European Investment Bank and CDB meet up at COP 27.
By Kimberly Ramkhalawan
Monday 15, November, 2022.
Seven of the top water scarce countries reside in the Caribbean, with Barbados within the top ten. Some startling facts shared by Colin Young, Executive Director of the 5Cs, Caribbean Community Climate Change Centre (CCCCC), as he opened the COP 17 side session titled A sea of opportunity – water and climate change in the Caribbean, hosted by the European Investment Bank.
With the anticipation that the region will become a drier one despite its surrounded by water, with 20 to 30 percent less rainfall projected come in the year 2100, Young says how the Caribbean treats with this valuable resource is dependent on this current generation.
But with sea level rise and water availability are intertwined with a one meter raise in sea level forecast to occur by the end of the century, the impact of this on water infrastructure and utilities within the coastal zone is already happening, as aquifers continue to become salinized, further threatening the water supply and requiring additional resources to undertake the desalinization for water.
He says it is clear that the region is very vulnerable to become worse, and a sea level rise, means there is a triple threat. To him opportunities lie that a significant amount of effort around water is adaptation, generally these fall into the public goods category and to make a business case without a clear rate of return for the investment into water infrastructure. But with the common challenge to crowd in private sector investment, MDBs however he says, has a role to play in partnering with countries that can have access to grant resources, like from the Green Climate Fund, or the Early Adaptation Fund, to do some of the de-risking, in some of the investments leading the way for MDBs to come in to scale the investments, with opportunities for partnerships with MDBs to reduce the risk among all the players that are entering in.
An example of that put to use, is seen in Barbados, where they used the GCF resources to de-risk a large part of the investment and then MDBs became interested in completing the last leg by scaling the project.
An example of this, Young says we look no further than Barbados, a country which has implemented a project called the three R’S (Reduce, Reuse and Recycle) For Climate Resilience Wastewater Systems. He explains this has $40M in grants, and $10M in concessional loans, at three percent, with a two-year grace period. This project taps into three key areas, turning wastewater generation as an electricity provider, while recharging aquifers, conserving water for dryer periods for agriculture, while the water, he says would be washed out to sea, is now being recycled and reused, assisting with water security. Young says if one aspect alone of this project was put forward to the GCF, chances are it would be turned down and be told to approach other private sector investors. Instead, seeing the project as a resilient one and part of its wider strategy, linking it to productivity at all areas.
This he says this now de-risks investments at all levels, allowing for MDBs to enter to invest, because there is now a rate of return.
He adds that the fact that countries have to undertake further debt to adapt to water resilience infrastructure, this includes creating policies through regulatory frameworks that facilitate MDBs and the private sector in investments.
He calls for the notion that the debt situation in the region is related to bad governance, or spending is wrong, as record shows how much of it is debt is linked to loss and damage, resulting from destruction at the hand of climate related disasters. Young cites The Bahamas having 50 percent of its debt directly related to hurricanes that would have destroyed their country, while in Dominica 85 percent of its debt, and Belize often sustaining seven percent losses to climate related disasters.
Concessional financing is not only important for the cheaper financing, but for the recovery of the nation. Young is suggesting to Caribbean nations while they might be looking at developing their national capacity, they should take a parallel approach to financing companies simultaneously to scale. His reasoning, the time taken for an accredited entity to enter and get access, usually takes three plus years.and to avoid a scenario where all eggs are placed in one basket.
He says at CCCCC, by using a strategic approach design, projects that cross multiple sectors are all linked to building resilience, putting them in a competitive advantage in pursuing projects within the water, energy, food nexus because of the co-benefits as they are three areas all critical to climate resilience in CARICOM member states.
By using this approach, there is room to crowd in MDBs support as well as private sector support.
Similarly Director of Projects at the Caribbean Development Bank, Daniel Best says creating an enabling environment for such investments in pivotal. And while he credits the EIB for being instrumental in shepherding the CDB on the path of incorporating climate vulnerability and risk assessment into its funded projects, all recipients of CDB financing must undergo climate risk screening.
As to how intends to make more projects resilient, by incorporating adaptive measures, Best underscored that the climate science works and it needs to be incorporated at the design stage.
He went on to paint a realistic picture of the region where the CDB was privy to 19 borrowing countries, but operated in a region 75 to 150 percent debt to GDP ratio, making it difficult to access resources, loan ones to do developmental work with little or no fiscal space. Best says there is a need to mobilise the private sector, and notes they are the ones who can save the world.
A valid point was that the reality of the Caribbean was that a vast majority of water assets are publicly owned, with adaptation, making it difficult to include concessionary resources into the discussion. The challenges faced in getting the private sector involved into government one is adaptation leads to delayed or avoided loss. Best says as a result convincing the private sector to invest into something that might materialize way down the road, is one conversation, one he admits those in the developmental financing world need to play a better role in.
The other issue is that the assets are not entirely owned, as most are owned by government, this he says is where the concessionary resources come in to drive development into these spheres.
While the EIB was host to the Caribbean talk event, the bank has already invested 150M Euros being implement with it regional partners, the CDB, along with islands and Caribbean partners as part of it Caribbean water sanitation and clean oceans loan, which falls under it Clean and Sustainable Ocean Programme.