Carbon pricing for rampal power plant ignored

Sunday, October 9, 2016 http://dailyasianage.com/news/33604/carbon-pricing-for-rampal--power-plant-ignored

Carbon pricing for Rampal power plant ignored M S Siddiqui At present, 12% of the world's annual greenhouse gas emissions are covered by a patchwork of carbon pricing policies found in 39 countries and 23 regions. Carbon pricing is a crucial financial tool in managing environmental risk and shifting investment toward cleaner energy. The valuation of carbon techniques to determine the price on carbon- using the right to emit approach, business cost of carbon, societal costs of carbon are basis of standardized approach. Carbon gas emissions can also be priced implicitly by government policies that encourage emissions reductions, such as energy efficiency standards and renewable energy subsidies. The overarching goal of the COP21 is to reduce greenhouse gas emissions to limit the global temperature increase to 2 degree Celsius above pre-industrial levels preferably 1.5 degree Celsius.

Carbon pricing is charges those who emit carbon gas (CO2) for their emissions into the atmosphere. Carbon pricing usually takes the form either of a carbon tax or a requirement to purchase permits to emit, generally known as cap-and-trade, but also called "allowances". Carbon policies can be either price-based (taxes) or quantity-based (cap-and-trade). A cap-and-trade system is quantity-based because the regulator sets an emissions quantity cap and the market determines the carbon price.

The standard methods measure the 'social cost of carbon' when evaluating the damages of incremental increases in carbon emissions. Currently, the grid emission factor for Bangladesh is 0.67 tons of carbon dioxide per megawatt (MW) hour which, up from 0.62 tons in 2010, according to the Department of Environment (DoE). In terms of the impacts on global warming, developing countries like Bangladesh contribute a very negligible amount of greenhouse gas emissions. According to the United Nations Framework Convention on Climate Change, the top three greenhouse gas emitters are China, the United Sates and India which contribute 23%, 19% and 6% of the global emissions respectively.

The plant was originally planned for India but they are gradually switching to other fuel to generate electricity. Now, India will sell their coal to this plant and buy back electricity for some remote area of India. This proposed plant will create an opportunity of shifting the responsibility of Carbon emission over to Bangladesh through shifting the Rampal plant in Bangladesh.

Many countries are currently trying to understand price levels needed to encourage the switch from coal-to gas generated electricity. Different countries impose different types of tax on fossil fuels in many countries but such Carbon taxes exist in India, Japan, South Korea, Denmark, Finland, France, the Republic of Ireland, the Netherlands, Sweden, the United Kingdom, Norway, Switzerland, Costa Rica, parts of Canada, and parts of the United States. Of course, there are two main ways to establish a carbon price. First, a government can levy a carbon tax on the distribution, sale or use of fossil fuels, based on their carbon content. This has the effect of increasing the cost of those fuels and the goods or services created with them, encouraging business and people to switch to greener production and consumption.

The carbon prices triggers a switch away from heavy emitting to renewable energy sources, and promotes investment in the development of alternative and clean technologies including carbon capture and storage and fuel cell storage. UK increases carbon tax from a minimum of ÂŁ9.54 ($15) to ÂŁ18.08 ($28) per ton of Carbon dioxide on April 1, 2015. It has been estimated that this price increase will cause generators to use gas to replace up to 20 terawatt hours of coal generation in the coming year.

The price in Europe currently hovers around â‚Ź7.15 ($8) per ton. Sweden established a carbon tax in 1991 to complement existing energy taxes. This dramatically shifted the tax burden onto coal-intensive sources, and lowered it on natural gas as part of a targeted plan to reduce carbon emissions. As a result, the energy sector quickly invested in developing biomass extraction technology and removing systemic energy efficiencies, resulting in a considerable expansion of biomass use in district heating systems.

There are powerful incentives- both from the carbon price and from complementary policies such subsidies for solar power- for companies to significantly reduce greenhouse gas emissions over time, without causing significant operational disruptions.

Alongside the growth in popularity of trading systems, taxation becomes the preferred approach of emerging economies seeking to efficiently impose a price on carbon. After the first full year in operation, the South African carbon tax is raised by 10%. The revenue funds a major public-private partnership supporting local power grids. Morocco announces at the close of the 2015 Paris Climate Change Conference that it is preparing for a carbon tax within two years.

Then in quick succession, four other major oil-producing African economies-Nigeria, Egypt, Angola and Algeria - all enact carbon taxes by 2018. Chile implements a $5 per ton carbon tax and Mexico, which already has a carbon tax, commits to a cap and trade scheme before the end of the decade. Investments in renewable power and low power grids are a high priority, seen by these governments as key to solving systemic energy insecurity. These countries next set their sights on creating a converged system that links their respective carbon tax regimes.

There is a distinction between an external carbon price and an internal carbon price. An external carbon price is an explicit market or regulatory price. An internal carbon price is used within a company to value the cost of a unit of Carbon dioxides emission, while, this is an important contribution to conversation. The external carbon tax is a tax paid to national exchequer and the industries also impose internal carbon tax on themselves and use to amount for improvement and change of technology to reduce greenhouse gas. Governments, businesses and investors are recognizing that nationally-appropriate taxes and trading schemes, as part of a well-aligned package of policies for low-carbon change, can reduce greenhouse gas (GHG) emissions without harming the economy. Support for carbon pricing is growing around the world.

The much talked proposed coal fired Rampal power plant is going to get tax exemption for bringing in machinery and equipment for the plant and exempted from paying VAT for 10 years as it was implementing a project listed under the fast tract project of the government. Bangladesh government agreed to 15-year income tax exemption for the plant, an exemption worth $936m.

Secondly, Indian Exim Bank offered loan at a below-market-rate loan for a $988m subsidy effectively paid by Indian taxpayers.

Third, Bangladesh would be granting an effective annual $26m subsidy by conducting maintenance dredging of rivers to assure coal delivery to the plant. In contrast, different countries imposed carbon price on polluter of atmosphere.

A carbon price is a cost applied to carbon pollution to encourage polluters to reduce the amount of greenhouse gas they emit into the atmosphere. Bangladesh's incentive and subsidy for coal based thermal power plant has no logic of ignoring standard policy of other countries of considering the cost of carbon.

The writer is Legal Economist