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Grenada Climate Change Policy Assessment Summary

Core Content

This document presents a Climate Change Policy Assessment (CCPA) for Grenada, prepared by the IMF and World Bank in collaboration with the Grenadian government. It evaluates the country's climate change response strategies, focusing on macroeconomic and fiscal implications. The report outlines key challenges, recommendations, and areas requiring improvement in Grenada's climate resilience, mitigation, adaptation, financing, and risk management frameworks.

Main Challenges and Key Information

Climate Change Risks and Preparedness

• Climate Vulnerability: Grenada is highly vulnerable to climate change and natural disasters, particularly due to its coastal geography and exposure to hurricanes.
• Economic Impact: Climate change threatens GDP, infrastructure, and livelihoods. For instance, a 1°C temperature increase is estimated to reduce real GDP per capita by 1.4%.
• Historical Disasters: Hurricane Ivan (2004) caused damages exceeding 200% of GDP, while Hurricane Emily (2005) intensified these costs.
• Debt Sustainability: Natural disasters could significantly affect debt sustainability, with a 10% GDP shock from a disaster potentially delaying the achievement of the debt-to-GDP threshold for 10 years.

Mitigation Strategies

• Renewable Energy: Grenada aims to increase the share of renewable energy in its power generation mix and adopt energy efficiency measures.
• Carbon Taxation: A moderate carbon tax on fossil fuels, including those currently exempt from excise, could be considered to reinforce energy efficiency incentives.
• Feebates: These tax-subsidy schemes integrated into existing excises can be used to promote energy efficiency in vehicles and electricity-using products.
• Policy Gaps: A finalized legal and regulatory framework is needed to support these mitigation efforts.

Adaptation Plans

• Comprehensive Coverage: Grenada's National Adaptation Plan (NAP) covers all infrastructure sectors, land, agroforestry, agriculture, fishing, food security, water, mangroves, marine, and health.
• Resilient Investment: About one-third of Grenada's 2019 capital expenditures are directed towards resilience-building projects.
• Implementation Barriers: Weak project management capacity and limited fiscal resources hinder the effective execution of adaptation projects.
• Sector-Specific Actions: Actions such as land raising, transmission line segmentation, asset relocation, and building barriers are recommended to enhance resilience.

Financing Strategy

• Financing Needs: Grenada estimates a need of about US$500 million for climate change programs, equivalent to over 40% of 2018 GDP.
• Adaptation Costs: At least US$340 million of the total is needed for adaptation, which is difficult to reconcile with fiscal constraints.
• Fiscal Space: The amended Fiscal Responsibility Law (FRL) may allow for increased investment in resilient infrastructure, but debt sustainability remains a concern.
• Grant and Concessional Financing: Maximizing use of available grants and concessional loans is crucial for long-term fiscal sustainability.
• Private Sector Participation: Private investment is important for mitigation, but needs supportive policies and regulatory frameworks.

Risk Management

• Risk Assessment: Grenada has identified disaster and climate risks but lacks a comprehensive risk and contingent liability assessment.
• Insurance Coverage: Indemnity and catastrophe insurance are underutilized in both public and private sectors.
• Contingency Funds: The National Transformations Fund (NTF) and the National Disaster Management Agency (NaDMA) have contingency provisions, but these are insufficient.
• Parametric Insurance: The Caribbean Catastrophe Risk Insurance Facility (CCRIF) and property indemnity insurance should be optimized and expanded.
• Recommendations: A National Natural Disaster Risk Financing Strategy is recommended to guide risk transfer and retention, including trade-offs between options and seeking international support.

National Processes

• Ministry of Climate Resilience: Established in 2017, it has strengthened the mainstreaming of climate-related projects.
• Public Investment Framework: Climate resilience is included as a key screening element, but the prioritization and selection process for climate projects is not yet clearly defined.
• Project Management Capacity: Weakness in project management is a major drag on the public investment management system.
• Recommendations: Grenada should enhance technical capacity, develop more rigorous project prioritization criteria, and improve COA and budget classification to track climate spending.

Priority Needs to be Met

• Mitigation: Heavy reliance on private investment is needed.
• Adaptation: Use of grant and concessional financing is essential to maintain debt sustainability, while also encouraging private participation and domestic resource mobilization.
• Insurance Coverage: Expansion of insurance coverage is necessary but cannot substitute for resilient infrastructure investment.
• Capacity Building: Strengthening public investment management and moving towards carbon taxation are crucial.
• Implementation: Enhancing the implementation of sectoral adaptation plans is needed.

Recommendations Summary

General Preparedness

1. Review and update the NDC to reflect developments since the Paris Agreement.
2. Develop a comprehensive Disaster Resilience Strategy (DRS) in cooperation with the IMF, World Bank, and other partners.
3. Improve climate data collection and use, including information on disaster costs and financing sources.
4. Finalize and enact DRM legislation and adequately resource the National Disaster Management Agency (NaDMA).

Mitigation

5. Consider a moderately scaled carbon tax across fossil fuels.
6. Expand renewable power generation and energy efficiency through integrated resource planning and finalize the regulatory framework.
7. Create a market for renewable energy via well-structured public-private partnerships (PPPs).
8. Modify the excise tax system for vehicles to include a feebate with an implicit CO2 price rising over time.
9. Introduce a system of feebates for electricity-using products with increasing energy efficiency rewards.

Adaptation

10. Develop an inventory of public assets and power infrastructure aligned with updated land use policies.
11. Map infrastructure assets to climate risk areas and take actions to enhance resilience.
12. Implement a comprehensive agriculture risk management system with improved hydrometeorological services.
13. Draft and implement a nationwide vegetation management plan.
14. Strengthen building code enforcement and drainage maintenance.
15. Enhance institutional capacity for coastal resilience and the blue economy.

Financing

16. Clarify remaining financing needs by updating the NAP.
17. Prioritize the maintenance of the foreign-financing pipeline, especially timely use of concessionality.
18. Use fiscal space, guided by an amended FRL, to increase investment in resilient infrastructure.
19. Ensure all relevant legal and policy frameworks are in place to attract private investment in energy and other sectors.

Risk Management

20. Formalize a national disaster risk financing strategy with a comprehensive risk buffer.
21. Clarify regulations for accessing the National Transformations Fund's Contingency Fund.
22. Optimize CCRIF coverage and broaden use of property indemnity insurance.
23. Enhance insurance coverage for public assets and incentivize private uptake.
24. Explore options with private insurers to expand traditional insurance markets, including flood and agriculture insurance.
25. Adopt parametric insurance policies to protect coastal fishing communities.

National Processes

26. Enhance technical capacity and coordination within the Ministry of Climate Resilience.
27. Strengthen the medium-term fiscal framework (MTFF) and fiscal risk analysis with climate change and disaster impacts.
28. Develop more rigorous project prioritization criteria and establish the National Transformation Fund (NTF) board.
29. Improve COA and budget classification to track climate spending and differentiate capital from current expenditures.
30. Strengthen staff capacity in public investment management and improve capital project preparation, especially for large projects.

Conclusion

Grenada has made significant progress in addressing climate change, but its implementation capacity and financial resources remain limited. The country needs to strengthen its institutional and policy frameworks, enhance data collection, and secure both international and domestic financing to meet its climate resilience goals. A comprehensive disaster resilience strategy and improved risk management mechanisms are essential for long-term sustainability and economic stability.