Climate Action

Operationalising Climate Considerations  

CDB has adopted a risk-layered approach to support its BMCs to enhance resilience of the most vulnerable groups, and infrastructure in key climate-sensitive sectors such as agriculture, water, road transportation, energy, and tourism. This approach entails inter alia developing strategic partnerships with national, regional and global institutions to harness expertise and mobilise adequate concessional finance, facilitating the integration of Disaster Risk Management (DRM) and Climate Change Adaption (CCA) into development planning and decision—making, and aligning the Bank lending and operations with the priorities of the BMCs. 

All investment projects are systematically screened for climate risks, and climate vulnerability and risk assessments are undertaken as required. CDB then works with BMCs to integrate relevant measures into investment projects to help mainstream climate resilience into the Region’s infrastructure investments. CDB country engagement strategies similarly integrate climate resilience strategies based on climate risks and government targets. 

Increasing Climate Finance  

Overall, CDB is making a concerted effort to scale up flows of climate finance to support much-needed investments in the Caribbean. Between 2017-20, CDB’s climate finance was approximately USD223 million accounting for 15% of approvals during this period. CDB will significantly scale up lending and support for climate action in the coming years. This includes a commitment to allocate 25-30% of CDB’s own resources for climate action by 2024. CDB will also leverage additional concessional climate finance through the global climate funds.  

CDB also works with international partners to harness expertise and mobilise concessional climate finance to scale up investment in climate change adaptation and mitigation. CDB manages the Caribbean Action for Resilience Enhancement (CARE) Programme financed by the European Union (EU). CARE is a five-year Programme that will provide EUR14 million in grant financing to support initiatives to reduce the impacts of climate change and disasters in BMCs. CARE is focused on improving governance of disaster risk management and climate change adaptation as well as strengthening evidence-based and gender-sensitive decision-making.  

CDB is implementing the Canada-CARICOM Climate Adaptation Fund (CCAF) financed by Global Affairs Canada. In 2021, CDB disbursed about USD8.5 million to the Caribbean Catastrophe Risk Insurance Facility (CCRIF) for 2020/21 and 2021/22 insurance premium payments, on behalf of seven CCRIF member countries that are eligible for support under the CCAF. The Bank also provided support to the Government of Haiti with a grant of USD6.9 million to meet the cost of its annual insurance premium to CCRIF 2021-22 and USD3 million for 2022-23. CDB also initiated a comprehensive diagnostic of gender-sensitive, innovative disaster risk finance instruments to determine a range of suitable instruments that can be implemented to strengthen BMCs’ financial and social resilience to disasters. 

CDB is also working with BMCs to develop an ambitious pipeline of programmes and projects for co-financing from the Green Climate Fund (GCF), which will be catalytic in scaling up investment in climate action in the Caribbean. CDB has mobilised Project Preparation Facility (PPF) grants to support the development of three large-scale capital projects that will: (i) increase access to concessional credit for local small businesses, with a focus on greening the tourism sector; (ii) enhance the resilience of water supply and water infrastructure; and (iii) ramp up investment in distributed energy resources such as rooftop solar photovoltaic and battery energy storage systems to enhance energy sector resilience and reduce greenhouse gas emissions.  

In addition, CDB is working with the GCF Secretariat and national counterparts to develop the BlueCo Caribbean Umbrella Programme that aims to help catalyse the transition toward a climate-resilient blue economy in the Caribbean, including by supporting innovative approaches to leverage private sector financing and investment in this space. 

CDB also supports BMCs to mobilise grant financing for technical assistance and capacity development through the GCF Readiness and Preparatory Support Programme. The Bank is currently working with five different BMCs to implement readiness projects that are strengthening national policies, plans and capacities that will in turn enable BMCs to better mobilise, and more effectively utilise, concessional climate finance from the GCF and other sources. 

CDB is supporting the implementation of the Building Resilience and Adaptation to Climate Change and Climate Vulnerability in the Agriculture Sector in Saint Lucia project. The intervention is financed through a USD9.9 million grant from the Adaptation Fund and will contribute to increasing resilience in four agriculture regions in Saint Lucia through improved water security, farm productivity and livelihoods. 

CDB has also been implementing the African Caribbean Pacific-European Union-CDB Natural Disaster Risk Management in CARIFORUM Countries Programme. This initiative has delivered significant benefits for the Region, including: 

• support to the Caribbean Disaster Emergency Management Agency (CDEMA) to develop Model Guidelines for National Shutdown Procedures for Hydrometeorological Events to help countries improve their emergency response protocols and procedures; 

• the development of a multi-criteria bushfire index to provide accurate bushfire warning to at-risk communities in Jamaica; and 

• a climate and geophysical hazard risk profile for the power sector and associated designs to build resilience in the Saint Vincent and the Grenadines national electricity network including hydropower generation. 

• Support for the Caribbean Tourism Organization to prepare and publish the Caribbean Sustainable Tourism Policy and Development Framework. 

• Design of three online courses and publication of a suite of tools to help assess and design effective gender-sensitive climate resilience actions for the water and road transport sectors in the Caribbean. 

• Upgrade of early warning systems in the Region. 

• Support to capacity development through training of nearly 2000 people and sensitisation over 1.5 million on DRM and CCA 

As a result of these efforts, CDB’s lending and operations have been found (via an independent assessment) to be consistent with the goals of the Paris Agreement. The Bank is also working to further strengthen its Paris Alignment and reports to member countries on the progress achieved in this respect. 

In addition to continuing the above-described work, CDB is also planning to strengthen and scale up its climate-related support. This includes (but is not limited to) the following: 

• CDB aims to significantly scale up its own climate finance contributions. CDB has already made considerable concessional climate finance available to the BMCs, including through strategic partnerships with regional and international development partners. Between 2017-20, CDB’s climate finance was approximately USD223 million accounting for 15% of approvals during this period. CDB now aims to scale up lending and support for climate action and to allocate 25-30% of its own resources for climate action by 2024. 

• CDB expects to begin securing GCF Board approval of large-scale capital programmes/projects in 2024. CDB is developing two multi-country programmes and a large national project to address crucial climate change adaptation and mitigation needs across the Region. CDB expects that the preparatory work for two of these initiatives will be completed in 2023, and thus expects that the programme proposals will be ready for GCF Board review and approval in 2024. 

• CDB also aims to establish a Climate Change Project Preparation Fund in 2024. Limited access to project preparation resources is one of the key barriers inhibiting climate finance flows to the Caribbean. Building on the experiences of other Multilateral Development Banks, CDB therefore aims to establish a fund that will provide grant financing to support capital project preparation. The Bank expects that this fund will be capitalised with a combination of own resources and donor contributions.  

Capacity Building 

CDB remains at the forefront of proactive engagement with key stakeholders, advocating for increased climate action across national, regional, and international levels. By directing its efforts toward initiatives that cultivate awareness and education, the bank has effectively engaged both the public and decision-makers in understanding climate risks. Central to its approach is the unwavering commitment to utilizing, endorsing, and advancing the use of scientific data. This approach not only underscores the bank's commitment to evidence-based planning but also underscores its support for the creation of tools and knowledge products that bolster the region's resilience. 

In collaboration with the Climate Studies Group Mona of the University of the West Indies (UWI), CDB has undertaken the task of delivering climate-smart workshops to influential practitioners and policymakers within climate-sensitive sectors across the BMCs.  

CDB also worked with the UWI to produce the 2020 State of the Caribbean Climate Report, a pivotal publication that can be used to inform the design and execution of robust climate change adaptation strategies spanning key sectors such as agriculture, water management, transportation, and tourism. 

Moreover, CDB's commitment to enhancing resilience extends to the development and publication of sector-specific tools for water, road transport and tourism. Currently, the Bank is implementing a technical assistance project aimed at deploying the road transport tool to hasten the integration of climate resilience within the road transport sector of the BMCs.  

CDB is financing a study on Caribbean climate change adaptation with an emphasis on development, adoption, implementation, and financing of climate adaptation initiatives. The study has unveiled a staggering estimation of annual adaptation costs exceeding US$14 billion for the Caribbean. This finding has further stimulated the Bank’s  advocacy pursuits, providing substantial backing for its push to scale up investment in climate change adaptation across the region.  

CDB also provides valuable support for CDEMA, including grant financing to ensure CDEMA is well-equipped to respond to natural disasters throughout the region. 

Global Engagement 

While the Bank's primary focus remains rooted within the region, it also engages rigorously with global climate players, including bilateral and multilateral financial institutions. This global outlook is upheld through consistent presence at pivotal climate-related conferences, meetings, and dialogues.  

Evident within the Bank’s track record are notable examples, including its participation in the planning events for the upcoming 4th International Conference on Small Island Developing States (SIDS), and its contributions to forums like the 4th Finance in Common Summit September 2023, the Climate Finance Meeting in the Americas, and the Organization of American States  4th Inter-American Meeting of Ministers and High-Level Authorities for Sustainable Development, October 2023, World Trade Organization, United Nations General Assembly Meeting September 2023, International Monetary Fund, World Bank Meetings and other multilateral development bank annual meetings. 

The Caribbean, composed primarily of small islands, developing and low-lying coastal states, holds a negligible share (less than 1%) of global greenhouse gas emissions. However, the convergence of its geographical location, geomorphology, and socio-economic characteristics makes it one of the most exposed and vulnerable countries to climate change impacts.   

Climate-related hazards, including hurricanes, tropical storms, rising sea levels, storm surges, floods, increased temperatures, and prolonged droughts have severely affected key economic sectors such as agriculture, water resources, tourism, transportation, and education. Their repercussions extend to substantial adverse impacts on livelihoods, employment, public finances, and private assets. 

The Paris Agreement has an aspirational target of limiting global warming to 1.5°C, however, projections based on climate models indicate that the world will likely meet and even exceed the 1.5°C threshold in the near term (2021-2040). This poses particularly grave consequences for Small Island Developing States (SIDS) and low-lying coastal states such as those in the Caribbean. Given the escalating climate threats, concerted, accelerated, and innovative actions are urgently required to prevent catastrophic outcomes globally and particularly in the vulnerable countries in the Caribbean. Special attention must be given to safeguarding the well-being, resources, and livelihoods of the Caribbean's people while advancing sustainable development.  

Inadequate Finance Flows 

On a global scale, climate finance flows have exhibited a steady increase, growing at an annual rate of 7%, surging from USD364 billion in 2011 to a substantial USD665 billion in 2020 (https://www.climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-2022). However, the stark reality remains that climate finance flows fall significantly short in addressing the exigent needs for robust mitigation strategies across sectors such as energy, infrastructure, industry, and transportation. These endeavours are indispensable for limiting global warming within the 1.5-degree Celsius threshold and for establishing adaptive mechanisms against prevailing and impending climate risks and impacts. The gravity of the situation becomes even more pronounced since this decade necessitates climate finance allocations within the substantial range of USD4.3 trillion to USD9.3 trillion to effectively steer the course towards low-carbon, climate-resilient growth. Reflecting on IMF data analysis (https://www.imf.org/en/Blogs/Articles/2023/06/27/Climate finance received by caribbean countries) Caribbean countries received an aggregate of approximately USD 800 million in climate finance Caribbean countries have only been approved for about $800 million from climate funds -Green Climate Fund, Global Environment Fund, and Adaptation Fund. 

Nonetheless, it is essential to underline that a recent study financed by CDB underscores the pressing demand for adaptation-related funding. The study asserts that the Caribbean region must mobilize no less than USD 14 billion annually to effectively grapple with the mounting challenges posed by climate impacts.  

Addressing Constraints  

Fiscal and financial constraints are among the key barriers to scaling up climate action in the Caribbean. Impediments that must urgently be addressed through a coordinated effort by the international community include:    

• the ad-hoc and unreliable nature of such financial flows  

• difficulties accessing available climate finance; and  

• insufficient levels of concessionality.  

Concerning fiscal and financial constraints, there are two other particularly important points that CDB would like to stress: 

There is a pronounced need to adopt more nuanced approaches to assessing when/how concessional financing should be used. Concessional resources have always been needed for crucial adaptation interventions that do not directly generate revenue for beneficiaries, such as water resource monitoring systems and support for integrated land-use planning, among other areas. But we must also broaden the way we assess when/where concessional resources are warranted at project level. Multilateral funds and other providers of climate finance often simply look at whether a particular investment would be viable at a particular interest rate (e.g. 1%) based on the financial model, and do not consider that the prospective borrower may face other real-world constraints that prevent it from borrowing. In short, we cannot simply assess what level of concessionality is needed to make a particular investment financially viable on paper, but must also assess what level of concessionality is needed to make much-needed capital projects feasible in practice – recognizing that many governments, utilities and other stakeholders in the Caribbean are currently unable and/or unwilling to borrow (irrespective of how concessional the rates may be). 

There is a pronounced need to account for climate change vulnerability when determining how to deliver international financial assistance and debt relief. Many Caribbean countries are incurring (and will continue to incur) considerable losses and debt due to their vulnerability to climatic hazards. These same countries are mostly classified as ‘middle-income countries’ and have therefore been unable to benefit from most of the concessional financing and debt relief support provided by the international community, which is mostly earmarked for low-income countries.  

CDB’s Advocacy for an Equitable Mechanism for Allocation  

CDB is a strong advocate for the equitable allocation of climate finance, particularly directed towards countries that remain highly vulnerable to climate change impacts even when they achieve acceptable gross national income (GNI).  CDB has played an active role in fostering a paradigm shift within the global financial landscape, aimed at increasing the accessibility of concessional finance to Caribbean countries. While conventional practices lean heavily on metrics such as GNI for resource allocation, CDB has demonstrated an exceptional capacity for innovation by championing the integration of vulnerability and resilience considerations into the financial eligibility criteria.  

CDB’s proposed Vulnerability and Resilience Framework will complement the existing GNI-based evaluation, offering a more comprehensive assessment for the allocation and accessibility of concessional bilateral and multilateral climate finance, as well as debt relief support. The underlying rationale lies in acknowledging that GNI, while pertinent, often falls short in encapsulating the intricacies of vulnerability and resilience dimensions, which are integral to development trajectories and the corresponding financing prerequisites. The proposed framework, distinguished by its inclusivity, integrates per capita income with a country's inherent resilience capabilities and its capacity to recover from external shocks. This holistic approach is a concerted effort to engender more balanced and just access to concessional finance and debt support relief, particularly reflective of the multifaceted vulnerabilities confronting Caribbean countries. 

The Caribbean is among the most vulnerable regions in the world to a changing climate. Due to its location, geomorphology, and socio-economic characteristics, the Caribbean is highly exposed to numerous climate-related hazards such as hurricanes; tropical storms; storm surges; sea-level rise; flooding; increasing temperatures; and drought.  

Climate change projections suggest an intensification of these risks over the coming decades. This is negatively affecting (and will continue to affect) agricultural production and food security, the integrity of water systems, the tourism sector, and physical infrastructure (e.g. buildings, and transport networks) throughout the Caribbean. The negative impacts on economic activity and incomes, (un)employment, public sector budgets, and private balance sheets are all significant and will likely continue to mount over time. 

Caribbean countries understand the urgency of the climate crisis and have made ambitious commitments to enhance resilience while pursuing decarbonisation where/when feasible in their nationally determined contributions, National Adaptation Plans, and other key policies and strategies. However, several barriers are inhibiting climate action at a scale that is commensurate with the magnitude of the challenges faced including:  

Public fiscal constraints: High levels of public debt remain a major challenge throughout the region, often ranging from 75-130% of GDP. This issue has been further compounded by the COVID-19 pandemic and its impacts on regional tourism and tax revenues, as well as the current energy and food price crises. These public debt levels are already having a direct and significant impact on the ability of Caribbean countries to invest in climate change adaptation. 

Difficulties mobilising private sector investment: The private sector (including local micro and small businesses) and households have an important role to play in scaling up climate action, particularly in sectors where private investment decisions determine the sectoral development trajectory (e.g. energy, agriculture, tourism). However, encouraging the private sector to invest in climate action can be challenging due to perceived risks, a non-conducive environment, inadequate incentives, and uncertainties in returns on investment.  

Difficulties mobilising climate finance: Caribbean countries have struggled to mobilise resources from multilateral/vertical funds such as the Green Climate Fund, Adaptation Fund, and the Global Environment Facility. There are several reasons for this, including: 

• Difficulties developing a robust “climate change rationale” for projects due to the limited availability of reliable information  

• Difficulties understanding the nuances of the funds’ policies and standards, which are often set globally and thus do not account for the unique circumstances and needs of SIDS in the Caribbean and other regions; 

• Challenges finding funds to complete the design, feasibility, and other preparatory work that is needed to secure approval of a project proposal – a challenge that affects resource mobilisation from multilateral funds as well as other potential financiers; 

• A general lack of capacity to develop projects to the standards required by the global climate funds, which is in part due to the limited number of regionally-based specialists with expertise on climate change and experience preparing bankable proposals. 

Surmounting the Barriers  

CDB has been actively working with its Borrowing Member Countries (BMCs) to address constraints hindering effective climate action. The Banks efforts include:  

Resource allocation: CDB is committed to raising its allocation of resources for climate action to 25-30% by 2024, having achieved a rate of 24% in 2022.  

Strategic Partnerships: CDB is engaging with major climate players and financial institutions from both the public and private sectors to scale up climate finance flows and encourage transformative investments for resilience in the Region. The Bank has diligently developed strategic partnerships to mobilise and channel resources to support the region's climate-oriented endeavours. These partnerships involve a spectrum of initiatives, including:  

• Ongoing implementation of the EU financed the ACP-EU-CDB Caribbean Action for Resilience Enhancement (CARE) Programme 

• The Canada-Caribbean Climate Action Initiative, which is a multi-country programme being developed by CDB to help accelerate the region’s sustainable energy transition.  

• The Canada-CARICOM Climate Adaptation Fund, financed by Global Affairs Canada which spearheaded a comprehensive assessment of gender-sensitive, innovative disaster risk financing instruments 

• A line of credit for sustainable infrastructure projects in partnership with Agence Française de Développement.  

• The acquisition of USD 9.86 million from the Adaptation Fund to implement the "Building Resilience for Adaptation to Climate Change and Climate Variability in Agriculture in Saint Lucia" project, an ongoing initiative focused on improving Saint Lucia's agriculture sector's resilience against climate change and climate variability, thereby ensuring livelihood security. 

• Engagement with Global Shield to strengthen the resilience of developing countries and protect the lives and livelihoods of poor and vulnerable people against the impacts of disasters through climate and disaster risk finance and insurance solutions.   

Mobilising Finance: CDB continues to strategically partner with BMCs to develop an ambitious pipeline of programmes and projects earmarked for co-financing via the Green Climate Fund (GCF). CDB aims to mobilise more than USD 150 million in concessional climate finance through these programmes and projects.  

In collaboration with GCF, CDB is developing the BlueCo Caribbean Umbrella Coordination Programme that would unlock public and private sector financing for investments in a climate-resilient and low-emissions blue economy. 

Leveraging its inherent strengths and strategic positioning within the region, the Bank continues to operate as a conduit, facilitating funding flows from the Inter-American Development Bank to the countries within the Organisation of Eastern Caribbean States.  

Capacity Building: To ensure its BMCs are positioned to successfully attract and implement GCF support, CDB plays a pivotal role within the GCF Readiness and Preparatory Support Programme through the implementation of technical assistance grants to assist BMCs with planning climate-oriented strategies and developing their institutional capacities. CDB has delivered five GCF Readiness projects that collectively mobilised USD 2.7 million in technical assistance grants and which will enable the preparation of downstream investments for the BMCs.  

The Bank also collaborates with pivotal regional development institutions, including but not limited to the Caribbean Disaster Emergency Management Agency, the Caribbean Institute for Meteorology and Hydrology, the Caribbean Tourism Organisation, the University of the West Indies, the Caribbean Catastrophe Risk Facility Segregated Portfolio Company, and the Caribbean Community Climate Change Centre to propel the implementation of technical assistance interventions. These interventions, in turn, contribute to strengthening the technical and institutional capacities crucial for effective project execution.  

Beyond the Region 

While CDB is seeking to alleviate the problem at the regional level, changes are needed in the global sphere if the threats faced by Caribbean Countries are to be neutralised.  

The international community – and particularly the world’s largest emitters of greenhouse gases – will have to make significant progress towards decarbonising their economies this decade to reach net-zero greenhouse gas emissions by 2050. It is therefore imperative that – in addition to setting long-term goals (i.e. by 2050) – countries should set ambitious medium-term targets (i.e. by 2030) to ensure climate action is not deferred until later decades. This applies to both mitigation and adaptation.  

For mitigation: Definitive steps must be taken to decarbonise sectors that already have cost-effective technologies and solutions (e.g. energy, local transportation, buildings, and land use) while also investing in research to develop economically viable low-emissions alternatives in other sectors (e.g. heavy industry, and long-haul transportation). Technology transfer and exchange will be important to enable widespread deployment of these technologies in developing countries. 

For adaptation: If astute investments are not made now to put our societies and economies on climate-resilient pathways, climate change impacts, and the associated costs will continue to mount. In short, the vulnerabilities of today could undermine economic growth, development, and public sector budgets tomorrow, limiting the ability to make the necessary future investments to adapt to the mounting impacts of climate change. 

Ultimately, the transition to a sustainable future must consider the social, economic, and environmental impacts on vulnerable communities and support their resilience and sustainable development. 

For the Caribbean Development Bank’s (CDB) Borrowing Member Countries (BMCs) there can be no sustainable development without energy security and sustainable energy.  However, both necessities remain elusive for the Region as its energy profile is defined by an over-dependence on the imported fossil fuel that accounts for almost 80% of electricity generation. Electricity prices across most BMCs remain among the highest in the world, and are, on average, about three times as much as prices in the United States. 

Among other impacts, this exposes these countries to the perilous vagaries of international oil prices, drives up production costs, and increases public debt. During the first half of 2022, BMCs saw oil prices rise by an average of 50% when compared to 2019.  Based on CDB’s estimates, over the period January to June 2022 – just 150 days – Caribbean Community (CARICOM) governments, businesses, households, and citizens had to find a total of USD 2 billion to pay for energy, on top of the already challenging, post-pandemic fiscal conditions.  

A transition to sustainable energy could allow BMCs to simultaneously address their two-fold challenge. Renewable energy (RE) and improved energy efficiency, can address the energy security challenges by providing an indigenous reliable, supply with stable and affordable prices, void of market vagaries. Simultaneously, a sustainable energy source can displace fossil fuel use and reduce carbon emissions, pollution, and negative climate impacts. 

However, although CARICOM has set a goal of 47% renewable energy contribution to total electricity generation by 2027, the Region remains off target as annual investment in RE capacity is averaging USD 75 million compared to the approximate USD 1.3 billion per annum needed to achieve it.    

ASERTive Solutions  

CDB is aware that most of the growth and sustainability strategies to strengthen its BMC’s vulnerable economies hinge on the ability to secure an affordable, reliable energy supply.  Consequently, the Bank’s current Energy Sector Policy and Strategy (ESPS) was devised to assist with expediting the Region’s energy transition by encouraging and enabling BMCs to significantly increase the speed and scale of sustainable energy investments to meet their 2030 climate targets and energy-related Sustainable Development Goals (SDGs).  A key element of the ESPS is the Bank’s Accelerated Sustainable Energy and Resilience Transition (ASERT) Framework which focuses on catalysing actions to overcome deep-rooted obstacles, scale up sustainable energy investments, and increase resilience. 

Developed with due consideration for BMCs’ Nationally Determined Commitments (NDCs) under the Paris Climate Change Agreement and regional RE targets, the ASERT framework:  

• Aims to support the acceleration of the crucial process of comprehensive ‘greening’ of the public sector in BMCs – including energy efficiency and RE for Government facilities, as well as electrification of public sector fleets 

• Speaks to ramping up investments in grid modernisation to improve resilience, reliability, efficiency, and enable increased RE penetration, through transmission and distribution system upgrades, smart grid technologies, battery storage technologies, and micro-grids 

• Focuses on de-risking of opportunities in the areas of offshore wind and green commodities – such as green hydrogen – which present massive opportunities for the region to truly become energy-independent 

• Aims to support the optimisation of sustainable energy generation processes that can facilitate cross-border electricity grid interconnection for the Caribbean.  

In addition, targeted and strong strategic partnerships are a central feature of the framework to facilitate scaled-up resource mobilisation and increased coordination among local, regional, and global actors supporting the sector.  

How ASERT Can Impact Climate Action   

The energy sector is the single biggest source of carbon emissions globally, therefore, it is the main target for mitigating climate change.  The contribution to the global stock of carbon emission by the energy sector of Caribbean countries in general (and CDB BMCs in particular) is infinitesimally small.   Nonetheless, all BMCs have committed to making their contributions to climate change mitigation by transitioning their energy sectors away from fossil fuels.   

By virtue of geography, the renewable energy resource endowment across BMCs is large compared to their domestic energy demands this means that, if these countries could fully develop their renewable energy resources in a timely manner, in addition to meeting their own needs (thereby meeting their NDC commitments) they could trade in green energy and green products to support the de-carbonization of extra-regional countries that don’t have abundant RE resources.  Not only is this a means of climate change mitigation, but the economic benefits from green energy trade would also transform the economies of BMCs, enabling them to meet various SDGs. 

In addition, renewable energy systems are modular, flexible, and may be more effective for distribution, therefore their deployment can increase the resilience of energy systems.  

As awareness of environmental issues grows and more stakeholders, including businesses and consumers, prioritize sustainability, the significance of green trade – the exchange of environmentally friendly or sustainable products and services – continues to increase. Encouragingly, small island developing states (SIDS), like the Caribbean Development Bank’s Borrowing Member Countries (BMCs) can reap considerable economic and environmental benefits from green trade. However, for these states to be part of the success story, the transition to sustainable production and trade must be done in a way that minimizes social and economic disruptions and promotes fairness and justice for all. 

The Good News 

World trade in “green goods” rose around 4.0% in the second half of 2022, hitting a record of USD1.9 trillion in that year, more than USD100 billion in 2021 (UNCTAD, 2023).   If developing countries take advantage of engaging in green trade now, these nations could set themselves up for more sustainable development prospects.  The green trade industry could help protect the environment, improve country competitiveness, and reduce poverty.   Specifically, green trade has the potential to transform developing countries through job creation, innovation, and investment.   

A study published by Palgrave Communications in 2019, indicated that the green economy generated USD1.3 trillion in annual sales revenue and 9.5 million full-time jobs in the United States.  Other countries could catch up and capitalize on this potential.  A joint study by the World Bank and the WTO of January 2022 highlighted the key role that trade can play in strengthening economic resilience of developing countries. The green recovery is crucial in the post-COVID-19 era, especially in developing countries that could rebuild better. 

The Concerns 

Despite the potential benefits, BMCs are on the unfavourable end of the spectrum of climate and trade-related issues. The Caribbean, which continues to account for a considerably low proportion of global trade, has experienced overall reductions in global competitiveness and participation in global value chains and is a relatively small player in trade negotiations and settlements.  In addition, the Region faces major challenges and barriers in adopting and implementing green trade practices including:  

• Limited resources, infrastructure, and capacity to develop green trade 

• The lack of supportive trade and green-related policies at the domestic level and weak international cooperation and coordination 

• Regulatory barriers, high upfront costs, and limited investments 

• Lack of transportation and other logistics, and connectivity infrastructure 

• Limited market access, low consumer awareness and demand 

• Supply chain challenges  

• Lack of requisite skills and knowledge among the existing workforce  

The Consequences 

If Caribbean Countries are unable to surmount the obstacles that can limit their ability to compete effectively in green trade, several economic, social, and environmental consequences may arise including:  

• Limited Access to key markets due to the inability to meet international environmental standards and certifications  

• Lack of diversification in economies and increased reliance on industries that may face declining demand due to environmental concerns 

• Continued dependence on non-renewable resources, contributing to environmental degradation and vulnerability to resource-related conflicts 

• Increased environmental degradation, including deforestation, soil erosion, and pollution which can have negative consequences for local communities and biodiversity  

• Increased vulnerability to Climate Change leading to more severe consequences such as extreme weather events, water scarcity, and food insecurity 

• Lack of access to green jobs and sustainable practices which may exacerbate existing social disparities 

• Reduced foreign direct investment and limited innovation which could hinder the development of green technologies and the establishment of sustainable industries 

Devising Solutions 

While these consequences are not inevitable, international support, investment, and collaboration are needed to help countries like CDB’s BMCs transition to more sustainable and competitive economies. Additionally, addressing the root causes of the challenges by measures such as promoting inclusive economic development and providing technical assistance, can contribute to long-term solutions. This gives rise to the concept of a just transition which acknowledges that, while moving toward sustainability is essential for addressing environmental challenges, it should be done in a way that minimizes social and economic disruptions and promotes fairness and justice for all.  

Considering the complexity of challenges and vulnerabilities for SIDS, access to adequate technical and financial resources is crucial for them to push green trade.  Consequently, actions that can be taken to facilitate a just transition include:  

• International financial institutions and development banks can move faster on behalf of SIDS, by promoting their climate trade-related interests, recognizing their vulnerabilities, and helping to further meet their specific needs.  They can undertake more technical work on developing green trade in SIDS and, importantly, there should be effective coordination of the work of International financial institutions on green trade.   

• International partnerships should be forged to meet financing and technical needs of SIDS, reducing financial risks associated with green trade investment, as well as improving research and data to guide trade and investment decisions.   

• Green industrial policies must be further adopted to meet climate commitments such as those under the Paris Agreement.   

• Green trade initiatives must secure the right balance between creating climate-focused development and being in line with regional and multilateral trade frameworks. 

• Development banks should prioritise mobilising funds and resources for trade and investment that have an environmental sustainability focus.   

• Developing countries should address their economic and trade vulnerabilities, accelerate economic diversification, and strengthen the pace of trade reforms through the development of green trade policies. These policies must be tailored to the unique circumstances of each country and region, and must balance environmental sustainability and economic growth.   

• Policy frameworks for green trade in developing countries should include trade rules and agreements that promote environmental awareness, set and enforce strong environmental laws, regulations, and eco-friendly standards, incentivise sustainable production and encourage research and development of green technologies and innovations.  

CDB’s Efforts  

Regarding financing, CDB formulated an ambitious pipeline of programmes and projects for co-financing from the Green Climate Fund (GCF) to assist its BMCs. The Bank used GCF Project Preparation Facility grants, amounting to over USD2.1 million, to prepare three large-scale initiatives for submission to the GCF in 2023, which should collectively mobilise significant concessional climate finance for the Caribbean.  

CDB also delivered much-needed technical assistance and capacity-building support to its members through five GCF readiness projects, valued at USD2.7 million.   

Additionally, CDB became the first organisation, globally, to secure approval for a project under the GCF’s new Direct Access Entity support window, which will strengthen the Bank’s capacity to assist BMCs with GCF programme and project preparation in 2023.