Heavy dependence on imported fossil fuels driving economic risks: Study

Bangladesh's heavy dependence on imported fossil fuels is driving significant economic risks, including reduced GDP and heightened inflation, while disproportionately impacting the country's poorest households, according to a year-long research study.

The findings were disseminated yesterday (20 January) during an online workshop titled "Navigating Bangladesh's Energy Transition: Economic Resilience, Green Incentives, and Industrial Efficiency," organised by the South Asian Network on Economic Modeling (Sanem) in collaboration with the Tara Climate Foundation.

The workshop, moderated by Selim Raihan, executive director of Sanem, presented a sobering analysis of how global fuel price shocks ripple through the local economy. According to the study, price volatility leads to sharp output contractions in energy-intensive sectors and worsens the cost-of-living crisis for rural communities.

Shawkat Ara Begum, Bangladesh Program Director at the Tara Climate Foundation, noted that this reliance places immense pressure on foreign exchange reserves. She argued that a "just and pro-people" transition is essential, requiring both technical preparedness and upgraded infrastructure.

Sanem presented the research in three components. The first examined the economy-wide impacts of global fossil fuel price shocks, showing that price volatility reduces GDP, raises inflation, and disproportionately affects poorer and rural households. 

Energy-intensive sectors were found to suffer sharper output contractions, while renewable segments such as solar power could expand under shifting price conditions.

The second component analysed the tax burden on renewable energy equipment and found that existing tax structures significantly raise costs. While full tax exemptions could generate revenue losses, they also offer substantial welfare gains for price-sensitive technologies. 

Sanem recommended a targeted, tiered tax reform focusing on key components such as solar panels, inverters, and batteries, alongside expansion of net metering, green refinancing, and a functional green bond market.

The third component focused on industrial energy efficiency, noting that industry accounts for nearly half of national energy consumption. Despite existing plans, implementation remains weak due to limited audits and enforcement. 

Sanem called for an enforceable Industrial Energy Efficiency Policy to translate commitments into action.

During the panel discussion, experts from government, academia, and energy research institutions emphasised energy security as a national priority, the need to scale up renewables, strengthen data governance, and improve access to green finance.