In an effort to scale-up climate change mitigation, the largest private sector engagement in the history of the United Nations was drafted to fund clean technology projects in developing countries. Carbon credits were to offset pollution in developed nations and pay for clean energy projects in developing countries. But many developed countries, including the United States, spurned the agreement, preferring to manage greenhouse gas emissions internally and build or retrofit infrastructure in ways that directly benefited their economies. The ambitions of the Kyoto Protocol, which went into effect in 2005, were subsequently stranded and then scrapped.

The new Paris climate agreement, signed by more than 170 countries on Earth Day 2015, promises to do better. It contains clear statements of international objectives and opens the door for countries to avoid the worst consequences of global warming. Rich countries must accelerate their efforts to tackle fossil fuel emissions and commit to increased levels of investment and innovation for the deployment of low carbon and renewable energy systems. Large regional and even globally linked carbon markets will be an important part of facilitating such an energy transformation.

A Bill Coming Due

Since the 18th century, fossil fuel companies in the United States and Europe have privatized profits and left society at large to pick up the cost of their carbon footprints. That bill is now coming due. They have passed on a huge environmental burden to our children and the developing world.

Thirty-two percent of energy comes from oil, 30 percent from coal, and 24 percent from gas – totaling 86 percent by fossil fuels alone. Of the balance, seven percent comes from hydroelectricity, four percent from nuclear power, and three percent from other renewables, including wind and solar power.

This energy system underpins modern life and human development. It cannot be dismantled overnight. But carbon markets can change the picture. Climate investments are now a relevant part of business strategy and are affecting industry profitability and image. To compete in climate-conscious industrial sectors, companies focus on the interests of shareholders first, reputational risk second, and local economic benefits third. Global public good alone does not place. But carbon markets can change this logic by making investment in clean energy development bankable and profitable.

As climate-related costs are incorporated into markets, large amounts of money will migrate from fossil fuel companies into the clean energy economy. This will result in a redistribution of wealth across many industrial sectors, as well as a further collapse in the value of oil and gas. New capital has already stopped flowing to fossil fuel exploration and climate-friendly investments are benefiting from the trillions of dollars being freed up.

Regional Benefits

Carbon markets achieve the maximum possible emission reductions at the lowest possible cost by matching ready capital with impactful opportunities.

The Caribbean’s transportation and power sectors rely on dirty and expensive fuels. Trinidad and Tobago has the second highest per capita emissions rate in the world. This means there are enormous gains to be had. To help fund a transition to less carbon-intensive sources, a regional carbon market was rolled out by the Energy Chamber of Trinidad and Tobago over a year ago.

The Caribbean Carbon Market is designed to facilitate investment in renewable energy production, manufacturing, the built environment, and carbon capture and storage that would not occur organically. It will allow polluting companies that have used money to influence society for the benefit of fossil fuels to quietly invest in Caribbean energy self-reliance and receive credits to off-set their emissions.

The market will price all carbon emissions equally, whether from a refinery, an oil well, or a port. It may contribute to fossil fuel-based operations and products becoming more costly in some cases but it definitely will promote renewables into the fuel mix and make lower carbon alternatives more competitive. In each Energy Chamber sponsored project, the most economical options will emerge and technologies will be deployed at scale and affordability.

The proposal envisions including North America in the market. The Caribbean shares a special social coherence with Mexico, Canada, and the United States. The Chamber believes this commonality will translate into U.S. political support in particular. The market may even be a way to support economic reform in cash-strapped governments like Puerto Rico and Cuba.

The inclusion of North America will also deter multi-national firms from taking advantage of the Caribbean energy sector and sacrificing the wellbeing and energy security of its citizens. Carbon trading between countries must be fair and indexed to share the benefits of changes. Corporations will not be as quick to sue small island governments or impose massive penalties for obstructing profits or potential profits with North America as a member.

The Kyoto Protocol set the groundwork for the Caribbean Carbon Market. The Energy Chamber of Trinidad and Tobago in fact repurposed a stranded Kyoto project to form its foundation.

For the Greater Good – But Not Only

Now that there is a global agreement on an emissions cap and a climate deal that provides some direction on how to achieve it, carbon trading with developing nation markets is the next step. It is the only way a worldwide limit on cumulative emissions is achievable.

Climate change investments will create vast business opportunities. Emissions trading and rising carbon prices are projected to drive the low emission and renewable energy infrastructure development market to $1 trillion annually by 2021, according to the World Bank. Point Carbon Energy Research expects the price of carbon per ton to average $15 by 2020. It further projects an increase to $27 per ton from 2021 to 2030. The increasing yields of carbon credits will benefit developers that take advantage of increased profits to expand existing renewable power plants and invest into other clean energy projects.

In its first three years of operation, the Caribbean Carbon Market’s revenue forecast is four percent of an annual $80 billion dollar global market, or $3.2 billion. Private sector investment in the region is calculated at 12.5 percent or $133 million per year, requiring $1 billion per year in concessional finance and carrying costs.

The Caribbean Carbon Market is designed to participate in a system of global and networked markets. But it will also employ new and innovative risk mitigation instruments to protect developers, investors, and lenders.

Moreover, the market has the potential to soften the hard edges of capitalism in a region with high levels of inequality, creating more winners on a systemic level. It will help decrease income inequality by opening up new avenues of opportunity and trade for the people of both North America and the Caribbean. It is a way of bringing technology, regulation, and policy together for a regional – and global – public good.