Bangladesh can boost its tax-GDP ratio by around 10 per cent by introducing carbon tax in the country, a recent World Bank study has said.
Such type of tax can help the country reduce environmental damage while raising additional resources for development, the bank said.
"Carbon taxes could be a significant revenue source for the government," said the WB study.
"Carbon taxes could rise up to 1.0 per cent of GDP, at $ 30 per kilo of CO2 equivalent. This is no small amount for a country that usually collects a little over 10 per cent of GDP - an increase of close to 10 per cent", it added.
The World Bank study comes at a time when Bangladesh's extreme vulnerability to climate change is becoming a growing concern.
In spite of contributing less than 0.35 per cent of global CO2 emissions, it is estimated that climate change could cost Bangladesh annually around 2 percentage points of lost GDP by 2050.
Despite such high vulnerabilities to climate change, the country has extremely limited resources to adapt to the effects of climate change.
Over the last decade, revenue has averaged only around 10 per cent of GDP, the lowest in South and East Asia.
In this context, the WB research paper suggested carbon taxes can be a win-win for Bangladesh as the additional resources can be used to finance improved infrastructure while compensating for reduced taxes or duties.
The World Bank study also noted that carbon taxes can be simple to implement as it can be collected 'using the same administrative systems as existing taxes, or with only minor modifications'.
"In addition, when collected "upstream" - i.e. on fuel wholesalers (imports or producers) - carbon taxes need only be collected from a few firms. Wholesalers then pass the tax on to retailers, who pass it on to consumers."
The WB suggested that such a tax should not immediately cover all carbon emissions.
"In Bangladesh, it could focus on fuel, since it can be difficult to collect carbon taxes from other sources, such as landfill or forestry."
In addition, the research also pointed out that carbon taxes can help Bangladeshi exporters demonstrate their environmental awareness in increasingly environmentally-conscious export markets.
"Several supermarkets in France began labelling the carbon footprints of products in 2008 and such labelling is being rolled out, including on imported goods."
"Similar trends can be observed across several countries and a carbon tax can help Bangladesh and its exporters to get "ahead of the curve."
Carbon taxes will send the signal that Bangladesh is prepared to combat climate change, giving it more visibility in international discussions and potentially helping it access some of the financing committed during the 21st Conference of the Parties in Paris.
The first carbon taxes were imposed in Europe in 1990, covering just a tiny share of global carbon emissions.
Since then, there has been a significant increase in the use of carbon taxes and Exchange Traded Schemes (ETS) with 37 jurisdictions using either taxes or ETS by 2016, covering around 12 per cent of global emissions
In Bangladesh, the 2014 budget proposed a "green tax" aimed at reducing pollution from factories and it has considered similar taxes in the past.
There are concerns from various quarters however that imposing the carbon tax would lead to price increase including a possible hike in the prices of energy.
Addressing this concern, the WB research said that a carbon tax would lead to only small price increases but it will be important to moderate the impact on vulnerable firms and households.
"The overall impact of a carbon tax on prices is fairly low", the study said, while noting that carbon tax would increase the cost of fuel by only a small amount.
