Quantitative analysis of optimum corrective fuel tax for road vehicles in Bangladesh: achieving the greenhouse gas reduc
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Quantitative analysis of optimum corrective fuel tax for road vehicles in Bangladesh: achieving the greenhouse gas reduction goal Mohammad Haider Kamruzzaman1 · Takeshi Mizunoya2 Received: 4 September 2019 / Accepted: 23 September 2020 © The Author(s) 2020
Abstract This study estimates optimum corrective fuel taxes for Bangladesh and correlates them with climate change policy. First, we use the European road transport emission model (COPERT IV) to precisely estimate the externalities. Second, using the same model, we also estimate the reduction in greenhouse gas emissions caused by the fuel tax. Finally, we develop a correlation between the fuel tax rate and emissions reduction. Our benchmark calculation of the optimum corrective tax is US$0.94 per gallon for gasoline and US$1.46 per gallon for diesel (in 2016 prices). We find that congestion and accident externalities are the two main fuel tax components for Bangladesh. We also find that the net social welfare gain per year is US$302.11 million and the net revenue gain per year is 3.59% of GDP. The corrective diesel tax reduces fuel consumption by 18.10% and increases fuel efficiency by 12.53%. In the benchmark case, corrective fuel taxes reduce GHG emissions by 5.77%. With the combination of the existing gasoline tax and a diesel tax of US$1.20 per gallon, the country’s greenhouse gas reduction goal can be achieved. Policymakers can use fuel taxes to support climate change policy. Keywords Vehicle emissions · Gasoline tax · Diesel tax · Corrective fuel tax · Welfare gains · Bangladesh JEL classification D62 · H23 · L91 · N75 · R49
* Takeshi Mizunoya [email protected] Mohammad Haider Kamruzzaman [email protected] 1
Graduate School of Life and Environmental Sciences, University of Tsukuba, Tsukuba, Japan
2
Faculty of Life and Environmental Sciences, University of Tsukuba, Tsukuba, Japan
13
Vol.:(0123456789)
Asia-Pacific Journal of Regional Science
1 Introduction The main purpose of this study is to estimate the “corrective” fuel taxes that can help Bangladesh achieve its intended nationally determined contribution (INDC) to greenhouse gas (GHG) reduction, as a representative middle-income country. Bangladesh has set this goal at a 5% reduction of GHG by the end of 2030, compared with business as usual (BAU) in 2011 [Ministry of Environment and Forests (MoEF) 2015]. “Corrective tax” is a term used in many studies, such as Buchanan (1969), Haughton and Sarkar (1996), and Jacobs and De Mooij (2015), also known as the “Pigouvian tax.” As mentioned in Smith (2017), the tax can be used to correct for externalities or “internalities” in a market. In this study, we analyze the road transport market, known as a major contributor to GHG emissions. The use of gasoline and diesel fuel causes emissions in two ways. First, emissions occur during the combustion of fuel, which is the main source of road transport emissions. Second, evaporation occurs from volatile fuels and lubricants. In this study, we focus on emissions due to combustion.
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