Pollution tax can help promote clean energy transition

Bangladesh's contribution to climate change is low, with a per capita greenhouse gas (GHG) emission of 1.29 tonnes of carbon dioxide equivalent (CO2e) against the global average of 4.58tCO2e (2019 levels), says the Financial Express.

Despite this, inefficient technologies result in high pollution levels and cause additional costs on the country's economy.

In view of this, the introduction of a pollution tax for environmentally damaging sectors can help the government generate revenue. This revenue can be used to reduce pollution and meet sustainability goals.

While the government introduced an environmental surcharge for owners of more than one vehicle in the fiscal year (FY) 2023-24, it could consider a policy framework for pollution tax to ensure that different sectors make a sustainable transformation. Initially, the government can focus on implementing this for key polluting sectors and gradually bring other sectors under the ambit of the tax.

CLEAN ENVIRONMENT CAN AID ECONOMIC GROWTH

In the last decade, Bangladesh registered impressive economic growth despite high price volatility of fuels in the international market and supply chain disruptions originating from the Covid-19 pandemic and the Ukraine-Russia crisis. The country's gross domestic product (GDP) grew at over 5.75 per cent in the past two fiscal years (based on data for FY2022-23 and estimated data for FY2023-24). With favourable policy measures, the country could cross the 7 per cent growth trajectory again, like in the pre-Covid era. However, emissions generated by different sectors, such as brick kilns, power, households and industries, impede development in the country and take a toll on people's health. The sheer magnitude of such costs, due to the loss of welfare and natural capital, ultimately negates GDP growth.

The Bangladesh Country Environmental Analysis, conducted by the World Bank in 2023, estimated that the country's GDP shrank by 17.6 per cent in 2019 due to high ambient and household air pollution, lead exposure, and poor water quality, sanitation and hygiene. Greening different sectors can help Bangladesh power sustainable economic growth.

The government should also protect water bodies from industrial pollution. Although industries producing liquid waste require effluent treatment plants (ETPs) to treat water before releasing it into water bodies, many industries do not operate ETPs to avoid costs. However, with rapidly increasing water pollution, the country will need to pay a hefty price to treat the polluted water bodies.

REVENUE FROM POLLUTION TAX CAN DRIVE GREEN TRANSFORMATION

A drastic step to ban polluting brick kilns is unlikely to be effective because a transition to cleaner alternatives could take many years. Instead, a pollution tax to increase the production cost of traditional bricks and recycle a portion of the accumulated revenue to incentivise green but expensive brick-making technologies may help.

In 2017, the estimated annual production of the sector was 23 billion bricks, which may have crossed 30 billion in 2024. As around 90 per cent of bricks are produced using polluting technologies, levying an emission charge of Taka 0.5 per brick (US$0.0043/brick) will generate annual revenue worth Tk13.5 billion (US$114.84 million). By increasing the emission charge, the government can collect more revenue and use the money to decarbonise the brick and other sectors. The increasing cost of traditional bricks will motivate consumers to opt for cleaner bricks, which have a market share of around 10 per cent.

In addition to putting pressure on polluting brick kilns, the government can use part of the revenue to help poor people purchase improved cooking stoves and electric cooking systems to minimise the use of solid fuels, thereby improving indoor air quality.

Similarly, utilising a portion of the revenue to upscale clean energy, including waste-to-energy intervention, can help Bangladesh foster its clean energy transition, improve waste management practices and undertake waste-to-energy projects to reduce methane emissions.

On the other hand, regulating industries to address water pollution may require a mix of instruments. As ETPs are mandatory for industries that release effluents into water bodies, the Department of Environment should impose fines on those who are not compliant.

As the country pursues a mission for an economic transformation to become a developed nation by 2041, it must be ready to take strong measures to curb pollution, which eats into GDP growth. Using carbon pricing to generate revenue from the brick kilns and channelling that money to green different sectors could work as a good pilot.

Shafiqul Alam is an energy analyst at the Institute for Energy Economics and Financial Analysis (IEEFA)