The status of carbon policy in Dhaka, Bangladesh

Bangladesh is one of the world’s poorest countries, emitted about one tenth of the world’s CO2 emissions in 2006. Notwithstanding the fact that its 160 million people represent about 2.4% of the world’s population. The reason for Bangladesh’s low CO2 emissions is due to Bangladesh’s low energy consumption, amounting in per capita terms to only about one twentieth of the world average per capita electricity consumption. Because, Bangladesh’s low-income per capita level of $470.3.

Bangladesh’s energy consumption and estimated its CO2 emission from combustion of fossil fuel (coal, gas and petroleum products) for the period of 1977 to 1995.

They showed that the consumption of fossil fuels in Bangladesh has been growing by more than 5 percent per year during their observation period. The proportion of natural gas in total energy consumption has been increasing, while that of petroleum products and coal has been decreasing. They estimated that the total CO2 release from all primary fossil fuels used in Bangladesh amounted to 5.

07 million tons (Mt) in 1977 and to 14.4 Mt in 1995. They then projected Bangladesh’s CO2 emission based on the 1977- 1995 trends, which resulted in a projection of 293 Mt of CO2 emissions in 2070.

The carbon trading is a way to reduce carbon emission. In December 1997, Bangladesh along with 160 other countries, completed negotiations at the third session of Conference of Parties (COP3) at Kyoto Japan to finalize a protocol subsequently known as the Kyoto Protocol. This protocol includes reduction targets and time table for six greenhouse gases. The gases are: carbon dioxide, methane, nitrous oxide, hydro- fluro carbons, perfluoro carbons and sulfur hexafluoride.

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To reduce the emission the carbon trading has introduced. But it is not much more beneficial for Bangladesh as its emission is very low, but the impact of climate change is very alarming.

This pragmatic approach is best suited to the current political economy environment of Bangladesh. The pricing reform for natural gas is off the table and the government will not accept taxation of fuel oil or coal for electricity generation to avoid electricity cost escalation. Similarly, the government will oppose the taxation of kerosene to avoid pass through effects on the poor. Consequently, the taxation of petrol and diesel presents the most promising option for introducing a carbon tax. The elimination of fuel oil subsidy at the pump gate through proper pricing policy is a first step in a sequential program to reducing carbon emission from the use of fuel oil. This reform can be combined with the imposition of an excise duty on petrol and diesel that is in addition to the normal applicable VAT. The initial rate of the carbon tax can be determined based on expected carbon reduction, the amount of resources mobilized and the level of political comfort. The tax rate can also be varied in relation to international prices. Thus, the tax rate can be increased when oil prices are low and reduced when international oil prices go up. A model estimates the revenue and CO2 reduction effects of a carbon tax on gasoline and another model incorporates the general equilibrium effects of this carbon tax for output and prices. Two Policy Scenarios are considered. A Low Policy Case (LPC), where the tax is imposed only on gasoline (petrol, octane and diesel); and a High Policy Case (HPC), where the tax is also imposed on furnace oil and kerosene. The revenue effects are large even in the first year with a collection of Taka 43 billion in the LPC, growing to Taka 137 billion in 2031. Revenues are higher in the HPC. Although the CO2 reduction and revenue impact are stronger in the HPC, the differences are not dramatic. For both cases, diesel consumption dominates and is the most potent source of CO2 reduction and revenue mobilization for the carbon tax on fuel oil. Regarding kerosene, the rapid decline of the past several years due to substitution to cleaner energy has made this a relatively insignificant source of CO2 emission for Bangladesh. Since kerosene tax is politically very sensitive, continued focus on providing rural electrification and LPG for cooking might be the better policy alternatives than a carbon tax on kerosene.

The overall environmental management including control of air pollution relies heavily on command and control type instruments comprising of laws, regulations and standards. There is very little use of incentive policies especially taxes and pricing policies. Indeed, by providing heavy subsidy on natural gas and fuel oil, Bangladesh provides an incentive for excessive consumption of fossil fuel. Therefore, fossil fuel pricing policies are inconsistent with CO2 reduction objective. Use of fossil fuel is a primary determinant of carbon (CO2) emission. Much of the fossil fuel is used for production of electricity. As the Bangladesh economy has grown, the demand for power has increased. Alongside, CO2 emission has also increased. Evidence shows that emission from power has grown at a long-term trend of 8.8% per year between 1970 and 2016. As a result, the share of power sector in total CO2 emissions has accelerated from 22% to 42% over the same periods. Although improved technology has slightly lowered the growth rate of carbon expansion from power, this pattern could go up as natural gas supply shrinks and fuel-oil and coal use increases.

Bangladesh GDP growth is on an increasing trend growing presently in the 7% plus range and could reach 8% in the coming years. The government’s Perspective Plan 2041 seeks to achieve upper middle-income status in 2031 and higher income status by 2041. Indicative projections show that to achieve these targets GDP will need to grow at around 8-9% from 2020- 2041. The demand for electricity will increase commensurately. Presently some 98.6% of electricity is produced by using fossil fuel. The share of renewable energy is a mere 1.4%. This suggests that the CO2 emission from power will continue to increase at a rapid rate unless corrective actions are taken soon.

The chart 1 shows export corn price index and market year corn production percent change from January 2003 to September 2012. In stage I, the export price index for corn rose 17 percent from August 2003 to September 2005 as the climate conditions worsened. This rise coincided with a 6 percent decrease in corn supplies and continued until October 2007. The maximum corn export price was 150 unit which increased gradually from 2003. The export price reached the lowest point, 100 unit in October 2004 and again increased in stage I. So, it is clear that with the increase in corn production, prices also increase due to high demand of corn.

In stage II, the production of corn sharply increased to 29 percent in October 2007 and there was no change in production until July 2008. In this stage, the price of corn peaked at 310 unit and decreased in 2009 at 150 unit. By the time from September 2008 to September 2009, the production of corn was negative in percentage and there was a up and down in the export price of corn.

The export corn price increased in stage III up to 360 unit due to low production of corn in this time. Due to consumer surplus the market price of corn increased in the highest amount in 2012.