Exploring Carbon Market Pathways: A Strategic Perspective for Bangladesh

Dr. Anwar Hossain Chowdhury :

As the global community confronts the climate crisis, carbon markets have emerged to incentivize emission reductions and promote sustainable development. For Bangladesh, which contributes only 0.48% of global emissions, this mechanism represents both an environmental necessity and an economic opportunity. Analysts project potential annual revenues of $1 billion from carbon credit sales, positioning Bangladesh at a critical juncture for economic growth.
The Global Carbon Marketplace:
An Emerging OpportunityThe Kyoto Protocol, which established mechanisms for quantifying emissions into tradable credits equal to one ton of carbon dioxide or other greenhouse gases, formalized carbon trading in 1997. At the moment, policy-regulated compliance markets and voluntary markets motivated by corporate sustainability objectives are both growing quickly. The most well-known example is the European Union’s Emissions Trading System, which was introduced in 2005. By 2021, carbon prices were over €80 per ton, reflecting the EU’s aim to cut emissions by 55% by that time. The voluntary carbon market presents encouraging prospects for developing countries such as Bangladesh. Voluntary mechanisms enable faster entry through projects that reduce, avoid, or sequester emissions, in contrast to compliance markets that necessitate intricate regulatory frameworks. Digital infrastructure and focused policies can improve market access, as shown by nations like Ghana, Chile, and Jordan. With almost 17% of global carbon credits issued between 2010 and 2021, India has become a regional leader. The development of Bangladesh’s carbon market can be modeled after these examples.Pioneering Developments in Bangladesh’s Carbon Finance Sector Since registering its first Clean Development Mechanism (CDM) project with the UNFCCC in 2006 through the Infrastructure Development Company Limited (IDCOL), Bangladesh has been involved in carbon finance. Mostly from upgraded cook stoves and solar home systems, this program produced 2.53 million carbon credits by 2023, bringing in $16.25 million.Additionally, five brick manufacturers earned nearly 30 million BDT in carbon revenue by reducing CO2 emissions by 65,603 tons through the use of Hybrid Hoffman Kiln technology. According to a Forest Department survey, the 140,000-hectare Sundarbans mangrove forest contains 56 million tons of carbon reserves worth about 188.16 billion BDT, making it a significant carbon sequestration asset. If this resource is managed well, it could preserve ecosystems and bring in a sizable income. These programs are still dispersed and underutilized, though. Bangladesh has monetized less than 15% of the more than 50 million carbon credits it has issued. This disparity draws attention to structural obstacles that require immediate action. Structural Barriers to Bangladesh’s Underperformance:
1. Policy and Regulatory Gaps: Bangladesh does not have a comprehensive national carbon market framework, despite the introduction of policies such as the Sustainable Finance Policy (2020) and the Green Banking Policy (2011) by Bangladesh Bank, which require 5% of bank portfolios to be used for green finance. Financial institutions are unable to effectively integrate carbon revenues into investment decisions due to the lack of a national carbon registry and standardized monitoring, reporting, and verification (MRV) procedures.
2. Financial Restrictions: In order to conduct feasibility studies, validate novel approaches, and register, carbon credit projects necessitate large upfront expenditures. These early-stage financial needs are not adequately met by Bangladesh Bank’s current instruments, and traditional lenders are hesitant to provide guarantees of future credit flows, creating a “pre-financing deadlock” that keeps promising projects from coming to fruition.
3. Capacity and Awareness Deficits: Project developers and financial institutions are both impacted by a lack of technical know-how. Many potential participants are not aware of the opportunities in the carbon market, and banks frequently lack the experts necessary to assess carbon mechanisms or price emissions reductions. The public sector is also impacted by this knowledge gap, as inadequate comprehension of carbon economics makes it difficult to formulate effective policies.
4. Market Access Barriers: Developed countries with well-established institutions and aggregators control the voluntary carbon market. Bangladesh and other newcomers find it difficult to reach global consumers and frequently receive less-than-ideal prices; IDCOL’s carbon credits, for example, sold for $1 to $7 per unit.
Forging a Path Forward Bangladesh needs to take a calculated approach to maximizing the potential of its carbon market:
1. Create Policy Infrastructure: To increase transparency and credibility and draw in project developers and purchasers, the government should create a national carbon registry and standardize measurement, reporting, and verification (MRV) procedures in line with international standards. The initiative’s framework is provided by the Mujib Climate Prosperity Plan 2022-2041.
2. Develop Financial Instruments: Bangladesh Bank ought to set up specific financing channels for carbon projects, such as blended finance vehicles, grants for feasibility studies, and pre-financing facilities for carbon credits. Development could be accelerated by requiring a portion of corporate social responsibility (CSR) funds to go toward carbon market infrastructure.
3. Develop Institutional Capacity: Training courses on international market dynamics, credit valuation, risk assessment, and the creation of carbon projects are crucial for bankers, project developers, and government representatives. This process could be accelerated by taking lessons from India’s experience.
4. Make Use of Sectoral Strengths: Bangladesh ought to concentrate on high-potential industries like waste management, sustainable forestry, and renewable energy. Due to pressure for carbon-neutral production, the ready-made clothing sector may end up being the main domestic demand generator for carbon credits, which would encourage investment and lower emissions. Time to Act Now Bangladesh needs to take immediate action as the effects of climate change worsen and carbon prices rise globally, which could reach $100 per metric ton by 2030. Success in the carbon market depends on the nation’s natural resources and expanding capacity for renewable energy. A unified national strategy requires political will. Bangladesh can change its narrative from one of a climate victim to one of an architect of climate solutions by interacting with carbon markets. This strategy can help achieve global emission reduction targets, improve climate resilience, and advance development priorities. Investing in Bangladesh’s sustainable future is the goal of the carbon market.

(The author is working as an Assistant Professor at the Bangladesh Institute of Governance and Management (BIGM). He can be reached at: [email protected]).