Towards a carbon credit market in Bangladesh

As Bangladesh strives to balance economic growth with environmental protection, its manufacturing industry is at a pivotal moment. Industries that were once major sources of pollution, such as steel manufacturing, are now exploring new ways to reduce their environmental impact. One of the most promising solutions is the use of carbon credits, which could not only help industries become more sustainable but also open up new financial opportunities that could transform the country's industrial sector.

Carbon credits are a financial tool that allows industries to offset their carbon emissions. In simple terms, for every ton of CO? an industry emits, it can invest in projects that reduce or prevent the release of the same amount of carbon, such as cleaner energy sources. By adopting renewable energy options like solar power, industries can reduce their carbon footprint and generate carbon credits, which they can then sell or trade.

In addition to reducing operating costs, companies that adopt renewable energy can also sell their surplus carbon credits in international markets. This creates a new revenue stream that can help businesses offset the costs of transitioning to cleaner technologies. For industries traditionally dependent on fossil fuels, this transition is not only environmentally responsible but financially advantageous.

Beyond the financial gains, embracing carbon credits can also improve a company's Environmental, Social, and Governance (ESG) profile. As global investors increasingly prioritise sustainability, Bangladeshi companies that invest in reducing their carbon footprint are likely to attract more foreign investment and strategic partnerships. This could further fuel the growth of industries and the wider economy.

For Bangladesh, a country committed to reducing its carbon emissions as part of the Paris Agreement, carbon credit trading is a crucial step. Many energy-intensive industries, such as steel, cement, and textiles, have historically relied on fossil fuels. However, by investing in solar power, these industries can cut down their emissions and create an additional revenue stream by selling excess energy or carbon credits.

One example is GPH Ispat, a major steel manufacturer in Bangladesh. By integrating solar power into its operations, GPH has reduced emissions. However, to materialise the benefits in the form of carbon credit trading, a proper carbon credit market needs to exist in the first place.

While solar energy is an element of decarbonisation efforts, new technologies such as the Quantum Electric Arc Furnace offer even greater potential. These next-generation furnaces are designed to be more energy-efficient and produce fewer emissions. However, their usability in the Bangladesh context needs to be properly analysed.

To establish a carbon credit market in Bangladesh, several prerequisites must be met. First, an appropriate regulatory framework is essential to define carbon credit standards, verification mechanisms, and compliance rules. Second, a robust monitoring, reporting, and verification system is needed to ensure transparency and credibility. Third, institutional capacity must be developed to manage and facilitate carbon credit transactions. Fourth, a digital trading platform should be introduced to streamline buying and selling. In addition, financial incentives and policy support are crucial to encourage industry participation. Finally, public-private partnerships can drive investment and innovation, making carbon trading viable and effective.

Embracing carbon credit trading is not only an environmental imperative but also a strategic economic opportunity. By leveraging this mechanism, Bangladesh can enhance its global competitiveness, attract green investments, and drive sustainable industrial growth.

The writer is professor at the Department of Development Studies and director at the Centre on Budget and Policy, University of Dhaka. He is also the executive director of Research and Policy Integration for Development (RAPID). eusuf101@gmail.com