Bangladesh needs billions to go green, draft strategy says

Bangladesh looks forward to greening its energy, manufacturing, transportation and agriculture systems to sustain its economic growth and move further – a massive initiative, which will require more than $200 billion in climate action financing over the next two decades, says a document prepared by the World Bank for the government.

Citing estimates and researches done for the government's different climate-related agenda and action plans, the report "Designing the Bangladesh Green Growth Vision and Financing Options" says Bangladesh needs to increase its spending on programmes related to environmental protection and climate change to 3% of GDP by 2031 and to 3.5% of GDP by 2041.

"Complementary plans and initiatives will also require billions of dollars to be fully implemented," says the report drafted jointly by the World Bank Group and the Green Growth for Bangladesh.

The report, presented to the Economic Relations Division (ERD) in June 2023, seeks to provide a framework for implementing the Bangladesh government's green growth target as envisaged in the 8th Five Year Plan and the Bangladesh Perspective Plan 2041.

It identifies key thematic priority areas and highlights green and climate-resilient development policies and investments with sectoral focus.

Shifting to a green economy may require even more, says the report, as green growth policies encompass a strategic approach to economic development that prioritises efficiency and sustainability while preserving and protecting the environment.

Bangladesh's economic loss from environmental degradation stands at around $6.5 billion per year, which is 3.4% of the country's annual GDP, says a 2018 World Bank estimate.

The annual cost of environmental degradation associated with major environmental health risks was equivalent to 17.3% of Bangladesh's GDP in 2019, impacting productivity and welfare, and impairing human capital formation and retention.

What to learn from the world

Similar environmental costs were faced by other countries, which responded by adopting a green growth strategy, it says, citing examples from South Korea, Vietnam, China and Malaysia.

Bangladesh can learn from Korea's experience in reducing carbon emission, lowering fossil fuel imports, increasing production of renewable energy and green manufacturing products for exports, the report points out.

It explains how countries multiply benefits from green energy investments. Every $1 million in spending generates 7.49 full-time jobs in renewable infrastructure and 7.72 jobs in energy efficiency, but only 2.65 jobs in fossil fuels.

Green stimulus policies delivered significant economic boosts and created jobs in the G20 countries, in the United States and South Korea helping them recover from the 2007-08 financial crisis.

In the European Union, each $1 in green investment was estimated to have boosted GDP by up to $1.50 across the region, while China, the US and Germany became leaders in renewable energy because of these stimulus programmes.

Similar results can be expected in Bangladesh, provided there are accompanying efforts to prepare the industry and build adequate human resources, the draft strategy for Bangladesh's green growth states.

Myriad of plans, billions of dollar needed

It refers to the government's estimate of $67 billion funding needed between 2015 and 2030 to meet Paris Agreement commitments, the 2021 updated NDC (nationally determined contributions) estimates of another $32 billion for unconditional mitigation objectives and an additional $143.8 billion required to meet conditional objectives during 2021-30. For climate-mitigation measures alone, Bangladesh estimates funding needs of at least $27 billion for 2011-30, it cited a World Bank's 2020 report.

Investment of at least $200 billion for the next two decades is needed for Bangladesh to reach its top-tier climate-mitigation targets and ambitions, reads the report, seen by The Business Standard.

Complementary plans and initiatives will also require billions of dollars to be fully implemented, it says. Bangladesh has a "myriad of plans and initiatives" that will demand significant economic resources, like the Mujib Climate Prosperity Plan requiring $89.7 billion by 2030, the Bangladesh Country Investment Plan for Environment, Forestry and Climate Change $11.7 billion, and the Delta Plan 2100 costing around $37 billion in its first phase until 2030, the report adds.

Many schemes, yet scanty finance

The report highlights the Bangladesh Bank's green financing policies and initiatives, including green banking guidelines, setting targets for direct green and sustainable finance at 5% for banks and 15% for other financial institutions of their total investments. The policies encouraged projects in areas like renewable energy, energy efficiency, alternative energies, waste management, recycling, and green brick manufacturing.

The central bank also created different green funds at concessional rates and supported multiple green refinancing schemes with support from development partners. These include a $200 million Green Transformation Fund for export-oriented industries and a $50 million Asian Development Bank brick kiln project.

Through government budgets, trust funds, lending from banks and financial institutions, and refinancing schemes, the estimated total amount of public finance directed to projects and initiatives related to climate change, sustainability, and green growth was around $16 billion between 2009 and 2021.

Yet, Bangladesh lags other emerging markets and developing economies in its volume and range of green finance instruments because of structural weaknesses in its banking system. For FY21, the share of green finance was 4.41% of the total term loan disbursement, which averages 7% in emerging markets. Even if banks were to meet the green finance target, this would amount to financing of around $600 million per year, a small dent in the financing gap, according to the World Bank.

Equity investors, institutional investors, and international organisations are fundamental to funnelling green financing towards public and private green activities, the report stresses.

Bangladesh needs to encourage international finance into green industries and products through regulatory changes. Apart from direct finance, Bangladesh can review its taxation system to promote clean energy, green industries and reduce urban car populations, it suggests.

Why green growth strategy is needed

The draft strategy makes sector-wise recommendations for green growth. To incentivise energy efficiency and invite investments in clean energy generation, it suggests review of energy tariffs and gas prices.

The government needs to promote green technologies and a circular economy in textiles, light manufacturing, food processing, and leather as well as encourage modern services industries such as education, ICT and IT-enabled Service sectors, banking, and healthcare.

Small and Medium Enterprises (SMEs) also need support to provide green goods and services to large businesses, governments, and export markets, it says.

To facilitate green agricultural growth, cooperatives finance mechanism and agricultural insurance need to be popularised among small and marginal farmers.

Bangladesh needs to move to a higher emission standard for transport and smart city planning to reduce air pollution and improve human well-being.

The current vision for transportation appears to prioritise expansion of road, water, and railway transport without factoring in environmental considerations, it says, suggesting that Bangladesh should be focusing on the expansion of clean, accessible public transport, on a mass scale.

Since residential buildings represent 18% of total global energy-related CO2 emissions, the urban planning and housing construction sector has an enormous opportunity to reduce emissions through energy efficiency, green materials, and improved design and construction, as well as improving resilience to climate change to create affordable and healthy homes, the strategy report says.

Unless the sources of environmental degradation costs are addressed, the rate of return on investments will fall, growth rate will suffer, and the achievement of the Bangladesh long-term development targets will be jeopardised, it warns.

Apart from scanty finance, weak institutions and inadequate regulations also remain binding constraints for green growth, the report points out, calling for strengthening environmental laws, integrating environmental concerns in planning and budgeting, strengthening the environment ministry and aligning it to key ministries to implement green growth strategy.

Ferdaus Ara Begum, chief executive officer at the Business Initiative Leading Development (BUILD), highlighted Bangladesh's requirements to align its policies with global environmental standards, particularly those set forth by the European Union.

"Under the EU's Carbon Border Adjustment Mechanism, a threshold for pollution levels will be established, with taxes levied if this threshold is exceeded. Given that a significant portion of our exports head to the EU, it's imperative that we address these environmental concerns to avoid potential trade disruptions," she said.

She added, "We must commit to clean energy initiatives unequivocally. This commitment should extend to the private sector, where incentives for utilising clean energy sources should be established. For instance, a percentage of private industry operations should be mandated to utilise clean energy."

Dr Ahmad Kamruzzaman Majumder, chairman of the Center for Atmospheric Pollution Studies (CAPS), said, "In green growth, issues like air pollution, noise pollution, and the protection of rivers, canals, and water bodies are ensured. At the same time, we must ensure that the physical or mental health of those involved in achieving growth, especially the working people, is not compromised during project implementation."

Kamruzzaman said, "There is great potential for green growth in Bangladesh. Although the initial costs may seem high, in the long run, it is the environmental and health costs that make the project sustainable. We must pursue green growth if we want to develop sustainably.

"We need to discourage polluting industries and provide incentives for green ones. Additionally, those that pollute more should pay higher taxes. Tax exemptions should be granted to green industries."