Bangladesh can fetch additional resources — up to 1 per cent of GDP —through imposing carbon tax on polluting fuels, according to an estimation of the World Bank.
In a policy note on options for a carbon tax in Bangladesh published on August 1, the global lender said the economic and fiscal impact of carbon taxes could be positive for the country.
The country, however, will need to think out how to moderate the impact of a carbon tax on poorer households and on the economic sectors that will be most affected by imposition of the tax.
‘Given the potential benefits, Bangladesh should consider implementing a carbon tax and continue its path toward being a global leader in environmentally sustainable development,’ the note says.
Bangladesh can focus initially on easy-to-identify sources of carbon emissions such as oil, coal and gas.
WB preliminary estimates suggest that Bangladesh could, over time, raise up to 1 per cent of GDP in carbon tax revenues by imposing the tax on fuels up to $30 per tonne of carbon dioxide (CO2) equivalent by 2024.
But it can begin with the low rate at $5 per tonne of CO2 equivalent, it says.
The current size of the country’s GDP is around $ 275 billion.
It will increase the cost of fuel by only a few taka per liter but the tax could be a significant revenue source for the government, WB says.
The taxes can be levied ‘upstream’ on relatively few producers and importers and they will pass the tax on to retailers who will pass it on to consumers.
Charging individual consumers is administratively difficult.
It says that the poorest 20 per cent of households could face price increases equivalent to 1 per cent of their total consumption largely through increased electricity tariffs and fertiliser prices.
The impact can be compensated through returning a significant amount of revenue to groups hit hard by reducing other tax rates or through increased expenditure on social protection and improve infrastructure which can benefit all firms and the public.
Additional investment in climate adaptation and in climate mitigation can uphold confidence of people.
Bangladesh is one of the most vulnerable countries to climate change, with estimated annual loses of around 2 per cent of GDP by 2050, it says.
At the same time, Bangladesh is an extremely resource-constrained country, with public sector revenue averaging only 10 per cent of GDP over the last decade.
World Bank also says that carbon taxation is likely to face significant political challenges such as strong lobbying by fossil fuel stakeholders such as public transport owners and power producers and opposition from the general public because of the price impacts of the tax.
World Bank Bangladesh lead economist Zahid Hussain on Thursday told New Age that imposition of carbon tax had both benefit side and cost side.
The government could increase revenue and reduce emission by imposing the tax but it would also increase the cost of fuels, he said.
The government could initially start with the most polluting fuels, he suggested.
He mentioned that there was a kind of tax at the rate of Tk 7 to Tk 8 per liter of fuels based on administered price.
The government could
rearrange the tax based on the rate of pollution by a fuel to keep the price of most polluting fuel relatively higher.
There might be some compensation package for the affected groups, like farmers who use subsidised diesel for irrigation, in the process, he added.
Zahid said that they submitted the report to the finance ministry much before of publication of the report.
The government then accepted the report for consideration but there was no progress so far.
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