Dhaka Courier

Encouraging Emission Tax to Tackle Climatic Impacts

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Bangladesh is one of the countries hit hardest by climate change. A 2014 estimate placed annual losses from climate change at 2 percent of GDP by 2050. Signs of Bangladesh’s vulnerability can already be seen and the human, financial, and infrastructure costs will only mount as the impacts intensify. Even though Bangladesh’s contribution to climate change is minimal—less than half a percentage point of global emissions—the country would be a leader toward global abatement.

The economics of climate change refers to the study of the economic costs and benefits of climate change, and the analysis of the economic impact of actions targeting at limiting its effects. However, calculating the economics of climate change is challenging due to the fact that there are huge uncertainties in the estimation of both the costs and benefits related to climate change. The precision of the time horizon, over which benefits and costs of climate change would accrue, is debatable. Also, there are uncertainties over thresholds for climate change impacts and the pace and form of technological innovation that can take shape in the future. Different parts of the world are likely to be affected differently: countries closer to North and South poles will experience warmer temperatures and once inhospitable land will experience melting of ice. Small island nations are at risk of extinction due to rising sea levels. Low-lying islands and countries are at a greater risk of flooding both from rising sea levels and increased precipitation. Countries near the equator are likely to experience unbearable heat. Some of the countries are already experiencing more frequent events of severe weather. Market economies are not the sole offenders when it comes to environmental degradation. The policies of the handful of centrally planned economies that history has witnessed led to large-scale environmental destruction.

Conventional economists acknowledge that emissions of greenhouse gases and pollutants are an inevitable by-product of growth — given the technologies at their disposal, firms will pollute as they increase their production of goods and services. In determining how much to produce, firms weigh their private benefits (revenue) against their private costs (costs of production). They ignore the social costs of their production — they do not factor in the cost of polluting the environment. As long as firms operate without internalizing the costs of pollution, they will produce socially inefficient levels of goods and services.  This is an example of what economists call “market failure” — the inability of markets to provide the socially desirable levels of certain goods and services in an economy. The existence of market failures does not imply that market economies are inherently destructive; instead, it demonstrates the critical role of public intervention in forcing firms to internalize the social costs of their production outcomes.

The economics of climate change is further complicated by the fact that most of the developing countries can't afford the costs of mitigation or adaptation. The 2018 Environmental Performance Index (EPI) of Yale University ranks 180 countries on 24 performance indicators across 10 issue categories covering environmental health and ecosystem vitality. These metrics help provide an estimation at a national scale of how close countries are to establishing environmental policy goals. According to the EPI, most of the developing countries in the south dominate the lower part of the ranking. Among the bottom 10 countries in the ranking, three (Bangladesh, India and Nepal) are from South Asia. Bangladesh's position is 179 out of the 180 countries.

There are also considerable debates in the discourse on climate change with respect to the policies and actions needed to address the challenges. Two instruments are widely referred to in the policy discussion. The first is the carbon tax, which is the mandatory fee charged for the emission of a given quantity of carbon dioxide or some other greenhouse gas. The second is carbon trading, which is buying and selling of carbon credits—abstract instruments (like money) where each represents the right to emit one tone of carbon dioxide or an equivalent amount of other greenhouse gases.

A three-foot rise in sea level would submerge almost 20 percent of the country and displace more than 30 million people—and the actual rise by 2100 could be significantly more. In some places, the impact of climate change is obvious. In others, scientists predict that climate change will occur based on elaborate computer models. The Bangladesh riverine environment is so dynamic that, as chars wash away, the process of accretion creates new chars downstream.  Land is so scarce and the population so dense that the displaced people try to eke out an existence on these new, highly unstable sand bars. A three-foot rise in sea level would submerge almost 20 percent of the entire country and displace more than 30 million people. Some scientists project a five-to-six foot rise by 2100, which would displace perhaps 50 million people. Already, the intruding sea has contaminated groundwater, which supplies drinking water for coastal regions, and degraded farmland, rendering it less fertile and eventually barren.

Opportunities and Challenges of Climate Financing

Based on the positive learning experiences, BCCTF, BCCRF, and the Indonesian Funding Initiative, the countries need to improve its governance mechanism to have access and effectively use of climate funds. Development of budgeting and performance management was also identified as a crucial element of climate finance governance. Strengthen the local government’s capacity to host an effective channel to design and implement pro-poor climate finance regime. Institutional capacity, current finance governance mechanism, accessing climate finance, and tracking of climate finance was identified as major challenges in the climate finance discourse. Local level climate finance framework and public-private partnership can be strengthened to overcome challenges and building long-term resilience. Private sector can play vital role in not only mitigation but also in adaptation across the world. It is extremely important to share climate change knowledge, strategies, and technologies with the private sector for playing effective role. If necessary, the government may introduce financial incentives and regulatory risk reduction frameworks to encourage the private sector to address climate change. Private-public partnership has been encouraged for technology development and technology transfer. The countries, government, institutions need to prioritize vulnerable sectors for climate finance allocation. It is necessary that all governments encourage transition from traditional options to “innovations” and inter-disciplinary aspects for allocation on adaptation and mitigation projects. Financing to increase carbon sink to facilitate green development is also important. Huge resources need to be allocated to address “climate related poverty, and loss and damage.” Climate finance could be a tool for women’s empowerment and resilience. Gender and youth integrated climate finance mechanism would address long-term vision and sustainability of the investment. Institutional capacity to access and utilize the climate finance is extremely important. The countries and relevant authorities have to identify, discuss, and negotiate to have access to all public, private, multi-lateral, and bi-lateral funds. Playing active roles by relevant organizations is pre-condition for mobilizing climate finance.

Capacities of Emission Tax

An emissions tax which stems from the oft-quoted “polluter pays principle” — incentivizes firms to roll back their emissions to reduce their tax burden. This instrument further allows the government to distribute the revenue generated from such “green taxes” to support environmental program and institutions. By informing citizens of the environmental performance of firms in their locale, the government can harness the power of public pressure to force firms to reduce their emissions. Conventional economists unanimously agree that public intervention is essential in fixing market failures, such as excessive pollution, unsustainable resource extraction and under-provision of education and health care services. The fundamental debate amongst economist’s centers on how much public intervention is appropriate without undermining well-functioning markets.

Carbon taxes—and “green taxes” more generally—can contribute meaningfully and are an important signal to the international community that Bangladesh is willing to play a part in global mitigation. In addition to giving the country greater weight in international climate discussions, a carbon tax can help Bangladesh meet its commitments during the COP21 in Paris in 2015 to reducing climate-harming emissions by 5 percent by 2030, and more if sufficient financial and technological resources are made available.

The Writer is an Environmental Analyst & Associate Member, Bangladesh Economic Association.

  • Climatic Impacts
  • Tax to Tackle
  • Encouraging Emission
  • Climate Change

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