Pacific island countries can save hundreds of millions of dollars each year by replacing fossil fuel imports with renewable energy, according to a new report launched today ahead of the annual Pacific Islands Forum leaders meeting.
A new report, Counting the cost of fossil fuels in the Pacific, released today from the UNSW Institute for Climate Risk & Response (ICRR), found Pacific nations spend between 10 and 25% of GDP on fossil fuel imports – more than a regional average of 8% on education and 6% on health.
As around 80% of the Pacific’s energy supply comes from imported oil products, conflict in the Middle East has pushed the region toward an energy crisis.
Leaders from Australia, New Zealand and 14 Pacific island countries will gather for the Pacific Islands Forum leaders meeting in Palau next week – where the fuel crisis and renewable energy investment will be high on the agenda.
Pacific leaders have set a goal of becoming the first region in the world powered entirely by renewable energy. Today, around US$1 billion is spent each year importing diesel just to generate electricity.
Report author Dr Wesley Morgan from UNSW ICRR says replacing diesel generation with solar, batteries and upgraded electricity grids could save the region around US$700 million a year.
“Those savings could free up much-needed financial resources to pay for hospitals, schools and infrastructure,” said Dr Morgan.
“We're used to talking about renewable energy in the Pacific as a moral issue, but today’s report shows that the economic case is overwhelming.
“Fossil fuel dependency is a risk not just to the climate but to Pacific economies, and renewables are the clearest pathway to energy security and stability.”
Tuvalu minister of climate change Dr Maina Talia said support from the international community was needed for Pacific nations to achieve their renewable energy goals.
“Tuvalu has an ambitious renewable energy target, but we need our international partners to help us get there,” said Dr Talia.
“The economic case for the Pacific shifting to renewable energy is significant. Every dollar not spent on polluting and expensive diesel is money we can put towards our people's health and education.”
Global oil shock hits Pacific economies
The global oil shock triggered by this year’s Middle East conflict drove Pacific diesel prices up by around 35%.
“A disruption to global oil supplies quickly becomes more expensive electricity, transport and food in the Pacific,” said Dr Morgan.
“In some cases, it also becomes a question of whether countries have enough fuel to keep essential services operating.”
In Fiji alone, the annual cost of imported refined fuels could rise by around US$375 million if elevated oil prices persist – more than the country's annual healthcare budget.
Vanuatu could face an increase of more than US$68 million, equivalent to around 5% of GDP.
The Marshall Islands and Tuvalu have each introduced emergency measures over fuel supplies this year, while several other Pacific governments have taken steps to respond to the crisis.
Renewables could halve electricity costs
Pacific households already pay some of the highest electricity prices in the world. The average cost across the region is around US$0.47 per kilowatt-hour – almost three times the global average.
“It’s not just about reducing emissions,” Dr Morgan says.
“There is a very strong economic and energy-security case for renewables.
“The Pacific has abundant renewable resources – particularly solar – and the technology needed to make this transition already exists.”
The report estimates the region needs around 2.2 gigawatts of new renewable generation and 8,800 megawatt-hours of battery storage to replace diesel power generation.
But attracting investment remains a challenge. Small project sizes, high transport and construction costs and perceptions of investment risk can make Pacific projects less attractive.
Around US$650 million a year in international finance is needed to meet the Pacific’s renewable-energy targets. In 2024, the region received about US$216 million – roughly one-third of what was needed.
How Australia can play a role
Palau will host a special leader-level dialogue on renewable energy investment during the Forum, where leaders are expected to discuss a regional investment prospectus for the transition.
The report says Australia has a particular opportunity to help close the investment gap as it is co-president of the COP31 UN climate negotiations.
Pacific nations will also host a pre-COP summit in October, ahead of COP31, where renewable-energy finance is expected to feature prominently.
“Pacific leaders are very clear – they want to move away from imported fossil fuels and become the world's first renewable-powered region,” Dr Morgan says.
“The missing piece is investment at the scale required to make that happen.
“As co-president of COP31, Australia can help turn the Pacific's renewable-energy ambition into infrastructure on the ground.”
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Melissa Lyne, UNSW news & content