15 Aug Code Red: Climate Change and Renewable Energy
On the 9th August, 2021, the United Nations’ Intergovernmental Panel on Climate Change (‘IPCC’) delivered its first major report on climate change since 2013, and confirmed that human activity was unequivocally and indisputably responsible for raising global surface temperatures, causing irreversible changes that, if continued without large-scale reductions in greenhouse gas emissions, would cause irreparable harm.
The year 2021 has seen unprecedented events of extreme climate in which torrential rainfall has devastated countries such as Germany, Belgium, the Netherlands, Austria, as well as India and China. On the opposite side of the spectrum, others have suffered from abnormally hot and dry weather which has caused intensive fires across Greece, Turkey, Italy and the United States of America. While some of the events experienced have been expected, the severity has unmistakably been exacerbated by climate change.
Pleas for concerted climate change efforts are not recent but can be traced back several decades. In 2015 however, the global community recognised the need for immediate and necessary action to be undertaken in response to the urgent threat of climate change, and signed on to the Paris Agreement, an international treaty on climate change. Among the various commitments under the Paris Agreement, countries agreed to undertake efforts to hold the increase in the global average temperature to well below 2°C above pre-industrial levels, and to pursue measures to limit the temperature increase to 1.5°C above pre-industrial levels. Each Member State was also required to undertake nationally determined contributions (‘NDCs’) to the global efforts which would signal the state’s international obligation under the agreement.
Trinidad and Tobago (‘T&T’) became a party to the Paris Agreement on the 22nd February, 2018, and have submitted NDCs which create a commitment to reduce cumulative greenhouse gas emissions by 15% from industrial, power generation and the transport sector by 2030 from a business-as-usual baseline, inclusive of a 30% reduction in its public transportation emissions.
The commitment to reduce of greenhouse gas emission can be achieved in various ways including through the use of renewable energy. Renewable energy sources, such as hydropower, wind, solar, biomass and geothermal, produce “cleaner energy” by significantly reducing the emission of greenhouse gases.
What Action Has Been Undertaken:
It is no secret that T&T heavily relies on energy from fossil fuels that significantly contribute to the emission of greenhouse gases. The use of fossil fuels as an energy source is so deeply entrenched into our economy and day-to-day operations however, that the transition to renewable energy has been slow despite the efforts being made and incentives available.
Separate and apart from the contribution to its GDP, fossil fuels are necessary for T&T’s energy-intensive industries for electricity, while on an individual level, has enabled the population to benefit from heavily subsidised electricity and fuel costs. However, with the incremental shift in policy to the removal of these subsidised costs, albeit for different reasons such as economic constraints, the stage is being set for T&T to be a leader in the Caribbean in its efforts to transition to the use of renewable energy.
Over the past few years, T&T has provided legislative support for the transition to renewable energy by providing tax credits, exemptions and accelerated allowances which include the following:
- Wear and Tear Allowances of 150% in respect of expenditure incurred on the acquisition of:
- Plant, machinery, parts and materials for use in the manufacture and acquisition of solar water heaters; and
- Wind turbines, and equipment, solar photovoltaic systems and supporting equipment.
- Allowances of 150% in respect of expenditure incurred in carrying out an audit for the design and installation of energy saving systems. Further, an accelerated allowance at the rate of 75% on expenditure incurred in the acquisition of plant and machinery by a certified Energy Service Company for the purpose of conducting energy audits.
- Exemptions on value added tax, customs duties and motor vehicles tax on new or used electric cars for commercial use if the engine size does not exceed 159 kW, or that exceeds 159 kW but does not exceed 179 kW. In the case of used cars, such cars cannot be older than 3 years. A similar exemption is afforded to hybrid and CNG cars for commercial use which has an engine size that does not exceed 1599 cc, or that exceeds 1599 cc but does not exceed 1999 cc.
- Exemptions on value added tax in respect of solar water heaters for domestic use, and for wind turbines and parts used solely or principally for wind turbines.
- Further deductions are available for individuals who purchase and install a CNG kit and cylinder in their car, or purchase solar water hearing equipment for household use. Such an individual will be entitled to a tax credit at the rate of 25% of the expenditure incurred, up to a maximum of $10,000.
Renewable Energy Projects:
Projects, such as for the use of hydrogen, which if properly produced can be one of the cleanest fuels, have been forthcoming in collaboration with international stakeholders to begin the transition to greener operations while maintaining its competitiveness in international markets. The use of hydrogen to support some of our energy-intensive sectors would make significant progress in T&T’s attempts to reduce its carbon footprint. In particular, T&T has been involved in projects such as:
- The first hydrogen project in T&T to produce carbon neutral and green hydrogen to be sold to one of T&T’s ammonia manufacturers, Trinidad Nitrogen Company (‘Tringen’). The project, referred to as the NewGen project and initiated by Kenesjay Green, anticipates a hydrogen production capacity of 27,200 tonnes per year from 2024. The project is intended to demonstrate the viability of carbon free, green hydrogen as energy efficient feedstock.
- BP and Shell, together with Lightsource (a renewable energy developer), are involved in a consortium with T&T to develop grid scale solar energy producing plants. The plants are expected to become operational by 2022 and to produce cumulatively up to 112MW. Such a project would relieve considerable amounts of natural gas for revenue generating or the manufacture of derivative products.
- In the past T&T, has also experimented with a 10kW wine turbine and a solar water heating housing project.
The Way Forward:
The continued shift to renewable energy may not be a relatively straightforward one however, since in addition to legislative amendments which would need to be undertaken, subsidised electricity costs may make the shift appear unattractive altogether.
The Trinidad and Tobago Electricity Commission Act, Chapter 54:70 and Regulated Industries Commission Act, Chapter 54:73 would both need to be amended in order to enable independent power producers to feed power onto the grid. The Government has admitted to seeking to provide a legislative framework for the generation of electricity based on renewable energy sources and to help inform this review, the Ministry of Energy and Energy Industries has collaborated with the United Nations Environment Programme to develop a framework for the policy and legislation, and to govern feed-in tariffs.
T&T’s subsidised electricity costs which enable the population to benefit from low-cost electricity, in conjunction with the seemingly high capital costs and expertise required, may render renewable energy as a notion for developed or wealthier countries. However, it is critical to note that based on studies undertaken to assist the Race to Zero Dialogues held in 2020, it appears that the costs associated with renewable energy have rapidly declined over the past decade, and is primed to continue in this downward trend.
As we inch closer to the Paris Agreement’s 2030 marker in circumstances where there has been some progress in reaching the goal, one question will continue to prevail: is enough being done? The COVID-19 pandemic has been debilitating in a plethora of respects including from the perspective of the economy. This has lent the view that economic recovery may be the overriding objective in the short to medium term, with the risk that climate change is temporarily put on the back burner. The Government has remained optimistic however and the Honourable Minister of Energy and Energy Industries, Mr. Stuart Young, admitted at the end of May 2021 that T&T remained committed to looking at how it could get its energy greener in line with its obligations, apart from renewable energy, but to introduce measures, projects and upgrades to remain aligned with and enable global competitiveness. This is certainly encouraging particularly in light of the code red warning recently sounded by the IPCC.
Disclaimer: This Document Provides General Guidance Only And Nothing In This Document Constitutes Legal Advice. Should You Require Specific Assistance, Please Contact Your Attorney-At-Law.
This blog post was authored by Miguel Vasquez, associate in the Firm’s Taxation and Dispute and Risk Management groups. For more information, contact Miguel at MiguelV@trinidadlaw.com.