Exploring the notion of a Caribbean emissions trading scheme: financing the greening of Caribbean economies

Between 2000 and 2019 the Caribbean Community produced between 0.11 and 0.16% of global emissions. However, despite being only minor emitters these countries find themselves highly exposed to the impact of climate change, increasingly vulnerable to floods, droughts, rising temperatures, rising sea-levels, hurricanes and coral bleaching etc. Furthermore, CARICOM Member States have submitted their Nationally Determined Contributions (NDCs) to the United Nations Framework Convention for Climate Change (UNFCCC). The subregion has, however, lagged behind in the receipt of grant and concessionary support for its climate change adaptation and mitigation needs. Accordingly, one market-based modality, which may be useful a tool for generating the necessary resources for implementing Caribbean NDCs is the development of a regional emissions trading scheme (ETS). Presently, no such market-based mechanism exists in the subregion. This paper therefore represents exploratory research that considers the structure and function of ETS schemes which can be useful for leveraging implementation of Caribbean NDCs. However, for such an ETS to be a success, its framework must be structured carefully. Key factors which must be considered in its design are the size of the emissions cap for the countries, the sectors that will be involved, the Greenhouse gases (GHGs) to be covered, a monitoring, reporting and verification framework for the GHG emissions, the emissions allowances allocation system, and an emissions allocations reserve. The fact that NDCs may of necessity become increasingly ambitious will also have to be considered when designing a regional scheme. The revenue that is generated from the auctions can be retained by the ETS regulator to assist in offsetting its operational costs. Surplus revenue can be used to finance other climate change adaptation and mitigation projects. However, the distribution of the surplus revenue that accrues from such auctions will need to be carefully calibrated given the heterogeneity in size, industrial development and levels of emissions across Caribbean countries.