Bangladesh earns $17m from carbon credits, just the tip of the iceberg

Bangladesh earned its first-ever revenue from carbon credits – permits that allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases – way back in 2006, when the Infrastructure Development Company Limited (Idcol) registered its maiden clean development mechanism project with the United Nations Framework Convention on Climate Change. Since then, Idcol has sold a whopping 2.53 million carbon credits, raking in $16.25 million, equivalent to Tk170 crore at current exchange rates.

Most of this impressive carbon credit revenue came from improved cook stoves, while the remaining amount was generated from solar home systems.

Five brick manufacturers that adopted clean technology to halve coal consumption and produce eco-friendly bricks received nearly Tk3 crore in carbon revenue. Thanks to their use of the Hybrid Hoffman Kilns (HHK) technology between January 2018 and March 2020, these brick-makers were able to cut down carbon dioxide emissions by 65,603 tonnes.

Infographic: TBS

Waste Concern, an NGO based in Dhaka, works towards promoting sustainable waste management practices. Through their efforts, they established the world's first-ever compost plant and managed to reduce 62,200 tonnes of carbon, earning Tk25.67 lakh. However, it is noteworthy that they did not sell any carbon credits after 2014.

These earnings are just a fraction of what Bangladesh could potentially make from carbon credit sales.

According to Idcol CEO Alamgir Morshed, if the company can double improved cook stoves to 80 lakh over the next five years and install 300 megawatts of rooftop solar within three years, revenue from carbon credits could skyrocket.

However, Bangladesh faces several challenges in realising its goals for carbon credit sales. Some of these hurdles include a lack of awareness and capacity among stakeholders, insufficient funding, and a shortage of skilled manpower.

"Bangladeshi suppliers of ready-made garments could soon emerge as potential buyers of carbon credits as their global clients are increasingly demanding carbon emission offset in their factories"

But hope is not lost. Alamgir Morshed believes Bangladeshi suppliers of ready-made garments could soon emerge as potential buyers of carbon credits as their global clients are increasingly demanding carbon emission offset in their factories. With the right strategies and investments, Bangladesh could soon become a major player in the global carbon credit market.

What is carbon credit?

Essentially, carbon credits are a type of permit that represents the right to emit 1 tonne of carbon dioxide (CO₂) or another greenhouse gas. The idea behind carbon credits is to incentivise and promote the reduction of carbon emissions, ultimately mitigating the effects of climate change by putting a price on carbon.

How do carbon credits work? 

Carbon credits are a crucial tool in the fight against climate change, providing a means to reduce emissions while also promoting economic growth and sustainable development.

Credits are generated through projects that either reduce or avoid greenhouse gas emissions. These projects can take many forms – renewable energy initiatives such as wind, solar, hydro and geothermal power; energy efficiency projects that improve the efficiency of buildings, factories or transportation systems; afforestation and reforestation projects that establish new forests or restore degraded land; methane capture projects that capture emissions from landfills, waste disposal sites or livestock operations; and industrial process improvement projects that reduce greenhouse gas emissions by improving manufacturing methods of capturing waste heat.

These projects are typically carried out in developing countries and are certified by accredited third-party organisations such as the UN Framework Convention on Climate Change (UNFCCC). Once a project is certified, it generates carbon credits that can be sold or traded on carbon markets, providing an economic incentive for countries, businesses, and individuals to reduce their carbon footprints.

How carbon trading works globally

Carbon credits are measured in metric tonnes of CO₂ equivalent and traded in a market-based mechanism. However, the price of carbon credits can vary widely depending on market conditions, project type, and geographic location.

For instance, during the Obama administration, which was pro-environment, the price of carbon credits rose to $6-7 per tonne of CO₂, but it went down to $1-2 during the Trump administration that was not very serious about environmental issues. Presently, the price of carbon credits remains low due to the Ukraine-Russia war, which has subdued the demand, according to the Idcol CEO.

For another instance, Abu Hasnat Md. Maqsood Sinha, executive director of Waste Concern, said they did not sell any carbon credit for around a decade because of the drastic fall in prices of carbon credits – from 10 euro per tonne in 2008 to 30 cent in 2014. He said they set the world's first compost plant at Bhulta, Rupganj, a methane capture project that captures emissions from landfills. The project received Tk25.67 lakh from the sale of 7,131 CERs or carbon credits issued by the UNFCCC.

Companies can trade carbon credits with other companies that have a surplus of allowances, with the price determined by supply and demand. When there is a shortage of credits, the price increases.

Governments in some countries set a cap on the amount of greenhouse gases that can be emitted in their country or region. This cap is usually set in the form of an emissions target. The government allocates emission allowances to companies or industries based on their historical emissions or other factors, and companies that exceed their emission allowances must purchase additional allowances or face penalties.

The revenue generated from the sale of carbon credits can be used to support the development of additional greenhouse gas reduction projects, finance climate change adaptation measures, or offset the costs of regulatory compliance. Overall, carbon credits play an important role in incentivising companies to reduce their carbon emissions and mitigate climate change.

Emissions must be accurately measured and reported by companies to ensure that they are within their emission allowances. Third-party verifiers are used to confirm the accuracy of the emissions data.

How Idcol does carbon trading

Idcol generates carbon credits by financing renewable energy projects, such as solar, wind, and hydropower, through financing and technical assistance. As these projects generate electricity using clean and renewable energy sources, they also generate carbon credits through the reduction of greenhouse gas emissions that would have otherwise been produced by using traditional fossil fuels.

Specifically, Idcol's Solar Home System and improved cook stove programmes have been registered as Clean Development Mechanism projects under the UN Framework Convention on Climate Change. According to the Idcol CEO, each of their stoves emits 1 million tonnes of CO₂ less annually, and with 40 lakh stoves currently in place, the programme results in a reduction of 40 lakh tonnes of CO₂ emissions a year.

Under the Clean Development Mechanism, the reduction of CO₂ through programme interventions and/or technologies are quantified and sold to buyers. These programmes significantly reduce CO₂ emissions, and the UN Framework Convention on Climate Change issues Certified Emission Reduction (CER) or carbon credits to eligible projects after verifying their performance and operational status over a specific monitoring period.

As the coordinating and managing entity of these projects, Idcol is authorised to sell CERs. To date, the UN body has issued 2.53 million CERs for eligible Idcol projects. Idcol intends to use the proceeds from CER sales to create a sustainable fund for renewable energy initiatives that complement Bangladesh's Sustainable Development Goals.

Idcol boss Alamgir Morshed said they sell carbon credits to the World Bank's Community Development Carbon Fund and generate revenue that is shared by the companies involved in financing, installing and servicing the solar panels to expand the programme.

Who are the buyers?

Buyers of carbon credits are companies or organisations that have set voluntary or regulatory emission reduction targets and need to offset their emissions.

There are many companies in the world that buy carbon credits to offset their carbon footprint and reduce their impact on the environment. Some of these companies are Microsoft, Royal Dutch Shell, BP, Total SE, Nestle, Google, Apple, Amazon, Delta Airlines, United Airlines, Coca-Cola, General Motors, JPMorgan Chase, and Goldman Sachs.

Potential buyers within the country

Global brands are increasingly putting pressure on Bangladesh's garment makers to buy carbon credits to offset their CO₂ emissions, according to industry insiders.

"We are in negotiations to buy carbon credits, but we are not getting them," said Syed Tanvir Ahmed, managing director of Pacific Jeans, one of the largest garment exporters in Bangladesh.

Also, people are not very aware about carbon credits and the selling and buying process is very complex, he said, adding that it is also important to ensure that the carbon credits being purchased are genuine and verified by recognised standards to ensure the credibility of the offset.

Tanvir also said it makes sense if producers and buyers are within the country.

Idcol's Alamgir Morshed also said the process for carbon credits needs to be simplified.

On the apparel makers willing to buy carbon credits, he said there were some queries, but discussions have not yet been opened.

If Idcol is ready to sell carbon credits to local buyers, he said, it will depend on the standard buyers follow and the price they offer.

Bangladesh's carbon credit potential is huge

Bangladesh, a country highly susceptible to the impacts of climate change, possesses significant potential to earn carbon credits through projects aimed at mitigating greenhouse gas emissions. The government has undertaken several initiatives to reduce the nation's carbon footprint, such as promoting renewable energy sources like solar power, which has enormous potential in the country.

By 2030, Bangladesh aims to increase its renewable energy share to 10% of its total electricity generation, up from the present 3%.
Large scale investment needed

Maqsood Sinha of Waste Concern said Bangladesh has scope in carbon credits, but to materialise this opportunity the country needs large scale investments, including FDI in CO₂ or greenhouse gas reduction projects.

"Government has to take initiatives to bring in FDI in this sector. Also, government steps are needed to sell carbon credits in markets, such as the USA or Canada where it is sold at higher prices," he told The Business Standard.  

"We are promoting sustainable energy in the country," said Munira Sultana, chairman of Sustainable and Renewable Energy Development Authority (SREDA). Encouraged by the success of the solar home system, the government has initiated a number of programmes such as solar irrigation, solar mini/micro-grid, solar park, solar roof-top, solar boating and so on, she said.

She said Bangladesh's carbon credit trade potential is huge, but the country cannot avail it because of some limitations.

"We have no structured framework in this regard. A lack of trained manpower is another limitation," she said.

Ways to manage carbon emission

Improved cook stoves: Bangladesh has a significant number of households using traditional stoves, which contribute to high emissions of carbon and other harmful pollutants. Idcol has set a target to install another 40 lakh improved cook stoves in the next five years.

Afforestation and reforestation: Bangladesh's forest coverage has declined over the years due to deforestation. Afforestation and reforestation projects can help sequester carbon and reduce greenhouse gas emissions.

Waste management: Bangladesh has a huge waste management problem, with most of the waste ending up in landfills. The promotion of waste-to-energy projects can help reduce greenhouse gas emissions while generating electricity.