Abstract
This study estimates optimum corrective fuel taxes for Bangladesh and correlates them with climate change policy. First, we use the European road transport emission model (COPERT IV) to precisely estimate the externalities. Second, using the same model, we also estimate the reduction in greenhouse gas emissions caused by the fuel tax. Finally, we develop a correlation between the fuel tax rate and emissions reduction. Our benchmark calculation of the optimum corrective tax is US$0.94 per gallon for gasoline and US$1.46 per gallon for diesel (in 2016 prices). We find that congestion and accident externalities are the two main fuel tax components for Bangladesh. We also find that the net social welfare gain per year is US$302.11 million and the net revenue gain per year is 3.59% of GDP. The corrective diesel tax reduces fuel consumption by 18.10% and increases fuel efficiency by 12.53%. In the benchmark case, corrective fuel taxes reduce GHG emissions by 5.77%. With the combination of the existing gasoline tax and a diesel tax of US$1.20 per gallon, the country’s greenhouse gas reduction goal can be achieved. Policymakers can use fuel taxes to support climate change policy.
Highlights
The main purpose of this study is to estimate the “corrective” fuel taxes that can help Bangladesh achieve its intended nationally determined contribution (INDC) to greenhouse gas (GHG) reduction, as a representative middle-income country. Bangladesh has set this goal at a 5% reduction of GHG by the end of 2030, compared with business as usual (BAU) in 2011 [Ministry of Environment and Forests (MoEF) 2015]
We calculate each component of the corrective fuel tax before we calculate the corrective gasoline and diesel taxes and analyze their impacts
Using the global warming potential (GWP) given by Forster et al (2007) (CO2 = 1, CH4 = 25, and N2O = 298), we find that corrective fuel taxes reduce GHG emissions by 5.77% (1.85 Million tons of equivalent CO2)
Summary
The main purpose of this study is to estimate the “corrective” fuel taxes that can help Bangladesh achieve its intended nationally determined contribution (INDC) to greenhouse gas (GHG) reduction, as a representative middle-income country. Bangladesh has set this goal at a 5% reduction of GHG by the end of 2030, compared with business as usual (BAU) in 2011 [Ministry of Environment and Forests (MoEF) 2015]. We analyze the road transport market, known as a major contributor to GHG emissions. Emissions occur during the combustion of fuel, which is the main source of road transport emissions. To develop sustainable transport policies, all these external costs need to be measured correctly
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