Covid-19 is a disaster of inconceivable proportions and with each passing day, the problems are becoming worse as both the health and welfare crisis triggered by the virus are extreme. It is, therefore, the need of the time to protect livelihoods by directing incentives to prop up the affected sectors in addition to safeguarding the health problems.
With these factors in mind, countries like Germany and member states of the European Union are considering a bold and conscientious move – putting more attention to clean energy and its efficiency to ensure a green recovery.
Conforming to the momentum on green stimulus-based economic recovery, in a bid to incentivise entrepreneurs, industries and business entities to undertake green projects, the central bank of Bangladesh has, of late, doubled the size of its refinancing scheme from Tk200 crore to 400 crore.
Among other things, the loan limit for a borrower has been increased, and the cost of a loan under the scheme has been reduced to 8 percent from the previous 9 percent.
On the other hand, the government of Bangladesh, while responding to the Covid-19 crisis, has pulled policy levers and quickly embarked on several measures to absorb short-term impacts and lift the economy back on track.
In the stimulus package, the government has earmarked TK 30,000 crore to be provided to the interested big industries and the service sector as working capital loan at 9 percent interest rate of which 4.5 percent would be a government subsidy.
An additional fund of Tk 20,000 crore has been set aside for the small and medium enterprises (SMEs), who might avail working capital loan at 9 percent interest rate, which has a subsidy component of 5 percent from the government.
The industries and SMEs, therefore, would effectively receive working capital loans at 4.5 percent and 4 percent respectively.
As things stand, 8 percent interest rate, under Bangladesh Bank's refinance scheme, for the green projects is considerably higher when compared to the incentives for industries and SMEs' working capital loans.
In any case, the impression is that incentive of 400 crores refinance scheme does not appear to be compatible with the stimulus package designed amid the coronavirus pandemic. Notably, in the past, the money allocated for green projects was not being gainfully used due to high-interest rate.
As people analysed the green refinance scheme, they unearthed the failure of the scheme to provide enough incentive to the prospective industries or business entities. A BIBM study in 2018 or 2019, for instance, identified that loans to green projects accounted for only 0.5 percent of the banks' portfolios and fell short of the ambition with which the refinance scheme was initiated.
The revised interest rate does not seem to change the trajectory either. However, in the present context, it is necessary to look into the areas of investment that could not only reboot the economy but also create jobs while advancing sustainability goals.
In that regard, a new study, as reported in PV magazine, has revealed that overall employment in the global power sector would rise to 35 million in 2050, a jump from 21 million recorded in 2015, with renewable energies are expected to offer 80 percent of future opportunities.
Energy efficiency leads to direct employment opportunities as well. Since there are economic linkages across industries, for a million US$ investment, energy efficiency, reportedly, creates almost 3 times jobs compared to the same level of investment in fossil fuel sectors. As such, both energy efficiency and renewable energy create more jobs than the fossil fuel industry, enabling net employment gains.
These numbers would substantially increase if other green sectors are considered. It is worth noting that, the central bank's scheme covers more than 50 products in eight categories, for instance, renewable energy, energy efficiency, waste management, green establishment etc.
From another standpoint, energy efficiency spearheads the enhancement of an industry's business competitiveness. Industries that are exposed to international competition always pursue competitiveness to enter into new markets, increase shares or at least maintain the existing shares.
Moreover, spending less money on energy would help industries to free up resources to meet additional capital expenditures or other internal need, such as human resource development. If all these economic benefits are calculated, net benefits would be much greater than the saved energy.
In the present situation of exigency, attributed to coronavirus pandemic, all industries, especially the export-oriented ones, would fare better if they could employ energy-efficient measures.
As the revised terms and conditions of the green refinance scheme does not seem to create the impression that demand for a loan among the investors would grow and rather may lock us into the business-as-usual system, a forward-looking approach from the central bank is needed to initiate much-needed transformation and support green projects.
There are different attributes and co-benefits, which augment the overall desirability of green development.
We should seize the present opportunity, perhaps once-in-a-generation, to embed these evidence-based criteria into designing instruments.
A net benefit assessment taking direct benefits and co-benefits of financing green projects into account against that of business-as-usual investment when negative externalities are included may even further strengthen the case of making the green refinance scheme attractive and compatible.
Shafiqul Alam, a Humboldt Scholar, is Senior Advisor in an International Development Agency. He has more than a decade of experience in sustainable energy and climate change