bob looney teaches economics at the Naval Postgraduate School in California.
Published March 6, 2020.
In addition to sun-washed beaches, many of the countries of the Caribbean share some not-so-pleasant commonalities — slowing economic growth, rising levels of crime and violence, persistent brain drain and crippling foreign currency debts. As if these challenges weren’t enough, enter what the U.S. Department of Defense calls the “threat multiplier” of climate change.
Everything but a Rain of Frogs
Climate change’s most obvious effects in the Caribbean are increasingly frequent and intense hurricanes. Two Category 5 storms, Irma and Maria, struck the region in September 2017, and a third, Dorian, hit the Bahamas in late August 2019, causing widespread loss of life, property destruction, and economic disruption. Irma's region-wide cost was estimated at roughly $100 billion, while Maria's damage to Puerto Rico alone may total $90 billion. With an estimated $3.4 billion in repair bills from Hurricane Dorian, the Bahamas got off relatively easy this time.
Wait, alas, there’s more. Climate change will also bring rising sea levels that cause coastal erosion and flooding. Recently revised elevation estimates suggest that sea-level rise will pose a much greater risk to the region than previously thought, continuing for decades or centuries even if the climate has stabilized. Damage to coastal tourist resorts of the low-lying Bahamas is expected to result in annual losses of $900 million by 2050, with 80 percent of the island below sea level by the end the century. Even relatively high-elevation islands will take a major hit because most of towns and tourism infrastructure are concentrated on the coasts.
Actually, there’s much more. Climate change will usher in more frequent and prolonged droughts, which will combine with a shorter rainy season to threaten the Caribbean’s freshwater supply and agricultural output. As oceans warm, coral bleaching will decimate sport diving, while increasing ocean acidification will degrade local fisheries.
A Vicious Circle
The International Monetary Fund found that climate-related damage as a share of GDP is on average six times higher in the small-island economies of the Caribbean than in other parts of the world. According to the Caribbean Community Climate Change Center, the region-wide cost of global inaction will approach $11 billion by 2025, $22 billion by 2050 and $46 billion by 2100. And it can take years for a Caribbean nation to recover from a single natural disaster because money for repairs is lacking. By the same token, every storm recovery effort diverts funding from education, medical care, shelter and transportation — not to mention efforts to harden the economies against future climate change damage.
Of course, the islands of the Caribbean, which produce trivial greenhouse gas emissions relative to the larger economies, are not in a position to significantly affect the trajectory of climate change. Under international climate accords, the larger global economies were supposed to provide $100 billion a year by 2020 to help smaller, poorer countries undertake climate change-adaptation measures. But the aid pledges have come up significantly short.
Nor are most Caribbean nations eligible for foreign Official Development Assistance from the United Nations, due to their relatively high per capita income levels. In any case, with U.S. assistance currently problematic, European countries mired in slow growth, and massive climate-related allocations needed elsewhere around the world, money is tight. A notable exception has been the Bahamas, which after Hurricane Dorian managed to secure emergency funding for seawall construction from the Inter-American Development Bank and NGOs like CARIBSAVE.
Individual countries will likely find it considerably more challenging to finance proactive climate change-adaptation projects. Not only did average Caribbean debt rise from 60 percent of GDP in 2000 to 71 percent by 2018, but also several Caribbean countries rank among the world’s most indebted by this measure.
Then there is the problem of slow growth, which blocks every avenue of escape from climate-change hell. For tourism-dependent Caribbean countries (the Bahamas, Antigua and Barbuda, Aruba, Barbados, Belize, Dominica, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines), the average growth rate fell from 5.9 percent in 1960-79 to 3.5 percent in the 1980s, 2.2 percent in the 1990s, 1.0 percent in the 2000s and 0.6 percent in 2010-18.
Not surprisingly, optimism is not in fashion. But there are signs the Caribbean countries are beginning to come together as a region to reclaim at least some measure of control.
Just a Glimmer of Hope
Not surprisingly, optimism is not in fashion. After viewing the devastation in the Bahamas following Hurricane Dorian, St. Lucia’s Prime Minister, lleun Chastanet, lamented that “the climate crisis has taken away from us the ability to control our destiny.” But there are signs the Caribbean countries are beginning to come together as a region to reclaim at least some measure of control. Already creative (albeit modest) solutions are at work to lessen some of climate change’s economic toll.
The Caribbean Community (CARICOM) and Organization of Eastern Caribbean States (OECS) economic integration schemes include Free Movement Agreements. The FMAs allow Caribbean nationals displaced by sudden disasters to enter, work and, in some cases, permanently resettle on neighboring islands. Moreover, appearance, accent and family networks can now be used to prove nationality where travel documents have been destroyed. The FMAs proved so successful in helping Dominican refugees after Hurricane Maria that they’re pointed to as a model for other regions with similarly heightened climate-change vulnerability.
Then there is the Caribbean Catastrophe Risk Insurance Facility, which enables member countries to collectively pre-finance the costs of short-term disaster recovery. Given the high cost and limited penetration of conventional property insurance in the region, as well as lag time in the delivery of international disaster aid, the CCRIF fills a funding vacuum by providing immediate assistance. Due to the modest premiums its member countries can afford, CCRIF coverage is presently limited to about 2.5 percent of overall government disaster exposure — well below the recommended 25 percent, but nevertheless a start. The CCRIF distributed $119 million between 2007 and 2017, $30 million of which was paid out within two weeks to the six member countries affected by Hurricanes Irma and Maria in 2017.
CCRIF member countries can reduce their premiums by investing in climate change-resistant buildings and infrastructure, which the IMF estimates could increase potential economic output by 3-11 percent. But while Caribbean countries desperately need to begin moving from short-term disaster response to constructing sturdier buildings as well as improving education to allow them to diversify away from climate-vulnerable coastal tourism, such projects cost money.
Here, too, regional cooperation might be more productive in tapping new sources of revenue than individual country efforts. Take the tourism industry. Many Caribbean countries currently rely on fiscal incentives to attract foreign investment, competing against one another by offering tax cuts in exchange for tourism development. Since there is little evidence that such fiscal incentives are effective — and when they are, tend to cancel each other out — agreeing as a region to limit this practice could broaden the base for desperately needed tax revenue.
Another option might be a Caribbean-wide carbon tax on cruise-ship passengers, with the proceeds earmarked exclusively for climate-change adaptation. A $50 levy on ten million passengers would yield $500 million. A smaller climate-related room tax could also be imposed on visitors to the region’s resorts. The islands might even offer “sustainability tours” to allow visitors to see first-hand how their dollars and euros were helping to make the islands more climate-change resilient.
There is no getting around the reality the Caribbean is in deep trouble. The countries of the region cannot reverse climate change, and financial resources to adapt to its mounting challenges will likely remain stretched. But the sorts of initiatives discussed here could give the region a fighting chance at remaining economically viable. And the effort may attract interest (and cash) from the rest of the world by serving as a model for other regions in climate harm’s way.