Posted in climate change

Economic incentive for fossil fuel divestment

 Written by – Daryll Griffith

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When you think of the Caribbean islands you think of sandy beaches filled with palm trees and rich biodiversity. This imagery is not entirely wrong, however, the Caribbean has a history that is deeply rooted in the production and consumption of fossil fuels. The Caribbean region has been involved in the exploration of oil for over one hundred years and while most of its nations are net importers of energy, Trinidad and Tobago (T&T), a Small Island Developing State (SIDS), is the largest oil producer in the Caribbean and one of the largest natural gas producers in the Western Hemisphere.

Focusing on the imagery of palm trees swaying in the Caribbean breeze and the abundance of sunlight, it’s hard to imagine why there hasn’t been more emphasis on these alternatives in the past to provide the energy we need. The reasons are tied to Development Economics and History in the Caribbean.

The graphs below show the relationship between the rising and falling prices of both Oil and Natural Gas compared to a graph of total Government Revenues for T&T from all sectors over a period of twenty-three years. Looking at the fluctuations it’s noticeable that there is a positive relationship between energy prices and Total Revenue.

Revenues for Trinidad and Tobago

Energy prices in USD$

What this indicates is a country that is significantly dependent on energy prices to fund its economy and to maintain the standard of living of its citizens. Looking at the Total Revenue of Barbados, which is a net importer of energy they are less affected by the fluctuations in these prices.Gross domestic product at Market prices.png

Source: Central Bank of Trinidad and Tobago (www.central-bank.org.tt)

What is this called?

The Economist coined the term ‘Dutch Disease’ in 1977 to describe the woes of the Dutch economy. It is typically used to explain the negative impacts on an economy of anything that gives rise to a sharp inflow of foreign currency, such as the discovery of large oil reserves. The inflows lead to currency appreciation, making the country’s other products less price competitive on the export market.

Why this is a problem?

The reliance on one major export commodity to provide income for the local economy leaves the country at ransom to its fluctuations. In a fossil fuel economy there is little incentive to invest in alternative forms of energy as infrastructure and energy reserves exist, this is apparent in the economy of T&T. The cost of fuel and electricity have been heavily subsidised over the past decade and there has been little investment in renewable energy infrastructure.

Furthermore Central Government employs a large portion of the population and standard of living is highly dependent on fossil fuel revenues, whether directly or indirectly.

Does this mean that fossil fuels are still relevant in the Caribbean?

Largely yes, as the data above indicates there exists a close relationship between the prices of fossil fuels in the commodity markets and the revenues of T&T. Unless T&T and other countries affected by the Dutch Disease phenomenon are able to diversify their economy away from the dependence on fossil fuel income they will remain relevant as development needs tend to trump that of reducing the carbon footprint.

In comparison to Trinidad and Tobago, Barbados as a net importer of energy has been more aggressive in investing in renewables over the past decade due to their diversification from an economy that heavily relied on sugar in the 1970’s to providing other commodities and services to the international market.

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At the Paris Agreement in 2015 (COP21), countries declared in solidarity their desire to keep the climate from rising above 2C by 2030. Countries have stated their intended nationally determined contributions toward this goal. SIDS are already being affected the most by climate change and are advocating for the 1.5 degree goal.

Making fossil fuels irrelevant in the future is no easy task but the Paris Agreement in some ways can be viewed as a path to make this a possibility by attempting to significantly reduce emissions. Going forward, SIDS must seriously address their systematic reliance on fossil fuels as a way to truly stay alive or fossil fuels will forever remain relevant. The Caribbean as a region needs only to look around and bask in the warmth of its sunlight and the force of its winds as the future for renewable energy is bright.

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Author:

"She believed she could, so she did." - R.S. Grey, Scoring Wilder ---- I am a passionate writer, environmentalist, and wanderer.

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