A recent article on climate change in the Caribbean published by the International Monetary Fund (IMF) has said that the island territories, collectively, are “the most exposed region to climate-related natural disasters,” and puts its “estimated adaptation investment needs” at more than $US 100 billion, an amount which the article says is “equal to about one-third of its (the region’s) annual economic output.” The grim reality of the extent of the Caribbean’s climate exposure is contained in a June 27 article titled “Caribbean Climate Crisis Demands Urgent Action by Governments and Investors” and authored by Alejandro Guerson, James Morsink, Sònia Muñoz.
And, as if the shocking extent of the region’s exposure to climate disaster were not enough, the article contends, that with electricity largely generated using fossil fuels, “energy prices in the Caribbean are among the highest in the world,” a circumstance which is says highlights “the need for investment in lower-cost and lower-carbon energy production.” The current level of private climate finance in the Caribbean region, the article says, falls well short of what is needed though it alludes to “recent initiatives” including the “issuance of blue bonds combined with debt-nature swaps” and the “opening of fiscal spaces for nature conservation investments in coastal areas” which it says are considerations that might help mitigate the extent of the crisis. It also points to the issuance of a “catastrophe bond for financial protection against hurricane damage” in Jamaica.
And, according to the article, notwithstanding the fact that most countries in the region purchase disaster insurance from the Caribbean Disaster Risk Insurance Facility, while others are enrolled with World Bank contingency credit lines, “coverage levels are below the needs for rehabilitation and reconstruction.” And according to the article, while a pipeline of “bankable climate projects” is critical for raising private financing, this remains insufficient due to what it says is “limited capacity and expertise for project preparation.” Similarly, qualification requirements to access climate funds are often beyond the administrative capacity of small country and microstates’ governments, given the fixed costs of project evaluation and appraisal, the article adds. The Caribbean’s access to climate financing, the article adds, is further restricted, given “the multi-faceted nature of climate financing operations which include finance, legal, environmental and budget aspects,” and “requires the involvement of several departments across the public administration,” circumstances which it says, leads to “costly and lengthy preparation periods.”
Meanwhile, the article says that the high level of government debt being experienced by various territories in the region reduces the fiscal space for sharing risks in terms of accessing financing. This, it says, is particularly critical, given the fact that “climate investments are needed now while the return accrues in the long term.” If obstacles to countries accessing private financing exists, the article says, governments need to “strengthen the institutions and processes that develop, execute, and fund climate-related projects.” These, it says, include “green tagging of projects in budgets, accreditation to apply to climate finance, and upgrading procurement, transparency and reporting standards.” It adds that if “constraints related to small size” are to be removed, Caribbean countries could “pool administrative resources to reduce costs, while strengthening communication across departments involved in climate finance operations.”
Governments, it says, meanwhile, could also facilitate access to private sector finance with the “modernization of foreclosure procedures and accounting and reporting standards, and the establishment of credit bureaus. Given that social benefits will be larger than private benefits, governments should also remove bottlenecks at the sectoral level by adopting “clear legal and regulatory environments for renewable energy and eliminating fossil fuel subsidies, especially those for electricity production.”
