LONDON - A recent study published in Energy Reports looked at the impact of oil price shocks, economic factors, and policy decisions on renewable energy (RE) development in Bangladesh. Using data going back 40 years, the researchers highlight Bangladesh’s growing energy demands, which have traditionally been met by fossil fuels like oil and gas.

The study focuses on how various economic variables impact RE development. Findings indicate that a spike in oil prices initially decreases renewable energy consumption due to an economic "substitution lag," as resources shift towards addressing immediate energy shortages. However, over a period of around two years, higher oil prices appear to promote RE investment, showing a lagged but positive effect on renewable energy use as businesses and the government begin focusing on sustainable alternatives.

The research also reveals that an increase in GDP negatively affects renewable energy consumption in the short term. As incomes rise, so does the demand for energy-intensive activities that largely depend on fossil fuels, pushing renewable energy lower in the energy mix. In contrast, foreign direct investment (FDI) positively impacts renewable energy use, with benefits lasting over several years as it brings technology transfers and potentially enhances corporate responsibility practices that support sustainable energy initiatives.

One key takeaway from the study is that, despite a positive shift in renewable energy consumption in response to oil price increases, the overall effect remains modest. This limited response suggests Bangladesh’s energy policy and market framework still lean heavily towards fossil fuels, with inadequate financial and regulatory support for renewable energy initiatives. To address this, the authors recommend Bangladesh adopt a stronger, more supportive regulatory framework for RE, invest in innovative renewable technologies, and implement policies that encourage RE investment from both domestic and international sources.

The paper calls for coordinated institutional reforms to address market dynamics hindering RE growth, such as establishing a decentralised energy regulatory system to make it easier for RE companies to enter and thrive in the market. The authors argue that policies aimed at fostering renewable energy development should focus on infrastructure investments, including waste-to-energy projects and small-scale solar systems, especially in urban areas. By increasing the share of RE in the primary energy mix and making sustainable practices a priority, they suggest Bangladesh could better position itself to meet its ambitious targets of 40 per cent renewable electricity by 2041 and 100 per cent by 2050.