Reducing Greenhouse Gas Emission In Bangladesh Economics Essay

Reducing Greenhouse Gas Emission In Bangladesh Economics EssayAtmosphere is a global public good and tout ensemble nations around the globe dump befoulment in the melodic phrase at zero salute. As a result the c at oncentrations of Greenhouse Gas (GHG) have been increase in the atmosphere leading to its food market failure. The four major comp wizardnts of GHG be atomic number 6 dioxide, methane, nitrous oxide and F-gases. In targeting GHG expelling, main focus is given to CO2 since it constitutes a large sh atomic number 18 of the GHG . The rising concentrations of GHG in the atmosphere argon bringing considerable changes to climate for example rise in global mean temperature by 0.4-0.8C and average annual rate in sea level by 1-2 mm in the last century .Reducing GHG rises in BangladeshBangladesh is one of the most vulnerable countries of the threat to climate change. IPCC report suggests, a one-metre rise in sea levels would flood 29846 sq km (total area of Bangladesh is 14 7570 sq km) of Bangladesh and create 14.8 million raft landless . Most of the land of Bangladesh is less than 20 feet high from the sea level. Bangladeshs population is 150.5 million in 2011 and per capita greenhouse rise is 0.3 in 2008 . Bangladesh is currently bestow to global carbon emissions by an amount slightly less than its share in world GDP .CO2 emissions per capita(Tonnes)YearFigure 1 GHGs emission by Bangladesh, India, China and Pakistan seedAlthough Bangladesh has low GHG emission, its paying higher(prenominal) approachs for the consequences of climate change associated with higher GHG concentration in the atmosphere. The frequency of natural disasters has rapidly increase. Bangladesh has been forever arguing in favour of go downd global GHG emission in climate negotiations. Bangladeshs own GHG emission is as well as showing an increasing trend. There is a projection of Bangladeshs greenhouse gas emission under different growth scenarios up to 2050SourceFigure 2T he vulnerability of Bangladesh for climate change learns interventions to reduce GHG emission from her own end. There may be different policy intervention instruments for reducing greenhouse gas emission like creation of billet rights, market based inducings (a levy, emission trading scheme), different forms of regulating, subsidies etc. When taking any policy, it is important to evaluate the policy under certain standards like environmental consequenceiveness, cost effectiveness, distri yetional impacts and institutional feasibilities. Two proposed policy interventions to reduce GHG emissions in Bangladesh areRegulation (setting renewable dexterity target to reduce carbon emission)Regulations are most common form of interventions to reduce GHG emission like renewable energy target, light bulbs, specifying output signal technology or input to use or not to use etc.Market based incentives to reduce pollution ( value on carbon emission)Market based interventions create a dete rmine incentive to internalise the cost of externality and correct the market failure.Regulation Renewable energy targetA tax on carbon emissionRegulations sack up be impose by considering the particular circumstances of a firm or industry. For example, it is possible to set a renewable energy target for a firm consuming more energy after a limit.A tax on carbon emission is uniform in nature. For example, two companies electrical energy generating and transport, have to pay same amount of tax on each tonne of GHG emission.The connection between regulations and GHG emission take is more direct. So the outcome of regulation on GHG emission can be predicted with about degree of certainty. revenue enhancement gives assurance about the marginal cost of reducing pollution unless the amount of pollution reducing is uncertain under taxation.Regulation requires reliable and accurate information because abatement cost provide possibly rise when the regulators do not have accurate info rmation.Sometimes tax is more complex compared to regulations. In setting the tax rate, knowledge of all functions, MPC, MEC and MPB, or MB and MC is required.Regulations require changes over time as MC function changes with changes in production technology, input costs, and product demand.MC curve shifts over time with changes in production technology, input costs, and product demand requiring changes in tax.Regulations are unlikely to be lowest cost.Tax allows the get downrs to find least cost or cost effective way of reducing pollution.Regulation does not generate political sympathies revenue but creates transaction cost for monitoring and implementing those.Tax generates government revenue.Regulations are appropriate for developing countries as they build initial capacity by bringing new technology e.g. solar energy, wind power etc.Tax interventions are appropriate for developed countries as they require more institutional feasibility and sensitive monitoring systemRegulation adds implicit extra production cost.Tax adds definitive extra production cost and often politically unpopular and may assist rent seeking by lobby groups.Regulations are imposed by targeting goods and services which emit more carbon.Tax on carbon gives signal to producers and consumers about which goods and services produce more carbon and which produce less or none. Therefore, consumers and producers can plan to shift from high-carbon products and technologies to low-carbon products and technologies. downstairs regulation, firms do not have incentives to reduce pollution after meeting the regulation target.Under tax, firm have incentives.Renewable energy targetThe current potential demand of energy in Bangladesh is 5569 MW where supply is less than 4000 MW . The economy of Bangladesh has been growing at a rate of 6-7 percent from last few years . These are causing rise in energy demand which in fold increases GHG emission. Bangladeshs GHG emission from energy sector is relativel y low as most of the power is generated from natural gas which causes low carbon emission. The current contribution of renewable energy is 0.5 percent. The government is planning to increase the share of renewable sources in total power generation by 5% in 2015 and 10% in 2020 .SourceFigure 3 Power Generation Fuel Mix of Bangladesh in 2009But as the reserve of natural gas has been depleting very quickly and the demand of energy is increasing, dependency on fossil fuel and coal based energy is increasing. As a result it is expected that the GHG emission get out rise. indispensable gas contributed 64 percent of CO2 emission and petroleum products contributed 36 percent emission of Bangladesh during 2008-2009 .Efficiency of regulationThere will be an readiness gain for regulation if the regulation is implemented in cost effective way.Price ($) KW electrical energyS= S + regulative CostS= MPC Regulatory CostMCMBWelfare Gain0 = emReduction of pollutionFigure 4 Market effects of regul ationQuantity of coal and fuel produced electricityPPQe*QD=MPB=MSBPrice and cost per unit pollutionAs the government is trying to increase the share of renewable energy in total energy, its imposing some regulatory costs on coal and fuel produced electricity. In encrypt 4, MPC=S curve shifts to S due to the regulatory cost. The amount of electricity produced by coal and fuel has decreased from Q to Q while price has increased from P to P. In the second part, initially at the market solution, reduction of pollution is 0. Due to the regulation, the amount of pollution reduction increases from 0 to e*. optimum level of pollution reduction will be at the intersection of MB and MC curve. From 0 to e* level of pollution reduction MB MC and the amount of welfare gain is the blue triangle.The correlation between production of coal and fuel based electricity and GHG emission is very high. So the regulations imposed on those will directly influence the amount of GHG emission. Regulations are unlikely to be lowest cost. For example, the cost of producing electricity by solar decorate is higher compared to the cost of producing electricity by coal.Table 1SourceBut the price of coal and gas is also increasing which is lowering the offend of the costs. A renewable energy plant like solar panel can reliably serve for decades without emitting GHG at lowest maintenance cost. Under regulation, once firms meet the regulation target Q*, no incentive for further reduction.Reduction of pollutionCost per unitQ*Figure 5 Regulation and pollution reduction$ If regulations are not metDistributional effectsFirms producing energy by using coal and fuel will lose their share in the market as their quantity decreases which will also reduce the amount of GHGs emission. The price of coal and fuel produced electricity will rise. The prices of products which use electricity a lot will also increase and influence the buyers of those goods.To increase the supply of renewable energy, more re newable energy plants will be built. It will increase the demand for renewable energy accessories like solar panel, wind turbine etc. So the suppliers of those inputs will gain. Initially at the market solution, amount of pollution reduction is zero. When the regulations are imposed the amount of pollution reduction increases to e*. The people who are polluted initially are gaining as the amount of pollution is decreasing.A tax on carbon emissionA tax on the emitter of GHG can also be proposed to reduce GHG emission in Bangladesh. The tax will place an explicit additional cost on per unit emission. Before the tax, polluters emit GHG at zero marginal costs. The result is excess supply of GHG gas in the atmosphere leading towards its market failure. In presence of the tax, polluters emit GHG at a cost equal to tax rather than zero. This tax sets a price of GHG emission in the market where the market chooses the quantity of emission.Efficiency of carbon taxPrice ($) KW electricityQuant ity of electricityMSC= MPC + MECS= MPC Regulatory CostMCMBWelfare Gain0 = emReduction of PollutionMECGovt. RevenueFigure 6 Market effects of taxe*PtPQtQmMPBPmPrice and cost per unit pollutionIn figure 6, the production of electricity generates GHG emission by product and MEC curve shows this negative externality. Market equilibrium is at the intersection of MPC and MPB curve and the market price is Pm and quantity is Qm. But the social optimum is at the intersection of MSC and MPB curve. To attain the efficient level of Q, if a tax is imposed on Q by the amount of MEC then the level of output and price will be Qt and Pt respectively. The amount of electricity has decreased from Qm to Qt while price has increased from Pm to Pt. In the second part, initially at the market solution, reduction of pollution is 0. Due to the tax, the amount of pollution reduction increases from 0 to e* and the amount of welfare gain is the blue triangle. In the above figure, tax sets price, market chooses quantity. The efficiency of the programme depends on the ability of setting tax at a point that induces behavioural change.Distributional effectsFirms producing output that by product emit GHG will lose their share in the market as their quantity decreases which will also reduce the amount of GHG emission. The price of electricity will rise which will also increase the prices of products which use electricity a lot in production. The consumers of those products will be worse off by paying higher prices. Moreover, more than 75 percent of Bangladeshs export revenue comes from Ready Made Garments (RMG) sector which consumes high electricity in the production process. A rise in electricity price led by the carbon tax will increase their production cost and reduce their competitiveness in the international market.There is a gain in government revenue by the yellow rectangle. A portion of the generated revenue may be use to compensate RMG producers by providing financial incentives. Most taxes create distortions but carbon tax corrects distortion. Carbon tax may yield double dividend one by reducing emission and another by financing the reductions of incentives.Carbon tax increases the amount of pollution reduction from 0 to e*. The people who were polluted initially are gaining as the amount of pollution is decreasing. Tax allows the producers to find least cost or cost effective way of reducing pollution. In figure 8, from 0 to e* level of pollution, tax is higher than MC of pollution reduction. Firms will find it profitable to reduce pollution by inventing new technology, investiture in research and development rather than paying the tax. After e* level of pollution reduction, MC of pollution reduction is higher than the tax. So it will be cost effective for the firm to pay the tax.Price and cost per unit pollutionReduction of pollutionTMC of reduction of pollutione*Figure 7 Pollution reduction efficiency0 = emTaxIn Bangladesh, relative elasticities of the pro ducts should be considered in setting the carbon tax because tax imposed on carbon passes to buyers and the share that will pass on depends on relative elasticities. In figure 8, the full commit of taxes passes on to consumers when elasticity is perfect.Price ($) KW electricityQuantity of electricityMSC= MPC + MECS= MPC Regulatory CostMSC=MPC+MECMBQtQuantity of electricityMECFigure 8 Effects of tax on price depending on elasticitiesQmPtPQtQmMPCPmPtPmPrice ($) KW electricityA carbon tax will increase the cost of production for not only the products directly involve pollution e.g. electricity and transport but also for other products using electricity and petroleum inputs in production. As their production cost rise, their price will also rise. 31.5% population of Bangladesh live infra the poverty line in 2010 . The carbon tax will increase the burden of poor people through increased price. To ameliorate the burden, financial avail can be provided to the low-income households by us ing the tax revenue . In figure 9, we can see that as tax is imposed on electricity, the price of electricity increases so the budget line of the consumers will rotate inward and the consumer will move to a lower indifference curve ICt. The consumer can be compensated by an income subsidy which attains the same level of utility as before tax.Quantity of electricityICICtQuantity of XFigure 9 Income substitution to the consumersIn 2009, 5 percent of total labour force of Bangladesh was unemployed . A carbon tax may deteriorate the scenario by occurring fanciful destruction associated with the jobs of carbon intensive products and production processes. But it will also create jobs for carbon extensive products and production processes. The net aggregative employment effect is close to zero.RecommendationEnergy is the lifeblood of growing industry sector of Bangladesh. The intensity of current potential energy deficit can be substantially met by fuelling the growth of renewable energy. Different financial incentives can be offered for that purpose. For example, Bangladesh imports renewable accessories from abroad like solar panels from Germany. If import duties are removed from the accessories of solar panel, the cost of producing solar energy will decrease. Moreover, the poor people living in the rural areas having no electricity access also lack the capability to lay in renewable energy at household level. Government can provide them financial assistance in launching solar panel. Private investment should also be encouraged by creating proper financial incentives. For large scale investment Public Private Partnership (PPP) can be formed. RD for inventing renewable accessories at domestic level can reduce the production cost substantially.It may be difficult to enforce a carbon tax with underdeveloped institutions occurring higher administrative costs. In Bangladesh, the current tax structure lacks the capability and institutional feasibility to implement carbo n tax. Before introducing carbon tax, the tax mechanism is need to be restructured by developed institutional capability. In setting the tax main focus should be given to on electricity, gas, coal, some petroleum, fugitive emissions and some manufacturing while exclude agriculture, petroleum used by small vehicles and primary production and small business.ConclusionAlthough Bangladesh is attaining persistent economic growth, per capita energy consumption is sedate very low. So in future there will be increase in total energy production and consumption which in turn will increase the amount of carbon emission . A key way to transform into low carbon economy is imposing regulations on renewable energy target which can create two-fold benefits for Bangladesh- environmental and energy sufficiency. The reduction in GHG emission in the atmosphere will bring environmental improvements. Moreover, it will reduce the potential demand and supply gap of power and help to attain energy suffici ency. A carbon tax can also be charged by restructuring tax mechanism with substantial infrastructural improvements.