Decarbonisation Policies and Energy Price Reforms in Bangladesh

Sakib Amin*, Tooraj Jamasb*, Manuel Llorca*, Laura Marsiliani*, Thomas I. Renström

*Corresponding author for this work

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Bangladesh electricity sector suffers from heavy subsidization of fossil fuels and regulated electricity prices. These interventions distort the fuel mix in electricity production, promote overconsumption of fossil fuels and slow down the low-carbon transition. As a signatory of the 2015 UNFCCC Paris Agreement, Bangladesh has pledged to reduce GHG emissions by 15% (of which 5% is unconditional) with respect to Business as Usual by 2030, yet its overall CO2 emissions are increasing. Urgent actions are needed for Bangladesh to fulfil its climate pledge. We use a fit-for-purpose Dynamic Stochastic General Equilibrium (DSGE) model to evaluate the effects of several decarbonisation policies, namely the implementation of carbon taxes and the removal of fossil fuel subsidies and intra-sectoral electricity price distortions. We find that all policies can deliver a win-win situation in terms of macroeconomic variables and CO2 emissions with respect to a benchmark scenario that includes existing price distortions and no carbon taxes. The reduction of 4.6% in CO2 emissions achieved in the price reform policy experiment indicates that liberalised energy markets can help achieve its Paris Agreement target. Thus, we recommend that the government considers reforming electricity and fossil fuel price structure to foster economic development and environmental sustainability.
Original languageEnglish
Article number113224
JournalEnergy Policy
Number of pages10
Publication statusPublished - Nov 2022


  • Carbon taxes and fossil fuel subsidies
  • Energy price reforms
  • CO2 emissions
  • DSGE model
  • Bangladesh

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