It made big headlines when U.S. President Donald Trump announced that the United States would withdraw from the Paris Agreement, but in fact, the United States is not the only country not participating. Syria and Nicaragua also decided not to sign the accord. However, each of the three has its own reasons. In the much-discussed case of the United States, it argued that the terms of the Paris Agreement could harm its economy. Syria, amid ongoing conflict, was unable to take part in the negotiations over the Paris Agreement. And Nicaragua, which has received far less attention, stated a very different rationale: dissatisfaction with the weakness of the targets set under the Paris Agreement and the lack of binding enforcement, which it says means the accord cannot fundamentally solve climate change.
Why is interest in climate change so high?
Nicaragua lies at the heart of Central America. Bordered by Costa Rica to the south and Honduras to the north, it faces the Caribbean Sea to the east and the Pacific Ocean to the west, and it has the largest land area in Central America. It is a country blessed with nature, including volcanoes and lakes. The Central Highlands run from the northwest to the southeast. The Caribbean side is hot and humid, covered in jungle across the region, while on the Pacific side lie the Maribios Range, made up of more than 30 volcanoes, and Lake Nicaragua. Fertile plains also spread across the Pacific side, and agriculture and livestock industries such as coffee cultivation are major sectors.
In Nicaragua, natural disasters such as hurricanes, floods, and droughts are very likely to occur. In recent years, with climate change, extreme natural disasters have been occurring more and more frequently. As a result of repeated disasters, according to the Global Climate Risk Index 2017, between 1996 and 2015 Nicaragua suffered the fourth-greatest level of harm from climate change in the world. In addition, because its economy depends on agriculture, which is sensitive to climatic conditions, climate change has had major impacts on Nicaragua’s poverty levels, food security, and social structure. For these reasons, the Nicaraguan government has a heightened sense of crisis regarding climate change, including global warming.
The capital Managua in a flood Photo: Sven Hansen /flickr(CC BY-NC-ND 2.0)
How Nicaragua came to embrace renewable energy
In fact, until just a few years ago Nicaragua also relied on thermal power generation, which has significant environmental impacts. In 2003, electricity generated from imported oil accounted for 72% of the total, and the shares of other renewables such as hydropower, geothermal, and biomass were extremely small. Overreliance on expensive imported oil dealt a heavy blow to Nicaragua’s finances. The electricity market was privatized in 1998, and by 2000, 80% of generation was by private companies. Distribution was monopolized by Unión Fenosa, a Spanish-affiliated company, and a high distribution charge equal to 70% of the electricity price was set, which ultimately made electricity costs high. In particular, in 2004 the soaring price of oil and the resulting even higher cost of electricity placed a huge burden on Nicaragua’s economy. Unable to afford large oil purchases, the country introduced rationing of electricity supply, and unstable power delivery continued. In response to this energy crisis, the government adopted a policy of switching to renewable energy rather than relying on oil. The 2004 National Energy Policy approved a plan to prioritize the use of renewables, and in 2005 decrees and policies promoting the introduction of renewable energy were announced.
Renewable energy takes center stage
In Nicaragua, one of the poorest countries in Latin America, renewable energy has become mainstream in place of thermal power. Behind the ability to roll out bold policies that even developed countries hesitate to adopt are geographical conditions blessed with renewable resources. Thanks to wind along hurricane paths and geothermal near volcanic areas, Nicaragua is so rich in exploitable resources that it is called a paradise for renewable energy. With these favorable external conditions, a sense of urgency about climate change, and national policy, Nicaragua transformed itself from a country dependent on imported oil to one where renewables generate more than half of the electricity. In 2013, power from renewables exceeded 52% of the national electricity supply. The breakdown was, about 15% wind, about 16% geothermal, about 12% hydropower, and about 7% biomass. It also set a target of reaching a 91% share of renewables by 2027.
Wind farm near the Rivas region Photo: United Nations Photo /flickr (CC BY-NC-ND 2.0)
Financing for renewable energy
The government has focused on raising funds to develop renewable energy. A new law passed in 2005 stipulates that investors who contribute to promoting renewables, whether domestic or foreign, are exempt from taxes such as import duties, value-added tax, and income tax. Perhaps influenced by this policy, a flood of investment arrived not only from domestic investors but also from abroad, and between 2006 and 2014 foreign direct investment increased dramatically by 208%. Furthermore, from 2006 to 2012, around US$1.5 billion in investment flowed into Nicaragua’s clean energy sector.
One example of overseas investment is a coffee wastewater energy project carried out by a group promoting sustainable agriculture. Equipment installed at coffee mills and farms breaks down wastewater from coffee processing and makes use of the biogas formed in the process; most of the funding came from external entities such as the Dutch Ministry of Economic Affairs, and the project was operated with that support. Another example is a geothermal power plant near the Telica volcano, which was built with investment from the U.S. company Ram Power.
Geothermal power plant near Momotombo Volcano Photo: Patricia Maria Rodriguez Rivera /flickr (CC BY-NC-ND 2.0)
Challenges for renewable energy in Nicaragua
However, not everything is rosy. While Nicaragua is putting effort into renewable energy, that does not necessarily mean it is prioritizing environmental issues as a whole. This is evident in the controversy over construction of the Nicaragua Canal, which would pass through Lake Nicaragua, the second-largest freshwater lake in Latin America. Despite many voices opposing the project out of concern that it would damage the lake’s ecosystem, the government has pushed the plan forward, because the Nicaragua Canal is seen as a rival to the Panama Canal and expected to bring immense economic benefits.
There are worries that the mindset of putting the economy ahead of the environment could spread to the energy sector as well. With oil prices currently low, some fear that oil-fired thermal power, which still supplies about half of Nicaragua’s electricity, could increase again. At a meeting of the World Bank’s Climate Investment Funds, the Nicaraguan government unveiled a national investment plan and insisted it would not compromise because of low oil prices, maintaining its strategic goal of making renewable power 91% of generation by 2027. At the same time, in Guatemala, another Central American country investing in renewables, it has already been noted that low oil prices have delayed the development of hydropower. Should oil prices remain low, we hope to see how Nicaragua responds and will keep watching with interest.
Nicaragua, which has suffered severe damage from climate change, has acted with a sense of urgency and pursued environmentally friendly energy policies. However, Nicaragua’s efforts alone will not significantly ease the problems it faces. Unless the countries that continue to emit large amounts of greenhouse gases fully commit to similar policies, climate change will advance and damage around the world will grow. Shouldn’t the world learn from Nicaragua, which did not sign the Paris Agreement?
Matagalpa, Nicaragua Photo: Germán Enrique Padilla Díaz /flickr (CC BY-NC-SA 2.0)
Writer: Lisa Xu
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