Green fiscal policy: Breaking bad habits and carbon footprints

You are sitting in a hipster café, sipping on a $7 ethically sourced, single-origin, oat-milk latte while your friend starts ranting about climate change. They have just finished binge-watching Our Planet on Netflix, and suddenly, they're the reincarnation of David Attenborough. You casually drop the term "Green Fiscal Policy" into the conversation as if it's something you think about all the time. "Oh yes, that is when the government uses taxes and subsidies to promote eco-friendly behaviour," you say, with the effortless confidence of someone who has totally read more than just the headline of an article (yes, this one). Your friend's eyes widen, impressed. Someone else at the table mutters, "Isn't that just another way to tax us into oblivion?"

Green Fiscal Policy is like that one wellness influencer on Instagram who swears by their magical green juice that will "detox your soul" and make you "a better human being. It sounds promising in theory, and maybe it even works—if you're willing, you're along for the ride. But we've all got a nagging suspicion that it's just a fair way to sell us overpriced kale smoothies, right?

So, what's the deal? Is Green Fiscal Policy just another governmental scam, or is it actually the key to saving our slowly-roasting planet? Let's break it down with just enough facts and figures to sound like we're way smarter than we are.

What is Green Fiscal Policy? and why should you care?

Green Fiscal Policy is a big deal—like "Taylor Swift selling out stadiums worldwide" big. It's all about using fiscal tools (read: taxes, subsidies, carbon pricing, and eco-friendly incentives) to make us behave better.

Do you know how you got rewarded for being on your best behaviour at school? Well, now the teacher is the government, and 'good behaviour' means using renewable energy—or else you're going straight to carbon detention.

The UN Climate Change Learning Partnership—defines Green Fiscal Policy as the application of fiscal measures to encourage sustainable economic activity and reduce environmental degradation. Essentially, it's about making polluters pay for their sins and giving tax breaks to the environmentally virtuous.

The government is now your trainer, yelling at you to stop eating the environmental equivalent of junk food and start doing some squats with renewable energy.

Countries out there flexing their green abs

Globally, some countries are flexing their Green Fiscal Policy muscles like they're training for the Climate Olympics. Sweden, for example, is out here crushing it like Zlatan Ibrahimovich, having introduced a carbon tax way back in 1991. And guess what? It now sits at a cool $137 per tonne of CO₂ emissions (International Energy Agency, 2023).

That's like charging you every time you emit a puff of smoke—and honestly, Sweden has been doing it for so long that they've made it look easy. Their emissions are down, their economy is up, and they're biking everywhere like it's their religion.

Meanwhile, the rest of the world is stumbling around like a baby penguin trying to walk with confident stride moments after hatching but wobbling. The U.S., with all its chest-pounding about being a global leader, still spends $20 billion annually on fossil fuel subsidies (International Monetary Fund, 2023).

Europe: The carbon tax champs

Oh, and then there's Europe, where they've introduced the Carbon Border Adjustment Mechanism (CBAM). This essentially means if you're a company exporting to the EU and your carbon emissions are higher than Snoop Dogg on a Sunday, you'll be slapped with a tax.

In other words, if your product's carbon footprint looks like Godzilla stomping through Tokyo, you'd better believe the EU is going to make you pay for it.

CBAM is set to roll out fully by 2026, and it's going to its dirty industries like steel and cement right where it hurts—in the wallet. So, Europe's basic what it does best is regulating everything and making sure the rest of us feel bad for not keeping up. (Source: European Commission, CBAM Roadmap 2023)

Bangladesh: The Unsung Climate Hero

We can’t talk about Green Fiscal Policy without shining a light on Bangladesh. Bangladesh is one of the that's climate-vulnerable countries in the world, but it’s also punching way above its weight when it comes to green initiatives.

Take the Bangladesh Bank, which introduced a "Green Banking" policy back" in 2011. This wasn't just a baked, pie-in-the-sky idea. It was a fully-fledged initiative to get banks to finance eco-friendly projects.

We're talking about things from solar energy to eco-tourism (Source: Bangladesh Bank Annual Report, 2023).

And here’s the kicker, Bangladesh’s solar energy sector created over 150,000 jobs in the past five years alone (Source: UNDP Bangladesh Green Jobs Report, 2023). That’s 150,000 jobs in a country where getting employed used to be as rare as finding a seat on a bus during rush hour. This is what happens when you mix fiscal policy with a touch of eco-entrepreneurial spirit.

But before you start clapping too hard, Bangladesh is also guilty of keeping one foot firmly in the fossil fuel camp. In 2022, the country doled out $1.72 billion in fossil fuel subsidies (Source: International Institute for Sustainable Development, Fossil Fuel Tracker, 2023). It's like the entire day, but stuffing yourself with ice cream and fried chicken at 2 a.m. Old habits die hard, right?

…………to be continued.

(The writer is an engineer turned finance and ESG enthusiast, trying to drink gulps from the immensely stimulating ocean of finance/economics/ESG and move to greener pastures to shift from his boring job in the capital market. Tell him how he can do that at [email protected])