every year between 2016 and 2030 to meet global development needs and an additional $600 billion would make these investments climate compatible. The threat of climate change together with a growing energy demand to efficiently sustain the worlds high-energy civilization are global development needs which require financing to take humanity towards a sustainable and low carbon economy.
International agencies have already made some headway in funding sustainable development projects in the Caribbean region. For instance, in 2015 the Inter-American Development Bank (IADB) and Caribbean Development Bank (CDB) approved a $US 71.5 million grant and loan package for sustainable energy facilities in the Eastern Caribbean as well as a $US 30 million renewable energy fund for Latin America and the Caribbean.
Sir Richard Branson’s private enterprise Carbon War Room has also significantly contributed to climate financing in the Caribbean region. The islands energy programme for instance, is aimed at accelerating the transition to renewables by leveraging $US 300 million in finance for energy projects to incorporate renewables. St Kitts in particular has developed a national energy transition strategy through this funding and is on its way towards a low-cost energy system.
Earlier this year as well, the United Arab Emirates (UAE) launched a US$50 million grant fund for renewable energy projects in the Caribbean. This was also aimed at accelerating carbon neutrality and achieving Sustainable Development Goals (SDGs) in more than sixteen small island developing states in the Caribbean region. This funding initiates radical changes for private and public finance partnerships with the government whilst deepening bilateral relationships between the United Arab Emirates and the Caribbean in ensuring energy security.
Climate investment is key for sustainable development
Financial and political institutions are key for sustainable development. The existing flows of foreign aid used to facilitate the economic and infrastructural needs has to be put in place in such a way that society will positively respond and adapt to a monetary policy intervention.
Although these investments are confronted by environmental, legal and organizational complications, collectively reshaping old practices and putting in place new ones enables the public to see how the external funding is being used.
The policies put in place can therefore drive society’s ambition in transitioning towards low carbon economies and developing low-cost energy systems in the Caribbean. How society evolves and allows the actions to be received is dependent on the institutions that are putting these financial policies and strategies in place.
We cannot predict the exact outcome of the unfolding energy transition but historically, past energy transitions have stimulated creative destruction through technical innovation and advances. A simple example is when coal replaced wood and oil replaced coal. There was a need for cleaner and efficient fuels to sustain our rapidly expanding economy. All of them required the abandonment of old components and activities; all of them required the rise of new infrastructure; all of them were costly and all of them caused socioeconomic dislocations. Creative destruction replaces the old with the new and it can also redistribute the political power and finance that would enable climate goals to be met.
Investments into climate finance are shaped by preconceived expectations built upon Sustainable Development Goals which can put in place the best sustainable energy foundation for the Caribbean’s modernizing civilization. Although huge upfront capital investments would be needed before any new energy supply and sustainable development measures can be implemented, it is an excellent groundwork for improvement. As times are changing and the undeniable acceleration of global warming persists, climate investments would be a push to meet the sustainable development and climate goals that have been set.