9 December 2020
Grenada’s Second NDC Confirms 40% Emission Reduction Target, Investment Law Under Scrutiny for Hampering Energy Transition
UN Photo/Kibae Park/Sipa Press
story highlights

Grenada confirms its previous commitment of reducing greenhouse gas emissions by 40% of the 2010 levels by 2030.

Grenada will continue to comprehensively address disaster risk reduction, and loss and damage.

Grenada restructured its electricity sector to facilitate renewable energy deployment.

An arbitral tribunal ordered Grenada to compensate a foreign investor for the termination of utility monopoly.

In Europe, policymakers and civil society identified the Energy Charter Treaty as an obstacle to implementation of the Paris Agreement.

Grenada submitted its second 2020 nationally determined contribution (NDC) to the UNFCCC, as a “confirmation of the indicative ambitious 2030 NDC target of 40% GHG emissions reductions below 2010 levels submitted in the 2016 NDC, which is conditional on external funding.” This update discusses Grenada’s latest NDC submission, along with previously identified barriers to energy transition in the country. It also looks at Grenada’s recent energy investment dispute, and takes note of concerns in Europe that investment treaties constitute obstacles to implementation of the Paris Agreement on climate change.

Grenada’s limits to mitigation ambition and adaptation response

Grenada will require a rapid transition to renewable energy deployment to meet its reiterated mitigation targets. Despite having implemented energy policy measures, the country has faced barriers to raising ambition.

The Paris Agreement provides that each party’s successive NDC “will represent a progression beyond the Party’s then current [NDC] and reflect its highest possible ambition.” Grenada explains in its second NDC that due to changing and unforeseen circumstances, the indicative 2030 target represents a more significant effort than when it was initially proposed, and remains the highest possible ambition that Grenada can achieve.

Grenada notes that while the first NDC assumed geothermal electricity would be available to achieve the 2025 target, it still remains in its exploratory phase. To meet the 2030 target, Grenada will require a rapid transition involving renewable energy deployment. Grenada states significant external support is required, in particular for its geothermal programme.

Grenada’s submission notes the country will continue to build coherence between the NDC and its National Adaptation Plan (NAP) to comprehensively address loss and damage. This will include strengthening resilience to respond to impacts beyond the limits of adaptation and addressing human mobility and settlements. The government pledges to act within the guidelines of the Sendai Framework for Disaster Risk Reduction (DRR) 2015-2030 to protect development gains from the risk of disaster.

Grenada’s energy transition efforts

In its first NDC in 2016, Grenada put forward a transition plan to reduce its dependency on imported fossil fuels for energy production and to achieve a 30% reduction in emissions through electricity production by 2025. Next to energy efficiency measures, the goal was to be achieved through electricity production from renewables, including wind, solar, and geothermal energy. These priority policy areas presented “entry points for support,” also from the private sector, for the NDC’s implementation.

In its 2017 national communication to the UNFCCC, Grenada reiterated its mitigation commitments, and provided details on reform measures towards its clean energy goal of 100% renewable energy by 2030. The document notes the value of leveraging private finance for the development of renewable energy generation, and highlights the goal set by Grenada Electricity Services (GRENLEC) of 35% of electrical consumption from renewable energy sources by 2016.

Grenada’s national communication also highlights that mitigation measures “may be confronted by a variety of constraints,” and emphasizes the need to: improve capital investment; leverage funding of private capital; and strengthen legal and regulatory frameworks regarding renewable energy, energy efficiency, and greenhouse gas (GHG) emissions.

The document references partnerships with several international entities regarding reforms of the electricity sector. It notes that Grenada’s 2016 Electricity Supply and Public Utilities Regulatory Commission Bills aimed to create “a more enabling legal and regulatory environment” to “facilitate the participation of independent power producers in the local energy market and renewable energy developments.” The communication identifies GRENLEC’s monopoly in generating, transmitting, and distributing electricity for public use with exclusive rights until 2073 as the main barrier to such expansion.

Grenada’s dispute over the legal relevance of its public interest

Investors did not share Grenada’s vision of restructuring the electricity sector and making significant investments in renewable energy, as evidenced in an investment arbitration case, Grenada Private Power Limited and WRB Enterprises, Inc. v. Grenada (ICSID Case No. ARB/17/13). According to the award rendered by the tribunal in March 2020, Grenada sold the claimants’ controlling interest in GRENLEC in 1994, following advice from the World Bank to privatize the utility. The 1994 Electricity Supply Act granted GRENLEC a monopoly over the generation and distribution of electricity for 80 years. 

In the dispute, the claimants contented that Grenada’s 2016 legislation altered their investment by having: terminated the 80-year monopoly; abolished tax exemptions; and replaced the rate-setting mechanism with a procedure administered by the Public Utilities Regulatory Commission that “includes a public interest discretion.” The tribunal agreed that the termination of the 80-year monopoly triggered an obligation on the part of Grenada to repurchase the claimants’ shares in GRENLEC, and ordered Grenada to pay claimants compensation.

Although the case is more complex, the award reveals the contrasting views on the role of the claimants’ investment in GRENLEC. Grenada saw it as investing in renewable energy, whereas for the private sector claimants, its purpose was to maximize shareholder value. The tribunal accepted the claimants’ contention that they were under no legal obligation to share the government’s view of Grenada’s best interest.

Critics call for addressing outdated energy investment laws

In Europe, civil society and members of the European Parliament (MEPs) have criticized the 1994 Energy Charter Treaty (ECT) as “a serious threat to Europe’s climate neutrality target and more broadly to the implementation of the Paris Agreement.” Civil society raised concerns that the ECT enables firms to challenge governments’ public interest legislation that impacts investors’ expected profit, thereby dissuading governments from enacting climate measures.

Parties to the Paris Agreement agreed to make finance flows “consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.” The ECT, a group of MEPs stressed, is “inconsistent with the energy lending policy of the European Investment Bank and the EU taxonomy for sustainable investment.”

Proposals to reform the ECT through a climate lens are not new, and negotiations to modernize the ECT are underway. In a recent statement, MEPs call on EU negotiators to ensure that the ECT provisions that protect foreign investment in fossil fuels are removed. They warn that stranded fossil fuel assets protected by the ECT could reach EUR 2.15 trillion by 2050 if fossil fuels are not phased-out from the ECT’s binding investment protection. The potential cost of investor claims could reach EUR 1.3 trillion by 2050.

Civil society calls for governments’ withdrawal from the ECT, with a renegotiated exit agreement to exclude future investor claims. They also oppose any attempts to expand the ECT internationally. In response to these concerns, EU Commissioner for Trade, Valdis Dombrovskis, has stated that “if core EU objectives, including the alignment with the Paris Agreement, are not attained within a reasonable timeframe, the Commission may consider proposing other options, including the withdrawal from the ECT.”

NDC submissions in 2020

In the 2015 decision, UNFCCC parties requested that in 2020, parties to the Paris Agreement with an NDC time frame up to 2025 communicate new NDCs, and parties with a time frame up to 2030 communicate or update their NDCs by 2020. Grenada joins Andorra, Suriname, and Marshal Islands in submitting a second NDC.

ChileCubaJamaicaJapanMongoliaMoldovaNew ZealandNorwayRwandaSingaporeThailand, and Viet Nam updated their NDCs in 2020. Kyrgyzstan, Lebanon, and the Russian Federation submitted their first NDCs this year. Together, these NDCs represent less than 5% of global GHG emissions. [Grenada’s Second Nationally Determined Contribution] [UNFCCC NDC Registry]

By Beate Antonich, Thematic Expert for Climate Change and Sustainable Energy

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