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Carbon tax: A major way in reducing carbon emission?

  • Published at 10:54 pm September 30th, 2018
web-seminar- Towards a Carbon Tax for Bangladesh
Speakers at the dialogue titled 'Towards a Carbon Tax for Bangladesh' Mahmud hossain opu

According to the keynote presentation, the carbon tax not only lowers CO2, it also yields revenues

The use of carbon tax can be a major way in reducing carbon emission, economists and experts have suggested.

Analysis shows that with reasonable assumptions about income and price elasticity of demand for oil products, a carbon tax would bring about substantial reduction in CO2 emission. This reduction need not hurt the long-term gross domestic product (GDP) growth, they added.

The comments were made at a dialogue, “Towards a Carbon Tax for Bangladesh”, organized by Adam Smith International, in partnership with the Policy Research Institute (PRI), Economic Dialogue on Green Growth (EDGG), the UK Aid and held at the PRI conference room in Banani in Dhaka.

The dialogue was chaired by PRI Chairman Dr Zaidi Sattar, while Economic Affairs Adviser to the prime minister Dr Mashiur Rahman was present as the chief guest.

Vice-Chairman of PRI Dr Sadiq Ahmed, and Dr Bazlul Haque Khondker jointly made the key note presentation at the program.

Dr Sadiq said in his presentation: The use of carbon tax can be a major way to reduce carbon emission. The elimination of the fuel oil subsidy at the pump gate through a proper pricing policy is the first step in a sequential program to reducing carbon emission from the use of fuel oil.

He added:“This reform can be combined with the imposition of an excise duty on petrol and diesel that is in addition to the normal applicable value added tax (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,” he further said.

“Thus, the tax rate can be increased when oil prices are low and reduced when international oil prices rise. A similar approach is used in India,” Dr Sadiq added.

According to the keynote presentation, the carbon tax not only lowers CO2, it also yields revenues. These revenues can be used for investment in clean fuel, clean technology, and infrastructure projects that will help offset the loss of output from carbon taxes.

Dr Mashiur Rahman said that Bangladesh is lagging behind the rest of the world in clean energy and clean technology. Proper pricing of fossil fuel along with the carbon tax will provide the incentives to reduce the consumption of these fuels and also motivate private investment in clean energy and clean technology.

The carbon tax incidence is progressive in the sense that the cost of living increases are highest for the top ten percentile, and lowest for the bottom ten percentile. Additionally, the increase in cost of living for the poor can be offset through income transfers from additional social protection spending from carbon taxes, he added.

Thus, a proper combination of fossil fuel pricing, carbon, and investments can make the carbon tax a win-win policy package. 

Dr Zaidi Sattar said:“Rapid growth has serious adverse environmental consequences. Rapid industrialization and associated urbanization leads to carbon emissions and other greenhouse gases from burning of fossil fuels, also called greenhouse gas emissions (GHG) – measured in ppm (parts per million). Research has shown there is a strong relationship between economic growth and environmental degradation, associated mostly with GHG. Climate change is the consequence of accumulated GHG emissions leading to global warming.

He also said:“Estimates on global emissions reveal that almosta quarter (24%) of GHG comes from power generation, and over a quarter (28%) comes from industry and transport vehicles. Just these two account for 52% of GHG emission globally”. 

“We can be green and we can grow fast.Green growth is sustainable growth, and the benefits of green inclusive growth far outweigh the costs of investing in such sustainable growth in the long term. A carbon tax for Bangladesh is an innovative fiscal instrument to incentivize going green,” he added. 

Former finance minister M Saiduzzaman, PRI Executive Director Dr Ahsan H Mansur, South Asian Network on Economic Modeling (SANEM) Executive Director Dr Selim Raihan, and Standard Chartered Bank Bangladesh’s Head of Commercial Banking Alamgir Morshed also spoke on the occasion.

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