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Foreign funding unlikely for non-green projects from July

Mar 5, 2024

| MUNIMA SULTANA | The Financial Express

Ongoing development projects, too, may fall into funding uncertainty as major foreign financiers are bound by global decarbonization deal to cease financing non-green ones from this July. No concern is in the offing, however, for the projects taken or planned with a green focus that contributes to carbon reduction--a university endorsed task to save the planet from climatic catastrophe. The big financiers have already signed on the Paris Agreement-aligned guidelines for future investments geared towards greening in a development-paradigm shift under duress. As such, infrastructure specialists warn that no funding will be available for coal-and fossil-fuel projects from July onwards.


They alert that even though Bangladesh is not a major greenhouse gas (GHG) emitter, the country would have no option but to plan expensive projects as decarbonization and lowering GHG emissions require costly carbon- capture and-storage technology. According to them, government's project proposals ought to address the compliance issue through accurate emission- reduction calculations. Several multilateral development financiers, including the Asian Development Bank (ADB), the World Bank Group (WBG) and the European Investment Bank (EIB), signed in the guidelines titled 'Direct Investment Lending Operation' in October last year.


According to the document, the banks have prepared lists of activities considered consistent or inconsistent with a low-carbon development path. This means, explain funding agency sources, projects that don't consider carbon-emission reduction, energy transition or efficiency improvements will be in difficulty to secure loans or foreign investment in any country. However, people in the Economic Relations Division (ERD) here appear to be unaware of the exigent situation. ERD officials claim that, since all government projects prioritize climate change, securing funds from development partners should not be a problem.


Meanwhile, the World Bank (WB) and the Asian Development Bank (ADB) have verbally informed relevant agencies about the changing investment landscape. The lenders have said the shift will require specific studies for each project to quantify emission-reduction dos. "This differs from existing project feasibility studies, environmental impact assessments, or hydrological studies," says a development agency consultant, preferring not to be named. "These new studies will be bespoke and designed to ensure projects contribute to greenhouse gas -emission reduction." Development works, he adds, must incorporate some form of energy transition to combat global warming.


The Financial Express reviewed several ongoing and future projects across various sectors. While some have begun revising proposals to align with the new requirements, many remain oblivious of the compliance issue. Meanwhile, Director of the Department of Environment Shawkat Ali Mirza commented that the issue was not related to getting investment from financiers rather it was a commitment for all countries, regardless of their pollution level or vulnerability to global warming.

Bangladesh has set conditional and unconditional emission-reduction targets across key sectors like energy, transport, infrastructure and agriculture.


Mr Mirza said following the revised Nationally Determined Contribution (NDC) undertaken in August 2021, the Department recognized the need to expand emission-reduction coverage from the energy sector through the entire economy. The revised NDC outlines an unconditional contribution of reducing GHG emissions by 27.56 metric tonnes of carbon by 2030. An additional conditional reduction of 61.9 metric tonnes of carbon dioxide is also targeted, bringing the combined target to 89.47 metric tonnes of carbon dioxide by 2030.


The NDC estimates this will require an investment of $175 billion. To get to its development goals and attain middle-income status of Bangladesh by 2026, the government recently assessed a yearly funding requirement of $10 billion for investments in energy, transport and other infrastructure sectors. Iftekhar Enayetullah, managing partner of Waste Concern - a carbon- calculation consultancy that works for local-government waste management projects, underscores the implications of the changing investment ecosystem. He says all development activities will now have to be planned differently in order to decarbonize and minimize emissions across various sectors, including energy, transport, agriculture, waste, forestry and land use.


"For example, in the energy and manufacturing sectors," he explains, "projects should prioritize renewable energy generation, refurbishment of existing hydropower plants for increased efficiency or the development of heating and cooling systems with negligible greenhouse -gas emissions." Besides, electric vehicles, locomotives and non-energy-intensive industries are more likely to secure loans or private investment, he notes. "Even building construction that includes efficient heating and cooling systems can now become eligible for foreign funding," he told the FE writer. The 'Direct Investment Lending Operation' guidebook on financing modality also identifies activities potentially eligible for funding, provided they align with the Paris Agreement's mitigation goals.


These include water supply, wastewater management, construction of buildings and public facilities, information and communications technology, research and development, and cross-sectoral initiatives. Conversely, the guidelines exclude activities deemed inconsistent with the Paris Agreement, such as mining of thermal coal, coal-fired electricity generation, peat extraction and peat-based electricity generation. Signed in 2016, the Paris Agreement targets progressively engaging all countries in reducing greenhouse-gas emissions to maintain global temperature rise below 1.5 degrees Celsius.


Going green in development has a cost to be borne even by a country that has no fault of its own in fouling the climate. Bangladesh, ranked 7th among the most climate-affected countries according to the 2021 Climate Risk Index, contributes less than 0.48 per cent of global emissions. Despite its low-emission profile, the country is going to face funding fiascos. Roads and Highways Department (RHD) has already revised the study for the Hatikumrul-Bonpara-Jhenaidah highway-development project, to be funded by the Asian Infrastructure Investment Bank (AIIB). The detailed design for this project was previously completed under a separate technical project, and now it needs a redo. Similarly, Local Government Engineering Department has formulated a $240-million-project proposal for integrated municipal waste management, with AIIB funding. Citing limited global availability of appropriate energy-efficient technologies and alternative construction methodologies, RHD Chief Engineer Syed Moinul Hasain also has highlighted the time-consuming nature of implementing projects with a decarbonization focus.


"While we have no binding obligation for GHG reduction, RHD has already begun addressing this issue," he said in reply to a question about preparations within his department. The department relies heavily on funding from multilateral development banks for building and upgrading communications infrastructures. Professor Izaj Hossain, an expert in energy and environment, says that regardless of a country's pollution level or climate-change vulnerability, greener projects are now a global imperative. He, however, feels that Bangladesh's need for development projects may significantly increase to ensure climate resilience. "As project costs will inevitably rise to make them more climate-resilient, this additional burden must be borne directly or indirectly by development partners," argues the Bangladesh University of Engineering and Technology (BUET) professor of Chemical Engineering. Professor Izaj urges the government to develop strong negotiation skills in securing funding under both the conditional and unconditional components of its NDC.


Currently, the government receives budgetary support for climate-related projects through various sources, including the Green Climate Fund, the Least Developed Countries Fund and the Adaptation Fund, as well as bilateral and multilateral channels. However, these resources are quite insufficient compared to the country's overall needs. According to the Department of Environment, the country has received a total of $267.36 million in grants and $250 million in loans from these global funds.


News Link: https://thefinancialexpress.com.bd/economy/aiib-to-raise-funding-for-bangladesh

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