Don't delay carbon pricing

THE EDITOR: TT stands at a critical juncture in balancing economic growth with environmental responsibility.

The European Union’s Carbon Border Adjustment Mechanism (CBAM) presents both a challenge and an opportunity. A recent International Monetary Fund (IMF) working paper recommends that Trinidad and Tobago implement a carbon-pricing mechanism to reduce greenhouse-gas (GHG) emissions and mitigate CBAM risks.

While this may seem daunting for a fossil-fuel-dependent economy, it is an essential step to future-proof our industries, protect exports, and secure long-term economic stability.

CBAM is the EU’s response to what is known as “carbon leakage” – the tendency for companies to move production to countries with weaker climate policies to avoid paying carbon costs. CBAM places a price on the carbon emissions embedded in imported goods from nations without equivalent carbon-pricing measures. Its implementation is structured in two phases. The first, a transitional phase running from October 1, 2023- December 31, 2025, requires importers to report emissions without financial penalties.

The second phase, starting January 1, 2026, will require importers to purchase CBAM certificates to offset the carbon content of their goods, with prices linked to the EU’s Emissions Trading System (ETS).

This mechanism is particularly significant for TT. Approximately 5.1 per cent of our exports, valued at US$46 million, are vulnerable to CBAM-related tariffs. Industries such as fertilisers, aluminium and petrochemicals, which form the backbone of our economy, could lose competitiveness in the EU market unless we align with international climate policies. Without a domestic carbon-pricing framework, these industries may face new financial barriers that weaken their global position.

Carbon pricing is a proven economic tool that assigns a financial cost to carbon emissions, incentivising businesses to lower their environmental impact. Countries typically implement it through either a carbon tax, which sets a fixed fee per ton of carbon emitted, or an emissions trading system (ETS), where businesses trade emissions allowances under a capped system.

For TT, implementing a carbon-pricing framework is more than regulatory compliance – it is a necessary step to ensure economic resilience and attract investment.

Ignoring CBAM’s implications would be costly. Exporting industries would struggle with increased tariffs, and investor confidence would likely decline as global markets favor countries with stronger climate policies. However, proactive measures could provide new revenue streams, which could be reinvested into renewable energy, infrastructure, and social programmes.

The economic benefits of carbon pricing extend beyond protecting exports. In the short term, it could generate revenue to fund green projects, create jobs in renewable energy, and assist industries in transitioning to low-carbon production. It would also safeguard access to the EU market, ensuring that key sectors remain competitive. In the medium term, carbon pricing could encourage economic diversification by driving investment into renewable energy, eco-tourism, and sustainable agriculture.

Energy efficiency initiatives in industries and households would lead to cost savings and improved competitiveness.

Moreover, reducing emissions would lead to cleaner air, improving public health and lowering healthcare costs.

Over the long term, a well-structured carbon-pricing mechanism would position TT as a regional leader in sustainability. A transition to a low-carbon economy would reduce reliance on fossil-fuel exports, insulating the nation from the volatility of global oil and gas markets. Investments in renewable energy and green infrastructure would mitigate the risks of climate change, including rising sea levels and extreme weather. Aligning with international climate policies would also enhance our attractiveness to investors and trading partners, ensuring a stronger economic future.

Undoubtedly, the implementation of carbon pricing will come with challenges. Industries may resist the additional costs, and concerns over competitiveness will need to be addressed.

However, these challenges can be managed through well-designed policies. A phased approach, combined with financial incentives and technical assistance, would allow businesses to adjust without suffering undue hardship. Other countries have successfully reinvested carbon pricing revenues into transitional support for affected industries, and Trinidad and Tobago can do the same. By offering retraining programs and subsidies for adopting low-carbon technologies, businesses can transition smoothly while preserving jobs and economic stability.

Public engagement will be crucial. Transparent consultations with businesses, workers and civil-society organisations will ensure that the framework is well understood and fairly implemented. Any revenue generated must be reinvested strategically in economic and social development rather than becoming an additional tax burden.

TT cannot afford to delay action. The global economy is shifting toward sustainability, and we must adapt to remain competitive. Carbon pricing is not just an environmental requirement; it is an economic necessity. A well-structured carbon pricing framework will protect exports, attract investment, and drive innovation in key industries. The government must act decisively by engaging stakeholders, supporting affected industries, and investing in renewable energy and efficiency initiatives.

This moment requires bold action. If we seize the opportunity, we can transform a potential economic challenge into a catalyst for sustainable development. A planned transition to carbon pricing will not only protect our economy in an evolving global market but will also lay the foundation for a diversified and resilient future for generations to come. We are running out of time.

Rushton Paray, MP

Opposition spokesperson on Trade and Industry

Via e-mail