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Low-income countries benefit from carbon pricing: study

Oct '19
Pic: Ex
Pic: Ex'tax
It is possible to design policies that reduce resource use and harmful emissions, while at the same time stimulating the economy and creating jobs as well as higher incomes for those who need it most, according to new research by independent Dutch think tank The Ex'tax Project and Cambridge Econometrics. The research was supported by the C&A Foundation.

The research demonstrates how tax reforms—putting a price on pollution and using the revenues for social impact—could benefit low-income countries.

In the study, titled, ‘Tax as a force for good: aligning tax systems with the SDGs and the inclusive circular economy. Case study Bangladesh’, Cambridge Econometrics, a UK-based economics consultancy, has modelled the impacts of two preliminary scenarios in Bangladesh. These include putting a price on carbon emissions and abolishing fossil fuel subsidies, while using the revenues to invest in clean technologies, infrastructure and social spending.

Bangladesh was chosen as its vulnerability to climate disruption could displace more than 30 million people by 2050. Also, it has one of the largest gaps between tax revenue and gross domestic product (GDP), which means that there is a need to mobilise domestic resources.

The modelling suggests that by 2025, tax reforms could lead to higher GDP and employment levels, while reducing carbon emissions and energy imports. The transition can be highly progressive when revenues are mainly used to increase social spending.

Over the 2020-2025 period, both scenarios would add $6.9 billion (in the infrastructure scenario) and $7.8 billion (in the social scenario) to GDP, compared to business as usual (2017 prices), according to a press release from the think tank.

Additional results show that, in both scenarios, Bangladesh could create over 500,000 new jobs, see a significant reduction in carbon emissions of over 18 megatonnes, and save more than $400 million on energy imports. Phasing out fossil fuel subsidies could also potentially raise domestic resources by $4.7 billion, while a carbon tax could add an additional $10.6 billion.

For the textiles sector, which represents 80 per cent of Bangladesh’s foreign earnings, a new tax model would have consequences. In all scenarios, the textiles sector shows a slight negative result in terms of production (0.24 per cent and 0.15 per cent respectively) by 2025.

Overall, the Bangladesh economy would be stronger and more competitive in terms of carbon intensity and energy import dependency. Also, the competitiveness impacts of the clean technology investments in the textiles sector (totalling more than $2.5 billion) are not yet captured in the model.

As one of the most polluting industries, operating in a fast-changing global market, the global textiles industry is at a crossroads; continuing the linear model or shifting to circular models and adapting to changing circumstances. In light of global trends, tax reform could be a way to reduce risks and future-proof the sector.

Fibre2Fashion News Desk – India

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