Decarbonization Policies and Energy Price Reforms in Bangladesh

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

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Bangladesh's 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 decarbonization policies, namely the implementation of carbon taxes and the removal of fossil fuel subsidies and intra-sectoral electricity prices 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 liberalized 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
Title of host publicationProceedings of the 44th IAEE International Conference : Pathways to a Clean, Stable, and Sustainable Energy Future
Place of PublicationRiyadh
PublisherThe Saudi Association for Energy Economics
Publication date2023
ISBN (Print)9786030449811
Publication statusPublished - 2023
Event44th IAEE International Conference 2023: Pathways to a Clean, Stable, and Sustainable Energy Future - Riyadh, Saudi Arabia
Duration: 4 Feb 20239 Feb 2023
Conference number: 44


Conference44th IAEE International Conference 2023
Country/TerritorySaudi Arabia
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