FREQUENTLY ASKED QUESTIONS (FAQ) ABOUT SMALL ISLAND DEVELOPING STATES (SIDS) SUSTAINABLE ENERGY INITIATIVE – SIDS DOCK

1. What is SIDS DOCK?

It is an initiative among member countries of the Alliance of Small Island States (AOSIS^[1])to provide the Small Island Developing States (SIDS) with a collective institutional mechanism to assist them transform their national energy sectors into a catalyst for sustainable economic development and help generate financial resources to address adaptation to climate change.

It is called SIDS DOCK because it is designed as a “DOCKing station,” to connect the energy sector in SIDS with the global market for finance, sustainable energy technologies and with the European Union (EU) and the United States (US) carbon markets, and able to trade the avoided carbon emissions in those markets. Estimates place the potential value of the US and EU markets between USD 100 to 400 billion annually.

2. Who Developed SIDS DOCK?

SIDS DOCK has been developed jointly by the Caribbean Community Climate Change Centre (5Cs) and the Secretariat of the Pacific Regional Environment Programme (SPREP), the two regional government institutions with foremost responsibility for assisting the SIDS in the Pacific and Caribbean regions to address the impacts of climate change, working in cooperation with AOSIS.

SIDS DOCK will be structured but flexible, allowing it to respond to national situations; it will be internationally and regionally supported.  The functions of SIDS DOCK are to:

1. Assist SIDS with developing a sustainable energy sector by increasing energy efficiency and developing renewable energy resources.
2. Provide a vehicle for mobilizing financial and technical resources to catalyze low carbon economic growth.
3. Provide SIDS with a mechanism for connecting with the global financial, technology, and carbon market taking advantage of the resource transfer possibilities that will be afforded.
4. Provide a mechanism to help SIDS generate the financial resources to invest in climate change adaptation.

3. Why is SIDS DOCK Needed?

Energy prices in the vast majority of SIDS are among the highest globally, in some cases electricity cost is 500 percent more than in the US, primarily as a result of the dependence on imported petroleum fuels[2].  Consequently, the energy sector in the vast majority of SIDS is the principal source of economic vulnerability.

Sustainable development in SIDS has to be built on a sustainable energy foundation. Despite international support for implementation of the Barbados Programme of Action (BPoA) for the Sustainable Development of SIDS and the Mauritius Strategy for the Further Implementation of the BPoA (MSI), there is currently no mechanism that is in place to help SIDS transform their energy sector. There is also no mechanism to facilitate the sharing of experiences, pursuing of mutual goals, and sharing resources across regions. So despite having, in the vast majority of cases, abundant endowments of renewable energy resources SIDS remain dependent on imported fuels. High energy cost in SIDS is a combination of small volume, high transportation cost and low levels of energy efficiency. SIDS DOCK is developed to be the institutional mechanism that will support transformation of their energy sectors.

Even though SIDS have very low emissions, estimated at less than 0.05 percent of global emissions, SIDS are already being negatively impacted by changing climate and the science which shows serious long-term consequences if greenhouse gas (GHG) concentration remain above 350 parts per million (ppm) in the atmosphere.  With current GHG concentration well above 350 ppm, SIDS face the realization that tens of millions would be displaced from sea level rise. And, more intense weather would cause hardship to the vast majority of the population in the SIDS.

Adapting to the changing climate and rising sea level is already a major economic cost to SIDS; additional changes in climate and increases in seal level rise will require increasing amounts of financial resources.  With many SIDS already highly indebted[3], reducing outflows of funds to pay for energy imports represent the best option of generating additional resources to address climate change.  Several international agencies have estimated adaptation costs for developing countries that range from a high of USD 86 -109 billion a year, to a low of USD 4 billion a year to adapt to climate change, and it is also estimated that to take no action could cost over 20 per cent of global GDP annually.

4. How Can SIDS Generate Financial Resources for Adaptation to Climate Change through the Energy Sector and How would SIDS DOCK Help?

GHG from the SIDS energy sector is estimated at 38 million tons of carbon annually. Based on projected carbon price of USD 20 per ton, a 25 percent reduction in carbon emissions by SIDS traded on the global carbon market would be equivalent to USD160 million per year.  Acting collectively, it would be possible for SIDS to derive a significant amount of these financial flows, compared to acting individually.  The main role of SIDS DOCK would be to organize the documentation and processing of the avoided carbon emission to have them certified and marketable.  As many projects will be small in scale, SIDS DOCK would have to do a bundling exercise in order to reach the necessary transaction threshold.

The high level of dependence on costly petroleum fuels to provide energy services represents the major source of economic vulnerability for the majority of small islands States. In many cases, the cost of imported petroleum is more than 25 percent of foreign exchange earnings.  Member States of AOSIS consume in excess of 220 million barrels of petroleum. Depending on the price of petroleum, this cost SIDS billions or tens of billions of foreign exchange each year. Minimizing dependence on petroleum fuels by increasing energy efficiency and development of the vast renewable energy sources will make SIDS less vulnerable and generate significant employment.  The expansion in economic activity will mean increased financial resources for the country. Growing economies will generate increased amounts of financial resources to help meet the challenges of adapting to the adverse consequences of human-induced climate change.

5. What will be the sources of financial resources for investing in Sustainable Energy Projects and the role of SIDS DOCK?

SIDS DOCK will facilitate funding for investment in sustainable energy projects through a combination of sources including the SIDS themselves (government, private sector, social organizations), and the global private sector and development partners, with the goal of transforming the highly inefficient and fossil fuel dependent energy sector.  SIDS DOCK will seek to promote national /regional energy investment bonds. Global private sector funding will come from a variety of sources ranging from socially responsible investors, financial institutions, and project financing.

Additionally, SIDS DOCK will work with the key sponsors of the global carbon markets to securitize future emission reduction from SIDS.  Success in securitizing future emission reduction will facilitate early and increased flows of financial investments into sustainable energy projects.

Public-private partnerships represent a proven mechanism for financing and/or technology transfers, and would be promoted by SIDS DOCK as a principal means of investments in sustainable energy projects in SIDS.  Also, SIDS DOCK would work with bilateral donors and multilateral organizations to consider invest equity in these projects.  Proceeds accruing from such investment would be available for further project financing in the SIDS.

A Memorandum of Agreement for establishing the SIDS sustainable energy initiative, SIDS DOCK, was formally signed by ten countries in December 2009: Bahamas, Belize, Cape Verde, Dominican Republic, Jamaica, Mauritius, Palau, St. Lucia, Seychelles, and Solomon Islands. In February 2010, Grenada signed on. Nations committed to signing are Barbados, Samoa, St. Vincent and the Grenadines. The following countries have projects in development: The Commonwealth of the Bahamas, Belize, Dominican Republic; Grenada and Jamaica with two projects each.  The seven projects are classified in four areas:

• Biofuels Production;
• Energy Conservation;
• Energy Efficiency, and;
• Renewable Electricity Generation.

6. How much will it cost to transform the SIDS Energy Sector?

Improving the SIDS power sector from one that is inefficient and dependent on petroleum fuel for the provision of more than 90 percent of primary energy in SIDS, to that is efficient – 25 percent more than 2005, and 50 percent share of power generation provided by low carbon sources (ocean, geothermal, solar, wind, and biofuels) by 2035 – is estimated to cost tens of billions of USD. Power generation in SIDS consume in excess 50 million barrels of petroleum fuels, annually. The transportation services of all kinds consume in excess of 100 million barrels of fuels, annually. Reducing this by 25 percent in the 2035 time period will require new technologies and infrastructure and cost would also be in the hundreds of billions of dollars.

7. What are benefits of the SIDS DOCK Mechanism?

• A mechanism to generate financial resources to support adaptation, by helping  SIDS capture and realize the “energy dividend” from phasing down of high-cost petroleum fuels;
• Institutional capacity that allows SIDS to collaborate across regions on issues of common interest in sustainable energy development and climate change adaptation;
• An organizational infrastructure through which others, both private and public, can invest in sustainable energy;
• A means to pursue collective technology development/transfer for common abundant renewable energy resources like ocean energy, and;
• Assistance in converting carbon allowances into funds for investing in renewable energy and energy efficiency for SIDS that wants to take fossil fuel emission caps[4].

8. How will SIDS DOCK be administered and where will it be located?

SIDS DOCK will be administered by an Executive Director, with oversight from a Board of Directors that will be selected from among AOSIS Member States, development partner organizations and technical experts from the global community.

9. When will SIDS DOCK be Operational?

Further development of SIDS DOCK is being overseen by a Steering Committee comprised of the representatives from the AOSIS membership[5] and the heads of the two regional organizations – the 5Cs and SPREP. Based on the proposed number of pilot countries, a projected USD 200 – 400 million, annually, would be required over the first three years[6]. A financing plan is to be developed for SIDS DOCK for the first stage – 2010 through 2013 – that will address funding for core operations and resources for investment in transforming the energy sector.  Based on the proposed number of pilot countries, a projected USD 200 – 400 million, annually, would be required over the first three years.

10. Where can I find more information on SIDS DOCK?

Further information on SIDS DOCK is available on this web site. You can also contact the 5Cs at: info@caribbeanclimate.bz or SPREP at: irc@sprep.org.

SIDS account for less than one per cent of global GHG. For example, in the Pacific islands, the average per capita equivalent emissions are 0.96 tonnes of carbon dioxide (CO2) per year; this equates to only approximately 25 per cent of the CO2 emissions attributable to the average person worldwide.

UNFCCC Secretariat, 2007. Vulnerability and Adaptation to Climate Change In Small Island Developing States: Background Paper for the Expert Meeting on Adaptation for Small Island Developing States. Referenced from: Nurse, L., et al, 2001, Small island states, In Climate Change 2001: Impacts, Adaptation, and Vulnerability, J.J. McCarthy et al (eds.), Contribution of Working Group II to the Third Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge University Press, Cambridge, pp. 842-975.

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[1] The 42 countries that comprise AOSIS include, in the Pacific Ocean: Cook Islands, Federated States of Micronesia, Fiji, Kiribati, Marshall Islands, Nauru, Papua New Guinea, Western Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu; in the Caribbean: Antigua and Barbuda, Bahamas, Barbados, Belize, Cuba, Dominica, Grenada, Guyana, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, and Trinidad and Tobago; in the Atlantic Ocean: Cape Verde, Guinea-Bissau, and Sao Tome and Principe; in the Indian Ocean: Comoros, Maldives, Mauritius, and the Seychelles; in the Mediterranean: Cyprus, and Malta; and Singapore in the South China Sea. AOSIS observers include American Samoa, Guam, the Netherlands Antilles, Niue, and the U.S. Virgin Islands.

[2] With the exception of Trinidad and Tobago and to a lesser extent Barbados and Belize, Suriname and Papua New Guinea, all SIDS depend on the importation of fossil fuels to meet more than 90 per cent of commercial and industrial energy demand

[3] Very high debt has placed 7 Caribbean countries among the 10 most indebted countries in the world, and 14 among the top 30. A Time to Choose: Caribbean Development in the 21st Century, Report No. 31725-LAC, The World Bank, Caribbean Country Management Unit, Poverty Reduction and Economic Management Unit, Latin America and the Caribbean Region. Available here.

[4] Cap and trade

[5] Steering Committee Members: The Commonwealth of the Bahamas, Cape Verde, Dominican Republic, Grenada, Maldives, Nauru, St. Lucia, St. Vincent and the Grenadines, Seychelles, Solomon Islands, Suriname and Vanuatu

[6] Based on the Draft SIDS DOCK Business Plan 2010-2013