Energy Transition in Barbados: Opportunities for Adaptation of Energy Taxes to Mitigate Loss of Government Revenue

Barbados, through its Barbados National Energy Policy (BNEP) 2019-2030, announced its commitment to achieving 100 percent renewable energy and carbon neutrality by 2030. This commitment creates an opportunity for the GoB to manage the impact of the transition toward renewable clean energy by introducing measures to transform the way revenue from energy is collected thereby avoiding unnecessary fiscal costs. The purpose of this study is to calculate the revenue gap derived from Barbados 2030 energy transition goal of having a revenue-neutral transition and propose and evaluate various policy measures that could help seize opportunities to close that gap. The simulation model suggests that the energy transition would result in an estimated BBD$105 million in revenue losses a year by following the BNEP. Such a reduction would create a significant fiscal gap that would need to be addressed through the introduction of new forms of taxes or changes to current taxes in order to adapt tax collection to revenue creation from the new clean energy economy. A wide range of tax policy options and issues surrounding their effective implementation were discussed such as: increased taxes on fossil fuels, a change in the VAT rate, mileage taxes on electric and hybrid vehicles, and taxes on renewable energy production. Each of these new tax approaches can help address the fiscal gap estimated above.