Bangladesh charts path toward national carbon tax framework

Bangladesh is advancing a systematic approach to carbon pricing, with analysts recommending a carbon tax over an emissions trading scheme due to its ease of implementation and stronger price signals. The government's recently approved multi-car surcharge, ranging from Tk 50,000 for a second vehicle, offers a small-scale pilot for a broader national scheme.

Bangladesh's Nationally Determined Contributions require the country to unconditionally cut 3.39 million tonnes of CO2 from the transport sector by 2030. The government's budget for FY2023-24 introduced a surcharge on second and additional car ownership atop existing advance income tax, which ranges from Tk 25,000 to Tk 200,000 per vehicle depending on engine size. Analysts argue this measure, while imperfect, provides operational experience that could inform a broader carbon pricing instrument. The surcharge applies equally to electric vehicles, a design flaw that may dampen EV demand and conflict with Bangladesh's 30% EV penetration target by 2030.

A carbon tax is regarded as more suitable for Bangladesh than an emissions trading scheme because the country's emissions are fragmented across many small units, making ETS administration difficult. Revenue from a carbon tax could address Bangladesh's low tax-to-GDP ratio while channelling funds into renewable energy projects. Analysts recommend the government fix clear policy goals — GHG reduction, air quality improvement and clean energy promotion — before selecting the implementing agency and establishing an initial low tax rate. Extensive stakeholder engagement is considered essential to build public acceptance.

Analysts outline a multi-stage framework: impact and needs assessments to identify distributional effects on low-income households, phased sector selection, a revenue recycling plan, and an evaluation mechanism. The government is encouraged to waive the second-car surcharge temporarily for buyers switching from ICE vehicles to EVs, and to deploy surcharge revenue from ICE vehicles toward EV charging infrastructure. Bangladesh's broader NDC target requires unconditional containment of 6.73% of GHG emissions from selected sectors by 2030, making a well-designed carbon pricing tool critical to compliance.

Key figure — Tk 50,000 combined AIT and surcharge for a 1,500cc second car