How will CBAM change Trinidad and Tobago’s business climate?

The Carbon Border Adjustment Mechanism (CBAM) is one of the many tools Europe is using in its contribution to the fight against climate change.

CBAM is a tariff levied on exports to the European Union (EU), based on carbon emitted during their production. Its main goal is to accelerate the decarbonisation of industries, by establishing a price for carbon while limiting businesses from shifting production to countries with more lenient climate regulations.

TT, like many other countries that export to the EU, will have to begin reporting on the amount of carbon emitted in manufacturing products from January 2025.

The EU is not the only region taking this route, as the UK is also developing its own carbon policies with the aim of pricing carbon and bringing its region to net zero.

A significant number of TT’s exports are energy-based and have significant carbon footprints.

TT, using its natural gas resources, became one the highest exporters of ammonia in the world.

At the Global Climate Change Alliance (GCCA) held at the Trinidad Hilton, Port of Spain, on November 29, EU Ambassador Peter Cavendish pointed out that TT’s exports to Europe amount to $33.8 billion a year, and TT is the second-highest exporter of ammonia in the world to Europe.

Cavendish said Europe has spent €1 billion ($7.1 billion) in development funds in clean-energy projects alone.

He said the EU was part of the installation of 12 solar panel systems, including the solar park in Piarco, which was commissioned in July.

He said the solar park provides four per cent of the airport’s energy needs.

In a discussion on catalysing climate change at the forum, Dr Jaymeion Jagessar, a project researcher at UWI pointed out that, given the amount of energy-based exports TT makes, the EU CBAM and other carbon-based tariffs will have a significant effect on TT’s energy industries.

TT and CBAM

The CBAM will initially apply to imports of particular goods which are significantly carbon-intensive. These include cement, iron and steel, aluminium, fertilisers, electricity and hydrogen.

The reporting phase in January is just part of the plans for CBAM implementation.

The objective of the reporting period is to act as a transitional phase and learning period for importers and producers of carbon-intensive products during which

importers of goods in the scope of the CBAM regulations can assess and report on the greenhouse gas (GHG) emissions from the manufacture of their goods.

Indirect emissions will also be covered after the transitional period, for sectors such as cement and fertilisers, through a methodology outlined in an implementing regulation published on August 2023.

For example, petrochemicals, such as ammonia are covered under the CBAM regulations under the manufacture of fertilisers.

CBAM regulations dictate that even if the ammonia is not used for fertiliser it is still covered under the category.

Jagessar, in his presentation, said exports to Europe account for around 12-14 per cent of TT’s total exports, more than 90 per cent of which will be covered under the CBAM regulations and tariffs.

He said this could have direct implications for TT when fully implemented, including high production costs.

"Overall, in terms of our foreign exchange earnings, it may have some key implications," he added. "A socio-economic impact assessment is needed in terms of fertiliser products and the impact it will have on national production."

Jagessar said TT may have to deal with multiple tariffs on carbon, given that the UK is also making its own policies on carbon pricing.

"Every CBAM regime will be different, as each will be designed to meet a distinct set of national climate-change policies," Jagessar said.

However, he said the CBAM policies can benefit TT in some ways.

"There are opportunities in terms of technology transfer and a market shift, (meaning that) CBAM could incentivise TT to adopt cleaner production methods, making its exports more competitive in the global market."

Government’s measured approach to transition

Speaking at the forum, Sheena Gosine, adviser to the Minister of Energy on energy international relations and affairs, said TT is taking a measured approach to transitioning to clean energy.

"TT is a very unique country and we have to transition in our own context."

She reminded the audience that TT has a 100-year history in oil and gas, with a robust value chain, contributing significantly to TT’s GDP.

She said in the ministry's view, natural gas – the cleanest-burning fossil fuel – will be what drives energy transition.

TT has also ratified the Paris Agreement and pledged to reduce greenhouse-gas emissions by 15 per cent by the year 2030.

The Ministry of Energy was given a target to transition to clean-energy resources by 30 per by 2030.

"The approach the ministry has taken is to focus on our mandate, which is power generation," Gosine said. "We have been focusing on decarbonising the power-generation sector."

She said the ministry plans to meet its targets through sector coupling – integrating and co-ordinating with different sectors.

"Sector coupling would refer to an efficient transfer of energy resources between sectors. In our case, that is emitting sectors."

She said TT uses up to ten per cent of its natural gas for power generation.

In 2023, as hot spells gripped the nation, TT recorded the highest peak demand for power generation on September 13.

T&TEC in a newspaper report said while it had enough installed capacity to meet the demand, it has resulted in increased natural gas usage.

In 2018, the ministry issued for proposals (RFP) for the generation of up to 130 megawatts of power to the national grid.

A consortium of bp and Shell won the bid. As a result a solar farm, now called TT Solar, is expected to be commissioned in Brechin Castle in Couva.

Gosine said one of the greater challenges for TT to transition to clean energy, especially through power generation, is land availability.

"One of the key learnings is that the large areas of land that are available for these types of plans, are covered by leases, transfer issues and other matters."

She said the ministry took the approach of land in the government’s possession that was not in use.

"Three years ago we had a minerals advisory committee, which identified parcels of land that are illegally quarried in the northeastern area. Many of these lands are non-utilised state lands. So we planned to do an offering of land for the next RFP."