Green Fiscal Policy:  Positive or negative?

Green Fiscal Policy is technically a no-brainer. It's supposed to encourage people to be more environmentally conscious by making unsustainable practices costly. But—surprise, surprise—there's always a catch.

Carbon taxes, while virtuous in their aims, tend to hit the poorest the hardest. Take France, for instance, where the Yellow Vest protests kicked off after a fuel tax hike.

The same story could unfold in countries like Bangladesh, where millions of people still rely on 'dirty' fuels like kerosene for lighting, yes, even in 2024. Telling a farmer in rural Bangladesh to switch to solar is great—unless you're also pricing that farmer out of the market with taxes on the very fuels they rely on.

So, while we can all laugh about Green Fiscal Policy being that "annoying goody-two-shoes" of fiscal reforms, the reality is far messier. Countries need to strike a balance between environmental sustainability and economic growth.

This is where things start to feel like trying to dance on a tightrope, except the tightrope is on fire, and the audience is throwing tomatoes.

Let's not dwell on the doom and gloom too much. Despite the occasional misstep, Bangladesh's Green Banking initiative has had some serious wins.

The solar home systems (SHS) program, which was kickstarted by fiscal incentives and government subsidies, has brought electricity to over 20 million people in off-grid areas (Source: Infrastructure Development Company Limited, SHS Report 2023). That's right—20 million people who used to rely on candles and kerosene lamps now have access to clean, renewable energy.

And guess what? Bangladesh's air quality improved in 2022, with a 15% reduction in air pollution-related deaths in Dhaka (Source: World Health Organization, Bangladesh Air Quality Report 2023). When you stop burning trash and start incentivizing cleaner energy, people start breathing a little easier. It's almost like fiscal policy can be useful—imagine that!

The elephant in the room: Fossil fuel subsidies

But wait, I hear you asking, "If Green Fiscal Policy is so great, why is Bangladesh still pumping billions into fossil fuel subsidies?"

Good question, Sherlock. The answer is a mix of politics, economics, and good old-fashioned inertia. Fossil fuel subsidies are like fast food. They're cheap and convenient, and everyone relies on them—especially in developing countries where access to clean energy is still limited.

So, while Bangladesh is busy installing solar panels and reducing emissions, it's also stuck in the fossil fuel fast lane, trying to avoid a total economic meltdown.

It's not just Bangladesh, though. Globally, we're still spending a staggering $1 trillion on fossil fuel subsidies every year (Source: International Energy Agency, 2023). That's like throwing a massive rager(booze party) on the Titanic while the ship is sinking. Sure, it's fun while it lasts, but eventually, you're going to need a lifeboat.

The Catch-22 of going green

Let's get real for a second. Green Fiscal Policy is great in theory, but in practice, it's kind of like herding cats—messy, unpredictable, and sometimes frustratingly ineffective(cat lovers, please don't hate me).

For starters, implementing carbon taxes without causing public outrage is like trying to convince a toddler to eat broccoli—it's not going to happen without some serious tantrums. Just ask Emmanuel Macron, who had to shelve his fuel tax after French streets started looking like a scene from Les Misérables.

Then there's the fact that Green Fiscal Policy tends to create winners and losers. The winners? The wealthy can afford to install solar panels and drive electric cars.

The losers? Well, everyone else. For a lot of people, carbon taxes and green subsidies are just another way for governments to squeeze more money out of them while the wealthy pat themselves on the back for being "eco-conscious."

And don't even get me started on the fossil fuel industry. These guys are the OG villains of the climate crisis, and yet they're still getting billions in government handouts. It's like watching a reality show where the bad guy wins every single episode.

So, is Green Fiscal Policy the answer? Spoiler alert: Maybe

Green Fiscal Policy is like that kale salad your health-obsessed friend keeps trying to get you to try. It's good for you, but it doesn't always taste great—especially when the implementation is half-baked. 

We only have a little choice. The planet's not-so-subtle cries for help are getting louder by the day. Unless we want to be the generation that finally turns Earth into the setting of a post-apocalyptic Netflix series, we're going to have to suck it up and go green—fiscal policies and all. 

For Bangladesh, Green Fiscal Policy is more than just an environmental necessity.

It's an economic lifeline. With the country's ambitious goal of sourcing 40% of its energy from renewables by 2041 (Source: Bangladesh Power Development Board, Vision 2041 Report), Green Fiscal Policy could be the thing that powers the economy forward while keeping rising seas at bay.

In the end, Green Fiscal Policy is not some miracle cure that will single-handedly reverse climate change. But it's a step in the right direction—a small one, sure, but a necessary one.

It's the fiscal equivalent of recycling your kombucha bottle after a particularly intense yoga session. It feels good; it's the right thing to do, and it could save the planet if we all get on board.

So, the next time someone scoffs at the idea of carbon taxes or environmental subsidies, remind them: it's either Green Fiscal Policy, or we're all going to need some very expensive beachfront property in Antarctica. And frankly, I'd rather pay a carbon tax than live through Mad Max: Climate Edition. Won't you?

Click on the following link to read part 1

(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])