FOR OFFICIAL USE ONLY Report No: PGD475 INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAM DOCUMENT FOR A PROPOSED CREDIT IN THE AMOUNT OF SDR 187.8 MILLION (EQUIVALENT TO US$250 MILLION) AND A PROPOSED SHORTER MATURITY LOAN CREDIT IN THE AMOUNT OF SDR 187.8 MILLION (EQUIVALENT TO US$250 MILLION) TO THE PEOPLE'S REPUBLIC OF BANGLADESH FOR THE Second Bangladesh Green and Climate Resilient Development Credit November 20, 2024 Environment, Natural Resources and the Blue Economy South Asia This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. People's Republic of Bangladesh GOVERNMENT FISCAL YEAR July 1 – June 30 CURRENCY EQUIVALENTS (Exchange Rate Effective as of October 31, 2024) Currency Unit US$1.00 = BDT 119.50 US$1.00 = SDR 1.33 ABBREVIATIONS AND ACRONYMS ADP Annual Development Program IGA Infrastructure Governance Assessment ADM Adaptive delta management IMF International Monetary Fund APCR Air Pollution Control Rules LGI Local government institution AQM Air quality management MBF Ministry Budget Framework ASA Analytical and Advisory Services MEPS Minimum Energy Performance Standards BB Bangladesh Bank MoEFCC Ministry of Environment, Forest and Climate Change BDP Bangladesh Delta Plan 2100 MoF Ministry of Finance BEEER Building Energy Efficiency and Environment MoLGRDC Ministry of Local Government, Rural Development and Regulation Co-operatives CCDR Country Climate and Development Report MoP Ministry of Planning CEA Country Environmental Analysis MoPEMR Ministry of Power, Energy and Mineral Resources CPF Country Partnership Framework MYPIP Multi-Year Public Investment Programme DoE Department of Environment NAP National Adaptation Plan DPC Development Policy Credit NCAPC National Committee on Air Pollution Control DPP Development Project Proforma NDC Nationally Determined Contributions DSA Debt Sustainability Analysis PC Planning Commission DW Delta Wing PD Planning Division ECNEC Executive Committee of the National Economic PEFA Public Expenditure and Financial Accountability Council EECR Energy Efficiency and Conservation Rules PFM Public Financial Management EELAR Energy Efficiency Labeling for Appliances RSF Resilience and Sustainability Facility Regulations FX Foreign exchange SDR Special Drawing Rights FY Fiscal Year SGIR Strengthening Governance and Institutional Resilience FYP Five Year Plan SLCPs Short-lived climate pollutants GCR Green and climate resilience SOE State-owned enterprise GCRD Green and Climate Resilient Development SPP Sustainable public procurement GDP Gross domestic product ULGI Urban local government institution GHG Greenhouse gas UMIC Upper-middle-income country GRS Grievance Redress Service WBG World Bank Group IDA International Development Association WSS Water supply and sanitation Regional Vice President: Martin Raiser Regional Director: Dina Umali-Deininger Country Director: Abdoulaye Seck Practice Manager: Christian Albert Peter Task Team Leader(s): Ana Luisa Gomes Lima, Souleymane Coulibaly The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) PROGRAM DOCUMENT PEOPLE'S REPUBLIC OF BANGLADESH Second Bangladesh Green and Climate Resilient Development Credit (P180439) TABLE OF CONTENTS SUMMARY OF PROPOSED FINANCING AND PROGRAM ...................................................................... i I. COUNTRY CONTEXT AND OPERATION SUMMARY......................................................................... 1 II. MACROECONOMIC POLICY FRAMEWORK .................................................................................... 2 A. Recent Economic Developments .....................................................................................................3 B. Macroeconomic Outlook and Debt Sustainability ...........................................................................4 C. IMF Relations ...................................................................................................................................7 III. PROPOSED OPERATION ............................................................................................................... 7 A. Link to Government Program, CPF, other WBG operations, and Corporate Priorities ...................7 B. Prior Actions, Triggers, Expected Results and Analytical Underpinnings ........................................9 C. Consultations and Collaboration with Development Partners ......................................................20 IV. OTHER DESIGN AND APPRAISAL ISSUES .................................................................................... 20 A. Poverty and Social Impacts ............................................................................................................20 B. Environmental, Forests, and other Natural Resources Aspects ....................................................21 C. PFM, Disbursement, and Auditing aspects ....................................................................................22 D. Monitoring, Evaluation, and Accountability ..................................................................................24 V. SUMMARY OF RISKS AND MITIGATION ...................................................................................... 24 ANNEX 1. Policy and Result Framework .......................................................................................... 26 ANNEX 2. Paris Alignment Assessment ............................................................................................ 34 ANNEX 3. Operation Specific Annex ................................................................................................ 41 ANNEX 4. Required Accompanying Documentation ......................................................................... 46 The Second Bangladesh Green and Climate Resilient Development Credit was prepared by an IDA team consisting of Ana Luisa Lima (Senior Environmental Specialist and TTL, SSAE2), Souleymane Coulibaly (Lead Country Economist and co-TLL, ESADR), Syed Khaled Ahsan (Senior Public Sector Specialist, ESAC2), Robert A. Yungu (Senior Public Sector Specialist, ESAC2), Eun Joo Yi (Senior Environmental Specialist, SSAE2), Arif Ahamed (Senior Water Supply and Sanitation Specialist, SSAW1), Nagaraju Duthaluri (Lead Procurement Specialist, ESARU), Md Kamruzzaman (Senior Procurement Specialist, ESARU), Fatema Samdani Roshni (Procurement Specialist, ESARU), Zhiyu Chen (Senior Urban Economist, SSAU1), Mansha Chen (Urban Development Specialist, SSAU1), Dhruv Sharma (Senior Economist, ESAC2), Nazmus Sadat Khan (Economist, ESAC2), M. Towhid Mowla (Senior Energy Specialist, ISAE1), Tanuja Bhattacharjee (Senior Energy Specialist, ISAE1), Olayinka Bisiriyu (Senior Energy Specialist, ISAE1), Mbuso Gwafila (Senior Energy Specialist, ISAE1), Faisal Rabbi (Energy Specialist, ISAE1), Yujia Tao (Energy Economist, ISAE1), Zhuo Cheng (Senior Climate Finance Specialist, SCCFM), Jihae Kwon (Environmental Economist, SSAE2), Bushra Nishat (Environmental Specialist, SSAE2), Poonam Rohatgi (Environmental Analyst, SSAE2), Daniela Gayraud (Environmental Analyst, SLCE2), Md. Didarul Islam (Financial Management Specialist, ESAG1), Mulugeta Dinka (Senior Procurement Specialist, ESARU), Shabbir Ahsan (Social Development Specialist, SSAS1), Erisha Singh Suwal (Social Development Specialist, SSAS1), Farida Aboulmagd (Consultant, ELCPV), Sergio Olivieri (Senior Economist, Statistician, ESAPV), Debashish Paul Shuvra (Disaster Risk Management Specialist, SSACD), Elsa Le Groumellec (Senior Counsel, LEGAS), Kanksha Ghimire (Consultant, LEGAS), Satish Kumar Shivakumar (Finance Officer, WFACS), Barbara Weber (Senior Operations Officer, SACBB), Ian Richie Paulson (Team Assistant, SACBD). The program was prepared under the direction of Christian Peter (Practice Manager, SSAE2), Hoon Sahib Soh (Practice Manager, ESAG2), Dina Umali-Deininger (Regional Director, SSADR), Mathew A. Verghis (Regional Director, ESADR), Gayle Martin (Operations Manager, SACBD), and Gyongshim An (Lead Urban Specialist, Program Leader, SSADR). The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) @#&OPS~Doctype~OPS^dynamics@paddpfbasicinformation#doctemplate SUMMARY OF PROPOSED FINANCING AND PROGRAM BASIC INFORMATION Operation ID Programmatic If programmatic, position in series P180439 Yes 2nd in a series of 3 Proposed Development Objective(s) To support the Government of Bangladesh to transition to green and climate resilient development by (a) enhancing public planning, financing, and delivery of green and climate resilient interventions; and (b) promoting key sector reforms for clean and resource efficient production and services. @#&OPS~Doctype~OPS^dynamics@padborrower#doctemplate Organizations Borrower: People's Republic of Bangladesh Contact Title Telephone No. Email Dr. Md Khairuzzaman Secretary of Finance 8801711566958 secretary@finance.gov.bd Mozumder Implementing Agency: Finance Division, Ministry of Finance Contact Title Telephone No. Email Dr. Ziaul Abedin Additional Secretary, 8801732337765 ziaulabedin@outlook.com Macroeconomic @#&OPS~Doctype~OPS^dynamics@padfinancingsummary#doctemplate PROJECT FINANCING DATA (US$, Millions) Maximizing Finance for Development Is this an MFD-Enabling Project (MFD-EP)? Yes Is this project Private Capital Enabling (PCE)? No SUMMARY Total Financing 500.00 i The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) DETAILS World Bank Group Financing International Development Association (IDA) 500.00 of which IDA Recommitted 500.00 IDA Credit 250.00 IDA Shorter Maturity Loan (SML) 250.00 IDA Resources (US$, Millions) Guarantee Credit Amount Grant Amount SML Amount Total Amount Amount National Performance-Based 250.00 0.00 250.00 0.00 500.00 Allocations (PBA) Total 250.00 0.00 250.00 0.00 500.00 @#&OPS~Doctype~OPS^dynamics@padclimatechange#doctemplate PRACTICE AREA(S) Practice Area (Lead) Contributing Practice Areas Macroeconomics, Trade and Investment; Water; Energy & Environment, Natural Resources & the Blue Economy Extractives; Urban, Resilience and Land CLIMATE Climate Change and Disaster Screening Yes, it has been screened and the results are discussed in the Operation Document @#&OPS~Doctype~OPS^dynamics@padoverallrisk#doctemplate OVERALL RISK RATING Overall Risk ⚫ Substantial ii The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) @#&OPS~Doctype~OPS^dynamics@paddpfannexpolicyandresult#doctemplate RESULTS Baseline Period 1 Closing Period Pillar A - Enhancing public planning, financing, and delivery of green and climate resilient interventions Bangladesh’s score in Dimension 1 - Budget Alignment with Climate Change Strategies of the PEFA Assessment (Text) Jun/2022 Jun/2025 Jun/2026 Score D Score D Score C BDP projects with Development Project Proformas approved by ECNEC, based on 5-year re-prioritized investment program and ADM principles (Number) Dec/2022 Dec/2025 Dec/2026 1 10 15 Urban Local Government Institutions (City Corporations and Category A Pourashavas) spending more than 10 percent of block-grant resources on GCR projects (Number) Jun/2022 Jun/2025 Jun/2026 0 76 107 ➢City Corporations (Number) Jun/2022 Jun/2025 Jun/2026 0 3 7 ➢Category A Pourashavas (Number) Jun/2022 Jun/2025 Jun/2026 0 73 100 Carbon emission reduction credits registered, approved, authorized, and transferred through the domestic system (Text) Sep/2024 Dec/2025 Dec/2026 0 0 tons of CO2 1.1 million tons of CO2 Women-owned businesses submitting bids in public procurement per fiscal year (Percentage) Jun/2022 Jun/2026 Jun/2027 0 3 7 Procurement processes of selected Public-Sector Organizations using SPP rated criteria in relevant contracts per fiscal year (Amount(USD)) Jun/2022 Jun/2026 Jun/2027 0 100 million 200 million Industry units, project facilities and individuals inspected by DoE’s Enforcement Wing and mobile courts for environmental co mpliance per calendar year (Number) Dec/2022 Dec/2025 Dec/2026 6,744 8,500 9,000 Pillar B - Promoting key sector reforms for clean and resource efficient production and services Households using solid fuels as primary cooking fuels (Percentage) Oct/2022 Dec/2025 Dec/2026 74 72 69 ➢Rural households (Percentage) Oct/2022 Dec/2025 Dec/2026 89.50 87 85 ➢Urban households (Percentage) Oct/2022 Dec/2025 Dec/2026 42 40 37 Cumulative energy savings from the new provisions of EECR, BEEER and EELAR (Gigawatt-hour (GWh)) Nov/2022 Dec/2025 Dec/2026 0 200 1,000 Government expenditure in fuel subsidies for diesel (HSD), heavy fuel oil (HSFO), and octane (Amount(USD)) iii The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) Jun/2022 Jun/2025 Jun/2026 150 million 100 million 50 million Liquid fuel (HSD and HSFO) used annually for power generation (Text) Jun/2022 Jun/2025 Jun/2026 4.92 million tons 4.1 million tons 3.25 million tons New municipalities with at least 80 percent cost recovery on operations and maintenance (Number) Jun/2022 Jun/2025 Jun/2026 0 10 15 Total capacity of renewable energy projects that have reached financial close under the auspices of the amended RE policy (Megawatt) Jun/2024 Jun/2025 Jun/2027 0 0 150 iv The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) IDA PROGRAM DOCUMENT FOR A PROPOSED SECOND BANGLADESH GREEN AND CLIMATE RESILIENT DEVELOPMENT CREDIT (PEOPLE'S REPUBLIC OF BANGLADESH) I. COUNTRY CONTEXT AND OPERATION SUMMARY 1. Bangladesh experienced rapid economic and social progress in recent decades and reached lower middle-income status in 2015. However, the pace of poverty reduction has slowed, and vulnerabilities in the financial sector have worsened. Stable macroeconomic conditions underpinned an average annual real gross domestic product (GDP) growth of 6.4 percent between 2010 and 2023. Over the same period, poverty and extreme poverty declined by 19.6 and 6.8 percentage points to 30 percent and 5 percent, respectively.1 However, the pace of poverty reduction has slowed, as has the pace of job creation, particularly in rural areas and among women. Furthermore, spatial disparities and urban inequality have widened. In Fiscal Year (FY)24, real GDP grew by 5 percent, driven mainly by a 5.3 percent expansion in the industrial sector. The current account deficit nearly halved to US$6.5 billion (1.4 percent of GDP), aided by improved trade and a 10.7 percent increase in remittance inflows. Inflation remained high, averaging 9.7 percent in FY24, driven by rising food prices. The events surrounding the resignation of former Prime Minister Sheikh Hasina also caused severe economic disruptions. Foreign exchange reserves stood at US$19.8 billion at the end of October 2024. The fiscal deficit narrowed to 3.7 percent of GDP in FY24, with public debt at 36.8 percent of GDP. Real GDP growth is projected to decline to 4.1 percent in FY25, with significant uncertainties due to political instability, poor corporate governance, and potential financial sector issues. While growth is expected to gradually improve with financial sector reforms and better revenue mobilization, risks such as elevated inflation, weak global demand, energy shortages, and climate shocks could further impact the economic outlook and exacerbate poverty. 2. To achieve faster growth and transition to an upper-middle-income country (UMIC), Bangladesh needs to implement multisectoral structural reforms, focused on building a competitive business environment, diversifying exports, increasing human capital, building efficient infrastructure, deepening the financial sector, and attracting private investment. These reforms would strengthen international competitiveness as Bangladesh prepares for graduation from least developed country status in 2026, which will reduce concessional financing and preferential market access for its exports. Currently, the Sustainable Development Finance Policy provision on debt limits does not apply to Bangladesh. 3. Additionally, a new growth paradigm is needed to sustain the economic recovery over the medium and long term, while addressing environmental and climate challenges and contributing to poverty alleviation and better quality of life for the Bangladeshi people. Rapid manufacturing growth and urbanization have increased pollution and natural resource depletion. Environmental degradation costs were equivalent to 17.3 percent of the GDP in 2019,2 affecting productivity and welfare, and impairing human capital. Bangladesh is highly vulnerable to climate change, ranking as the seventh most affected country between 2000 and 2019.3 It faces extreme weather events such as cyclones, floods, and storm surges, with recurring flooding affecting over 1 million people annually.4 Despite improvements in adaptive capacity, internal climate and rural-urban migration put additional pressure on cities and essential services such as water supply and sanitation (WSS) and energy. Shortcomings in the legal framework and limited cost recovery hinder investment and innovation in these sectors, while creating 1 Based on the international poverty line of US$3.65 and US$2.15 per day (using 2017 purchasing power parity) for poverty and extreme poverty, respectively. 2 World Bank (2023). Country Environmental Analysis. The costs of environmental degradation refer to the health effects associated with ambient and household air pollution, inadequate water supply, sanitation and hygiene, and exposure to lead (Pb). 3 German Watch (2021). Global Climate Risk Index 2021. 4 World Bank (2022). Bangladesh Country Climate and Development Report (CCDR). Page 1 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) a fiscal burden due to government subsidies. Addressing these environmental and climate risks is crucial for a greener, more resilient, and inclusive development and for preventing vulnerable groups from being left behind. 4. The proposed Second Bangladesh Green and Climate Resilient Development (GCRD) Credit is part of a programmatic series of three development policy credits (DPCs) (“GCRD Credits” or “DPC series”). The program development objective (PDO) is to support the Government of Bangladesh (GoB) to transition to green and climate resilient development by (a) enhancing public planning, financing, and delivery of green and climate resilient interventions; and (b) promoting key sector reforms for clean and resource efficient production and services. Under Pillar A, the DPC series supports reforms to (a) strengthen prioritization and efficiency of public investment planning as well as its implementation, at national and local levels, based on GCRD criteria; (b) increase efficiency in the Bangladesh Delta Plan 2100 (BDP) implementation to improve climate resilience; (c) expand access to carbon markets; (d) promote sustainable public procurement for clean, resource efficient and socially sustainable production and consumption; and (e) enhance environmental governance. Pillar B supports reforms to: (a) improve air quality management and reduce emissions across productive sectors; (b) increase energy efficiency; (c) reduce fiscal costs from the energy sector, by phasing out subsidies and promoting private-sector investments in renewable energy; and (d) improving efficiency of WSS services. The Program is to be financed from a proposed IDA credit for SDR 187.8 million (US$250 million equivalent) and a Performance Based Allocation Shorter Maturity Loan credit for SDR 187.8 million (US$250 million equivalent). 5. The GCRD Credits support a highly strategic reform program to improve the policy foundations that can help address national priorities and emerging global challenges. The DPC series operationalizes the World Bank Group’s (WBG) Green, Resilient and Inclusive Development (GRID) approach and key policy recommendations from the Country Climate and Development Report (CCDR) and the 2023 Country Environmental Analysis (CEA). The CCDR highlights three priorities for climate-resilient growth in Bangladesh, namely: (a) people-centric, climate smart spatial development, such as through the BDP operationalization; (b) delivering development benefits with decarbonization, such as through solutions for increased energy efficiency; and (c) improving the enabling environment and institutional realignment, particularly regarding air quality management, natural resource management, sustainable government procurement, climate finance, and climate-related public expenditures. The GCRD Credits also promote the WBG’s GRID approach, which inspired the GoB’s concept of GCRD, based on the three pillars of sustainability, efficiency, and climate resilience. As a result, the program aims to deliver simultaneously inclusive local development benefits and global public goods (including environment and health outcomes, energy efficiency, and lower carbon intensity). 6. In addition to the CCDR and CEA, other World Bank analytics underpinned the selection and design of the DPC-supported policies, such as the 2021 Systematic Country Diagnostic Update, the 2022 Country Economic Memorandum, the 2021 Infrastructure Governance Assessment (IGA), and the FY23 Public Expenditure and Financial Accountability (PEFA). These reports strongly recommended the adoption of a multi-year planning approach and integration between planning and budgeting frameworks to ensure fiscal discipline, strategic alignment, and prioritization for environmental and climate resilient interventions. Other key Bank-financed sectoral studies and analytics from Development Partners (DPs), the GoB, and academia have informed the proposed DPC series (Annex 4). II. MACROECONOMIC POLICY FRAMEWORK 7. The macroeconomic policy framework is adequate for the Development Policy Financing. Monetary policy has been tightened substantially to contain inflation, and the recent transition to market-based retail interest rates is expected to improve monetary policy transmission. Fiscal policy is also expected to be contractionary in FY25 to complement monetary policy. The May 2024 adoption of a crawling peg exchange rate Page 2 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) regime and the realignment of the exchange rate have strengthened external resilience and will help rebuild foreign exchange (FX) reserves. The government has been initiating reforms to address the financial sector risks. Critical reforms have included revisions to the Bank Company Act legislation, the introduction of the Prompt Corrective Action framework, restructuring of the boards of the poorly performing banks, and plans to carry out Asset Quality Review. The disruption caused by the social uprising in July–August 2024 lowered the growth outlook, but real GDP growth is projected to remain positive in FY25. The fiscal deficit is projected to remain below 5.0 percent of GDP over the medium term. However, downside risks to the outlook have increased substantially. Increased political instability, poor corporate governance, and the potential insolvency of some banks could worsen an already weak financial sector. Persistently elevated inflation, weak global demand, energy shortages, and climate shocks could lower the growth outlook further and exacerbate vulnerability to falling into poverty. External sectors remain vulnerable to shocks. The budgetary support under the DPC would provide additional buffer to this shock and reforms envisioned under the program is expected to support Bangladesh’s growth in the medium term. A. Recent Economic Developments 8. On August 5, 2024, the former Prime Minister resigned amid sudden protests. An interim government led by civil society members and student leaders was sworn in on August 8, 2024 . The turmoil disrupted economic activity, particularly in the industrial and service sectors. Economic activity has been normalizing but downside risks prevail due to uncertainty in the political context. 9. Real GDP growth decelerated to 5.0 percent in FY24. On the supply side, GDP growth in FY24 was primarily driven by the industry and service sectors. The industry sector expanded by 5.3 percent, but the growth rate remained below the decade’s historical average of 9.5 percent, due to energy shortages, import restrictions, and monetary tightening. The services sector grew at 5.4 percent in FY24 as domestic purchasing power declined due to persistent inflation. Agricultural growth declined marginally to 3.3 percent. On the demand side, the slowdown was driven by weak consumption and export growth. 10. The Balance of Payment (BoP) deficit narrowed in FY24 and led to a narrowing of the current account deficit. A decline in merchandise imports due to import suppression measures and an improvement in remittance inflows helped the current account deficit to narrow to US$6.5 billion in FY24 from US$11.6 billion in FY23. The financial account surplus narrowed to US$4.5 billion in FY24, driven by a decline in net trade credits. Overall, the FY24 BoP deficit stood at US$4.3 billion, compared to US$8.2 billion in FY23. In the first two months of FY25 (July– August), the current account balance turned into a surplus, driven by a sharp increase in remittances. In May 2024, the Bangladesh Bank (BB) adopted a crawling peg exchange rate system and devalued the exchange rate to help restore external balance and stabilize international reserves. The crawling peg band was widened in August 2024, but the exchange rate has remained unchanged at the upper limit of the band of 120 BDT/US$ for the last two months. At the end of October 22, 2024, FX reserves stood at US$19.8 billion (3.2 months of import coverage). 11. Inflation remained elevated, averaging 9.7 percent in FY24, and increasing marginally to 9.9 percent in the first quarter of FY25. It remained elevated due to high food and energy prices and higher import prices because of the depreciating taka. To help contain inflation, the policy rate was raised by 150 basis points in FY25 to 10 percent (525 basis points since May 2022). The cap on bank lending rates was abolished to improve monetary transmission. Import duty and VAT of several essential food items, including rice and sugar, have been reduced to help contain food prices. 12. The fiscal deficit narrowed to 3.7 percent of GDP in FY24. Revenue collection remains one of the lowest in the world at 8 percent of GDP. Critical reforms in domestic resource mobilization have been difficult to achieve. Page 3 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) The interim government has recently formed advisory committee to initiate reforms of the National Board of Revenue. Expenditure is estimated to have declined to 11.7 percent of GDP, driven by a moderation in both current and capital expenditure. The government announced that fiscal policy in FY25 would be contractionary to complement the monetary policy in tackling inflation. Government borrowing is dependent on the banking sector, and the cost of borrowing continued to rise in FY24 and FY25 Q1. The ratio of public debt to GDP declined marginally to 36.8 percent, but it remains sustainable with a low risk of debt stress. 13. Financial sector vulnerabilities have increased and prompted new policy reforms. The financial sector remains vulnerable to high nonperforming loans. As financial sector anomalies are being revealed with the political regime change, the volume of officially recognized stressed assets is anticipated to surge. The gross Non- Performing Loan (NPL) ratio (ratio of the NPLs to total loans) increased to 16.93 percent at the end of September 2024, compared to 12.56 percent at the end of June 2024. However, the NPL ratio understates banking-sector vulnerabilities due to lax regulatory definitions, inadequate reporting standards, repeated forbearance measures, and weak regulatory enforcement. Weak governance and political influence have exacerbated these challenges, distorting decision-making processes and hampering effective oversight in the sector. Loan-loss provisions stood at 44.3 percent of the NPLs at the end of September 2024, slightly increasing from the previous quarter. Furthermore, the NPLs are concentrated in state-owned banks, which accounted for nearly 40.35 percent of the total NPLs. The capital-adequacy ratio of the banking sector marginally declined to 10.6 percent at the end of FY24, down from 11.2 percent at the end of FY23, mainly driven by the fall of the ratio in private banks. 14. To restore stability within the banking sector, BB has reformed boards of 11 banks and one non-bank financial institution, replacing members in institutions where boards have been captured by business groups engaged in questionable practices, such as related party lending, violation of single borrower exposure limits, money embezzlements, and money laundering to overseas bank accounts. The BB also established a six-member task force to focus on key issues such as distressed assets, the NPLs, and governance failures. It will review the asset quality and the true extent of the capital position of the banks, particularly the weak banks, identify provisioning shortfalls, and assess liquidity conditions. Recently, the BB stopped injecting liquidity directly into the banking system. B. Macroeconomic Outlook and Debt Sustainability 15. Real GDP growth is projected to decline to 4.1 percent in FY25 but could range between 3.2 and 5.2 percent. The wide range of the growth projection reflects significant uncertainties regarding the impact of the popular protests and political turmoil. These uncertainties are expected to keep investment and industrial growth subdued in the short term. Persistent inflation and subdued global growth prospects will weigh on growth in the near term as well. Recent floods are expected to moderate agriculture growth. The growth rate is expected to increase gradually in subsequent years, benefiting from critical financial sector reforms, increased revenue mobilization, improved business climate, and trade. 16. Export growth is anticipated to remain positive, despite short-term challenges due to high input costs, weak global demand, and uncertainties within the manufacturing sector. Remittances are projected to stay robust in FY25, supported by the adoption of the crawling peg exchange rate regime. The financial account will likely remain in surplus, supported by budget assistance from development partners. FX reserves are expected to stabilize in FY25, albeit with some downward pressure due to external payment requirements to foreign energy and fertilizer suppliers. 17. The fiscal deficit is projected to remain below 5.0 percent of GDP over the medium term. In the short term, total expenditure as a share of GDP is expected to decline due to contractionary fiscal policy. Over the Page 4 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) medium- to long-term, strengthening revenue performance will be crucial to expand investments in infrastructure and human capital. 18. The risk of debt distress was assessed to be low in the latest Joint Bank-Fund Debt Sustainability Analysis (DSA) completed in June 2024, but the assessment is currently being updated for the third review of the ongoing Bangladesh International Monetary Fund (IMF) program expected in the first half of 2025. The updated DSA will need to incorporate the impact of a substantial downward revision of export data for FY23 and FY24 and the potential for contingent liability shocks, which could worsen the risk assessment of debt distress. Total public debt in Bangladesh is estimated to have declined marginally to 36.8 percent of GDP in FY24, of which 57.0 percent is domestic. The share of non-bank debt (that is, National Savings Certificates) in total domestic debt declined, and the share of debt from banks rose. The government updated its Medium-Term Debt Strategy in June 2024 and published its debt sustainability analysis with technical support from the World Bank and the IMF. Explicit and implicit contingent liabilities associated with the financial sector, including state-owned banks, and nonfinancial state-owned enterprises (SOEs) pose additional debt-sustainability risks. 19. Downside risks have increased, and significant uncertainties remain. Uncertainties arise from several factors. First, contingent liability from the financial sector remains elevated. NPLs have increased, and actual scale of the NPLs could be significantly higher. Declining confidence in banking sector can have significant spillover effects on the real economy. Second, safety and security concerns persist, and this can have an impact on the full recovery of economic activities. Third, the timing of the next election has not been defined. As requested by political parties, it is important that the roadmap to elections is announced by the interim government to avoid an increase of political tensions. Table 1 – Selected Economic and Financial Indicators Actual Projections FY22 FY23 FY24 FY25e FY26f FY27f FY28f National Accounts Annual percentage change, unless otherwise indicated GDP at constant prices (%) 7.1 5.8 5.0 4.1 5.4 6.1 6.5 Consumption 7.5 2.0 3.8 4.0 4.8 5.5 6.0 Investment 11.7 2.2 4.6 3.2 6.5 7.1 7.5 Exports of goods and services 29.4 8.0 2.7 2.1 4.5 5.2 6.0 Imports of goods and services 31.2 -9.8 -2.5 0.4 5.1 6.1 6.5 Sectoral Contributions to Growth Agriculture (ppts) 0.4 0.4 0.4 0.3 0.3 0.3 0.3 Industry (ppts) 3.4 3.0 1.9 1.3 2.0 2.2 1.8 Services (ppts) 3.1 2.7 2.7 2.4 3.0 3.5 4.4 Page 5 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) Inflation GDP Deflator 5.0 6.9 9.8 2.1 7.2 5.3 5.5 CPI (year-average) 6.1 9.0 9.7 Selected Monetary Account (% of GDP) Banks’ credit to the government 8.1 9.6 9.5 Banks’ credit to the private sector 34.0 33.3 32.8 Broad money (M2) 9.4 10.5 7.7 External Sector (%GDP) Exports fob 12.6 11.5 10.2 10.2 9.6 9.1 8.5 Imports fob 20.6 18.5 15.9 15.7 14.5 13.8 13.0 Terms of trade (annual percentage change) 0.0 0.0 -2.1 -0.2 2.4 0.0 -0.2 Percent of GDP, unless otherwise indicated Current Account Balance -4.0 -2.7 -1.4 -0.9 -0.5 -0.5 -0.7 Foreign Direct Investment 0.4 0.4 0.5 0.5 0.6 0.7 0.7 Debt Public debt (external and domestic) 33.8 37.0 36.8 40.1 41.2 42.7 44.7 External Debt 12.5 15.0 15.4 17.3 18.1 19.1 20.8 Debt service 48.4 51.4 51.4 Fiscal Accounts Total Revenue and grants 8.5 8.2 8.0 8.4 8.7 8.9 9.2 Total Expenditures 13.0 12.8 11.7 12.7 13.2 13.7 13.9 Overall Fiscal Balance (with grants) -4.6 -4.6 -3.7 -4.3 -4.5 -4.7 -4.7 Memorandum Items GDP per capita (%) 6.1 4.8 3.5 2.6 3.9 4.6 5.0 Gross reserves (US$ millions, EOP) 33386 24754 21686 In months of next year’s imports) 4.9 4.1 3.6 Nominal GDP (billion LCU) 39717 44908 50011 GDP (in billion US$) 430 414 450 Source: Bangladesh Bureau of Statistics, Bangladesh Bank, Ministry of Finance, IMF, and World Bank. 1/ Bangladesh Bank adopted BPM6 from FY22 onwards. Table 2. Key Fiscal Indicators (Percent of GDP)   Actual Projections   FY22 FY23 FY24e FY25f FY26f FY27f FY28f Total Revenues and Grants 8.5 8.2 8.0 8.4 8.7 8.9 9.2 Revenue Tax revenues 7.5 7.3 7.1 7.3 7.6 7.8 7.7 Direct taxes 2.4 2.4 2.4 2.3 2.5 2.5 2.6 Other taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Non-tax revenues 0.9 0.9 0.8 1.0 1.0 1.1 1.4 Grants 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Total Expenditures 13.0 12.8 11.7 12.7 13.2 13.7 13.9 Current expenditures 7.7 8.0 7.6 8.3 8.9 9.2 9.1 Wages and salaries 1.6 1.4 1.3 1.3 1.5 1.5 1.7 Goods and services 0.8 0.8 0.8 0.6 0.8 0.9 1.1 Subsidies and transfers 3.4 3.7 3.3 3.4 3.6 3.8 3.6 Interest on debt (interest payments) 2.0 2.1 2.2 3.0 3.0 2.9 2.7 Capital Expenditure 4.6 4.3 3.7 3.9 3.9 4.0 4.1 Overall fiscal balance (incl. grants) -4.6 -4.6 -3.7 -4.3 -4.5 -4.7 -4.7 Primary balance -2.6 -2.5 -1.4 -1.3 -1.6 -1.8 -2.0 Financing 4.5 4.5 3.6 4.3 4.6 4.7 4.5 Domestic (net) 2.9 2.8 2.0 2.3 2.6 2.7 2.6 External (net) 1.6 1.8 1.6 2.0 2.0 2.0 1.9 Page 6 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) General Government Debt 33.8 37.0 36.8 40.1 41.2 42.7 44.7 External debt 12.5 15.0 15.4 17.3 18.1 19.1 20.8 Domestic debt 21.3 22.0 21.4 22.7 23.0 23.6 23.9 Source: Ministry of Finance, IMF, and World Bank. Note: 1/ Including block allocations, food account balance, and non-Annual Development Plan capital expenditures Table 3. External Financing Needs and Sources (US$, millions)   Actual Projections   FY22 FY23 FY24 FY25e FY26f FY27f FY28f Financing Requirements 20075 13247 8989 6756 5157 6203 7319 Current Account Deficit 18533 11633 6512 4127 2431 3038 4060 External Debt Amortization 1542 1614 2477 2629 2726 3165 3259 20075 13247 8989 6756 5157 6203 7319 Available Financing Foreign Direct Investment (Net) 1827 1649 554 600 620 677 740 Portfolio Investment (Net) -158 -30 2101 2200 3138 3710 4311 Capital Grants 181 475 -62 -100 10 100 300 Debt Disbursement 6352 5690 6679 8365 9198 10310 10819 Other flows (net)* 7296 1195 -1695 -3000 -3800 -4000 -3600 Change in Reserve Assets (-=Increase) 5274 8222 4300 -809 -3509 -4095 -4751 Errors and Omissions -5761 -3954 -2888 -500 -500 -500 -500 *Include grants, donations, asset sales, non-core activity revenues, and foreign exchange gains. C. IMF Relations 20. The IMF concluded the second review of an ongoing Bangladesh program in June 2024. An IMF program for Bangladesh was approved by the Executive Board in January 2023 to help preserve macroeconomic stability and lay the foundation for inclusive, sustainable growth. The 42-month program includes financing arrangements under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) (US$3.3 billion) and the Resilience and Sustainability Facility (RSF) (US$1.4 billion). Along with the GCRD Credit, the RSF supports enabling reforms for attracting additional climate finance for Bangladesh. Both programs support reforms to strengthen Bangladesh’s resilience to climate change, advance the decarbonization of the economy, and manage the transition risk. The World Bank has provided substantial inputs to the IMF program by sharing the Bangladesh CCDR, preliminary results of the CEA and the policy matrix of the GCRD Credits. The IMF held a fact-finding mission in late September 2024 to assess the impact of the social uprising in July-August on the macroeconomic framework. The third review of the IMF program is scheduled for the first half of December 2024. III. PROPOSED OPERATION A. Link to Government Program, CPF, other WBG operations, and Corporate Priorities 21. Bangladesh’s 8th Five-Year Plan (FY21–25) (FYP) charts an ambitious course towards eliminating extreme poverty, reaching UMIC status by 2031, and high-income country status by 2041. The 8th FYP targets comprehensive structural reforms to accelerate sustainable growth, while building climate resilience across the economy, enhancing the provision of public services, and promoting a better managed environment and natural resources to support productivity and growth. The BDP, the updated Nationally Determined Contributions (NDCs) to the Paris Agreement (2021), and the National Adaptation Plan 2023–2050 (NAP) reflect Bangladesh’s commitment to build climate resilience while stimulating sustainable and inclusive economic growth. Anchored in those strategies, as part of DPC1 the GoB consolidated its commitment to a green development pathway in the “Supplementary Guideline for Green and Climate Resilience (GCR) in Public Investment Projects,” setting forth its concept of GCRD. Page 7 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) 22. The DPC series supports priority areas of the Government Program. Under Pillar A, contributions to the 8th FYP, BDP, NAP (Goals 3 and 5) and NDCs are expected by: (a) integrating planning and budgeting process and incorporating green and climate resilience (GCR) priorities in public investment planning at national and local levels; (b) incentivizing locally led actions for GCRD through fiscal transfers to Urban Local Government Institutions (ULGIs); (c) enabling access to carbon markets; (d) incentivizing sustainable public procurement (SPP); and (e) setting the legal and institutional framework to effectively implement the BDP. In Pillars A and B, other reforms contribute to the 8th FYP’s sector development strategies in (a) “environment and climate change,” through strengthened environmental governance and improved air quality management (AQM); (b) “power and energy,” through increased energy efficiency and reduced fiscal costs from the energy sector; and (c) “water resources management”, through improved efficiency in WSS services. 23. This DPC series is aligned with the WBG Country Partnership Framework (CPF) FY23–FY27 (No. 181003- BD) discussed by the World Bank Board of Executive Directors on April 27, 2023 . Specifically, the proposed reform program will contribute to CPF Objectives 7 (Improved effectiveness of delta management to accelerate climate-resilience building) and 8 (Enhanced sustainability and productivity in the use of natural capital for climate-smart green growth) under the CPF’s Higher Level Objective (HLO) C (Enhanced climate and environmental resilience). The DPC series is also aligned with Objective 3 (Improved effectiveness of public institutions to deliver better services to citizens and businesses) under HLO A (Increased private-sector jobs). The DPC series is aligned with the WBG Climate Change Action Plan 2021–2025, and the WBG Action Plan on Adaptation and Resilience. The Program is also informed by the Country Private Sector Diagnostic and the dialogue with the International Finance Corporation. Overall, the DPC supports the maximization of finance for development (MFD) that could lead to improved private-sector investments in green housing, municipal solid waste management, WSS, and energy-sector development. Additionally, the Second GCRD Credit will contribute to narrow gender gaps by (a) promoting participation of women-owned businesses in the bidding process (PA# 5), and (b) improving women’s health, productivity and time availability for education and paid work, through the clean cooking activities under the National Air Quality Management Plan (NAQMP) (PA #7). 24. This operation is aligned with the goals of the Paris Agreement. Drawing from the CCDR, this DPC is consistent with the country’s climate commitments, including the NDCs and NAP. None of the operation’s prior actions (PAs) are likely to cause a significant increase in greenhouse gas (GHG) emissions or any persistent barriers to transition to low-GHG emissions. The DPC supports Bangladesh’s mitigation and adaptation commitments, by promoting reforms for energy efficiency, phasing out fossil fuel subsidies, air pollution control (including short- lived climate pollutants, SLCPs), and resilient urban infrastructure. The risks from climate hazards are not likely to have significant adverse effect on the PAs’ contribution to the PDO, considering in some cases the mitigation measures envisaged in the policy reforms (Annex 2). 25. Some PAs and triggers will be supported by ongoing sector-level technical assistance or investments under various engagements in the existing portfolio in Bangladesh. These Analytical and Advisory Services (ASAs) and operations include, for example, the Bangladesh Environmental Sustainability and Transformation Project, the Climate Support Facility – Bangladesh, Bangladesh Climate and Carbon Finance for Renewable Energy, the Sustainable Energy Support Program PASA, and the proposed Bangladesh Clean Air Project (Annex 4). These ASAs and operations are sequenced to support the design of PAs and triggers and implementation of policy reforms. 26. The proposed DPC series considered lessons from earlier DPCs in Bangladesh and Green Developing Policy Financing operations in other countries. Lessons included the need to (a) base policy actions on strong analytical foundations, including examples from other countries; (b) identify a lead agency and champions at sectoral agencies who can push for long-needed reforms; (c) keep adequate intervals between operations and take into account the time needed to achieve results over the long-term; (d) complement the DPC series with a Page 8 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) package of advisory services and investment projects to ensure active engagement and ownership by line ministries; (e) coordinate among DPs to maximize benefit of joint inputs; (f) strengthen high-level engagement focusing on outcomes and impacts of policies; and (g) target an appropriate level of reform. B. Prior Actions, Triggers, Expected Results and Analytical Underpinnings Pillar A – Enhancing public planning, financing, and delivery of green and climate resilient interventions Policy Track 1. Embedding green and climate resilient growth in planning and budgeting at the national level 1. DPC1 Prior Action #1. To strengthen public investment management with green and climate resilient development (GCRD) criteria, the Recipient, through the Planning Division of the Ministry of Planning, has issued an addendum to integrate GCRD goals to the Guidelines for the Preparation, Processing, Approval and Revision of Projects in the Public Sector, as evidenced by the Supplementary Guideline issued by the Government Circular dated February 13, 2023. 2. DPC 2 Prior Action #1. To integrate GCR goals in planning and budgeting, (i) the Planning Commission (PC) of MoP has adopted the Multi-Year Public Investment Programme (MYPIP) Guidelines for key sectors, integrated with the Medium-Term Budget Framework through the PC Circulars5, and (ii) key sectoral agencies have incorporated GCR objectives and results indicators in MYPIPs and MBFs, through FD Circular and corresponding MBFs6 3. DPC 3 (Indicative) Trigger #1. To embed GCR principles in the state-owned enterprises (SOEs), the MoF has (i) formulated a policy requiring climate risk management for SOEs; and (ii) institutionalized a GCR-related Independent Performance Evaluation Guidelines. 27. Reforms under policy track (PT) #1 will establish a government-wide foundation for the GoB’s GCRD policies and investments by incentivizing the ministries to allocate more resources to green and climate related activities and improving their planning and execution. GCRD priorities are embedded in Bangladesh’s major development strategies and global commitments such as 8th FYP, BDP, NAP, and NDCs. However, the GoB faces challenges in implementing key GCRD interventions under these plans due to: (a) the lack of adequate prioritization of public investments under the Annual Development Program (ADP), managed by the Ministry of Planning (MoP); and (b limited coordination of the ADP formulation process with the annual budget process, managed by the Ministry of Finance (MoF). These shortcomings have limited the effectiveness of the country’s public investment management (PIM), as reflected in insufficient budgetary allocations to investment projects and their low execution rate. Climate-related allocations comprise only 7.5 percent of the total budget or 0.8 percent of GDP (Climate Fiscal Framework 2020), and budget allocation for non-climate GCRD interventions is not measured or reported. Bangladesh scored “D” in the dimension on budget alignment with climate change strategies under the 2021 Climate Responsive PEFA Assessment, fulfilling only four out of 12 assessed elements.7 28. In the PT #1, the GoB’s has integrated GCR goals in the country’s core public investment planning instruments. These are essential measures to implement CCDR recommendations (Pillar 3) for improved coordination and strengthened public finance management to build an enabling environment for climate action. In DPC1, the GoB revised the requirements for public agencies to formulate and process Development Project 5 PC Circular No. 20.06.0000.633.14.039.24-29 dated May 16, 2024, and PC Circulars No. 20.06.0000.633.14.039.24-31 (MYPIP for the Local Government and Rural Development sector, No. 20.06.0000.633.14.039.24-32 (MYPIP for the Power and Energy sector), and No. 20.06.0000.633.14.039.24-33 (MYPIP for the Health sector) dated May 30, 2024. 6 FD Circular dated September 29, 2024, and 2024-2025 MBFs of Ministry of Science and Technology, Power Division, Energy and Mineral Resources Division, Local Government Division, Rural Development and Co-operatives Division, and Health Services Division published on September 29, 2024. 7 The list of 12 elements assessed for Dimension 1 (Budget alignment with climate change strategies) is available in the PEFA “Supplementary Framework for Assessing Climate-Responsive Public Financial Management.” Page 9 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) Proforma (DPP) in accordance with GCR goals8 as outlined in the 8th FYP. As a result, all proposals for public investment projects must include sector-wise description and analysis of the projects’ contribution to GCR goals. 29. In DPC2, PA #1 has strengthened integration between planning and budgeting processes for key GCRD sectors, as recommended by the 2021 IGA, 2022 PEFA, the Framework for Implementing Green Growth in Bangladesh (2023). The GoB started this process by adopting MYPIPs9 for (a) Power and Energy; (b) Local Government and Rural Development, and (c) Health,10 all of them integrated with the Medium-Term Budget Framework through common three-year resource allocation data at the project level. Also under PA #1, GCR goals and results indicators are included in MYPIPs and the Ministry Budget Frameworks (MBFs). These instruments require sectors and line ministries to prepare realistic expenditure plans based on available budgetary resources and ensure strategic alignment with national development and GCRD objectives. This reform will enhance GCR prioritization by strengthening the monitoring and evaluation of GCR goals throughout project implementation. In DPC 3, GCR principles will be embedded in SOEs. The MoF will require climate risk management for SOEs and will institutionalize GCR-related Independent Performance Evaluation Guidelines. The expected results will be measured by Bangladesh’s score in Dimension 1 - Budget Alignment with Climate Change Strategies of the PEFA Assessment (from Score D in GoB FY22 to Score C in GoB FY26). DPC2 Prior Action #2. To effectively implement the Bangladesh Delta Plan (BDP) 2100 for increased climate resilience, the Planning Division (PD) of the MoP has adopted the Delta Appraisal Framework, setting appraisal criteria on adaptive delta management and specific procedures for the preparation, processing, approval and revision of BDP-related projects, through PD Circular11. DPC3 (Indicative) Trigger #2. To provide the long-term legal and institutional arrangements for implementing the BDP, the Government has enacted the Delta Ordinance vetted by the President. 30. The BDP is a comprehensive climate adaptive delta management (ADM) strategy.12 Given its centrality to the country’s climate resilience agenda, PT #1 supports the GoB to establish the authorizing environment and better inter-ministerial coordination for effective BDP implementation. The Plan outlines priority programs by 2030 to achieve a safe, climate resilient, and prosperous Delta. However, the BDP implementation has been slow due to technical, institutional, and financial constraints. As a result, only 28 out of 80 priority programs have approved DPPs. Because of financing constraints, the GoB needs to re-prioritize investments to select the most needed projects among the BDP list of investments. Additionally, key agencies that are supposed to design and implement those projects do not have adequate capacity for such mandate, especially for applying an ADM approach in their proposals. The Planning Commission (PC) under MoP also struggles to review, prioritize and approve BDP-related DPPs. Efficient implementation of the BDP requires a high level of institutional, multi-sectoral 8 The GCR priority actions cover adaptation and mitigation activities such as rainwater harvesting, flood control and management, early warning and dissemination services for climate change induced hazards, and afforestation. 9 The MYPIP is a programming tool that allows the budgeting of development projects from a medium-term perspective. It provides information on both resource availability and requirements for the upcoming budget year and two outer years, allowing the Government to estimate the fiscal space for each sector, including its Ministries/Divisions, to take up new projects. 10 Specific GCR indicators for these sectors include: (a) power generation from renewable sources and energy efficiency, measured by reduced CO2 emissions, (b) construction, rehabilitation, and maintenance of climate resilient rural infrastructure, including bridges, roads, pathways, and culverts; and (c) established community clinics in climate vulnerable areas; waste management plans and solar power generation installed in health care facilities; training and detection of climate-driven infectious diseases; climate adaptation strategy for public health; and emissions reduction from health sector. 11 PD Circular No. 20.00.0000.404.14.061.2020 (Part-II), 184 dated November 7, 2024. 12 The BDP aims to “ensure long term water and food security, economic growth and environmental sustainability while effectively reducing vulnerability to natural disasters and building resilience to climate change and other delta challenges through robust, adaptive and integrated strategies, and equitable water governance.” The BDP identifies climate vulnerabilities such as floods, cyclones, drought, river erosion, sea level rise, salinity intrusion as “Delta Challenges”. The BDP strategies for climate risk management have been developed based on economic development without degrading the environment, and climate resilience through optimal use of natural resources and participatory processes. Page 10 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) coordination and financing, as well as enabling regulations and planning guidelines for the PC. As a first step, the GoB established the multi-sector Project/Program Selection Committee (PPSC), which will validate the selection and prioritization of BDP projects in line with multi-sectoral and climate resilience perspectives. 31. PA #2 will support the GoB to improve inter-ministerial coordination for effective preparation, selection and implementation of BDP projects, which are essential for the country’s climate resilience agenda. To enhance quality and expedite approval of BDP-related DPPs, the GoB adopted technical criteria on ADM13 and a multi- sectoral screening process for appraisal of BDP projects, complementing the requirements of the Guidelines for the Preparation, Processing, Approval and Revision of Projects in the Public Sector. In parallel, the GoB assigned permanent staff to the Delta Wing (DW), a specialized unit established at the PC’s General Economics Division to coordinate and oversee the BDP implementation, including the selection and prioritization of BDP projects; budget proposals; technical guidance for line agencies in DPP formulation; monitoring and evaluation of the BDP implementation. In DPC3, the Government will enact the Delta Ordinance to ensure continuity and stability to achieve the BDP’s goals, setting permanent institutional, technical, and financial arrangements , such as a permanent DW, for the continued implementation of BDP. Those policies will enhance the effectiveness of BDP implementation. As the execution of most BDP projects will be completed after the timeframe of the DPC series, the expected results will be measured by the number of BDP projects with DPPs approved by Executive Committee of the National Economic Council (ECNEC), based on 5-year re-prioritized investment program and ADM principles (from 1 in December 2022 to 15 in December 2026). Policy Track 2. Enhancing local planning and financing of green and climate-resilient priorities 1. DPC1 Prior Action #2. To incentivize locally led actions for GCRD, the Recipient, through the Local Government Division of the Ministry of Local Government, Rural Development and Co-operatives (MoLGRDC), has introduced a Block Grant System to ensure resources for GCRD priority activities to Urban Local Government Institutions (ULGIs), as evidenced by Government Circulars dated February 9, 2023. DPC2 Prior Action #3. To strengthen locally led actions for GCRD, the MoLGRDC has adopted new guidelines for ULGIs to apply GCR criteria in local planning, financing, and implementation of their investments and services financed by discretionary resources, through LGD Office Order14. 2. DPC3 (Indicative) Trigger #3. To incentivize locally led actions for GCRD, the MoLGRDC has adopted performance criteria in the block grant system to incentivize GCR priority expenditures at ULGIs. 32. PT #2 aims to strengthen institutions’ delivery of GCR services at the local level by enhancing financing, planning, and implementation of GCR investments by local government institutions. The CCDR stressed the importance of locally adapted and locally led solutions for building climate resilience. Local governments are vital implementers of GCR activities because of their mandate to provide essential services. The GCR priorities for the Local Government Institutions (LGIs) are also outlined in Bangladesh’s major development plans (BDP, PP 2041, 8th FYP, NAP), and Climate Fiscal Framework 2020. However, LGIs face significant constraints in implementing this mandate due to weak financing and planning systems—from uncertainties in the intergovernmental fiscal transfer system to constraints in technical capacity for designing priority interventions, financial reporting, and public participation in decision-making. Transfers of resources from the central government to LGIs for the latter’s discretionary use, in the form of block grants, are limited to about 12 percent of total expenditures by LGIs in Bangladesh. 13 The technical criteria includes the following: (a) Climate vulnerability and risk, requires identification of key risks such as flood, salinity, groundwater depletion, drainage congestion, and water quality and availability; (b) Cost of Delta Component, which requires that at least 60 percent of the total project cost be allocated to address climate related challenges such as flood, cyclonic storm surge, drought, freshwater scarcity, riverbank erosion and sediment management; (c) Cost of climate change component, with a higher prioritization for those with over 30 percent incremental adaptation; (d) robustness; and (e) flexibility and scalability considering medium term (2050), moderate, and extreme climate change scenarios. 14 LGD Office Order No. 46.00.0000.070.22.005.22-584 dated June 3, 2024. Page 11 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) 33. PA #3 will continue strengthening the capacity of ULGIs15 in local financing, planning, and implementation of GCR investments, to ensure that GCR solutions are adapted to the local context and complement national interventions. In DPC1, the GoB reformed the block-grant system to require ULGIs to use at least 10 percent of those fiscal transfers from the national government for GCR priority activities.16 There are no legal constraints preventing ULGIs from allocating additional funds to GCR activities. However, there is a clear need for enforceable guidelines to effectively plan and implement these initiatives within their jurisdiction. Despite the recognition of climate-change concerns in various national policy documents, ULGIs have not consistently pursued efforts to enhance climate resilience over the years. In DPC2, the GoB adopted guidelines requiring ULGIs to (a) incorporate GCR technical criteria into planning, financing, and implementation of investments and services that are financed with discretionary resource—ADP block grants, other non-earmarked grants, and own source revenues— ensuring that funds are channeled to green and climate-resilient infrastructure and services; and (b) ensure citizen participation and GCR-related financial reporting. This will contribute to improving citizen-driven accountability and building a more rigorous budgeting, disclosure, and monitoring system. In DPC3, the GoB will further incentivize ULGIs to invest in GCR interventions by introducing performance criteria linked to GCR spending for allocating overall block grants. Altogether, reforms under PT #2 are expected to expand GCR oriented expenditures at the local level and to establish a development planning that is more prioritized to pivot the economy towards greener, more resilient services and programs. Expected results will be measured by the number of ULGIs (City Corporations and Category A Pourashavas) spending more than 10 percent of block-grant resources on GCR projects (from 0 in GoB FY22 to 7 City Corporations and 100 Category A Pourashavas in GoB FY26).17 Policy Track 3. Expanding access to carbon markets DPC2 Prior Action #4. To promote access to international carbon markets, the Ministry of Environment, Forest and Climate Change (MoEFCC) has established the Designated National Authority with the mandate to approve, authorize and track carbon credit transfers under the Article 6 of the Paris Agreement, through the MoEFCC Notification18. 3. DPC3 (Indicative) Trigger #4. To promote access to international carbon markets, the MoEFCC has (a) established the domestic core policy and regulatory systems to register, approve, authorize and transfer high integrity carbon emission reductions, and (b) regulated the ownership of emissions reductions across renewable energy project participants and procedures to tap the voluntary and compliance markets. 34. PT #3 supports the GoB to enable the environment for mobilizing climate finance. According to the 2021 NDC, Bangladesh needs US$32 billion to meet unconditional mitigation objectives, and an additional US$143.8 billion to meet conditional objectives over the period 2021‒30. However, the utilization of international carbon market mechanisms and climate finance has been limited. As of 2024, Bangladesh accessed the international carbon market under the Clean Development Mechanism (CDM) by having 21 projects registered with the CDM Executive Board, securing a US$200 million grant. Under Article 6 of the Paris Agreement (A6), a new framework offers significant potential for countries to cooperate through compliance-based international carbon markets. To 15 To factor in LGIs’ capacity constraints in implementing reforms, this DPC series focus on ULGIs– City Corporations and Pourashavas – whose capacity is less constrained compared to rural LGIs and face more immediate needs to promote GCR activities given the rapid urbanization in the country. Rural LGIs are Union Parishads (4562), Upazila Parishads (495), and Zila Parishads (64). ULGIs are City Corporations (12) and Pourashavas (330). Among the Pourashavas, 198 are considered as Category A. 16 GCR priorities in the block grants are (i) development of climate-resilient and flood-resistant infrastructure; (ii) reduction of pollution; (iii) proper drainage and sewerage systems; (iv) increasing access to safe water, sanitation, and hygiene; (v) enhanced use of energy- efficient appliances in the official, residential, and commercial buildings; (vi) solid waste management; (vii) environmental and ecological restoration and protection of forest and water bodies, among others. Additionally, the block grant funds must be implemented by ULGIs in alignment with Bangladesh’s policies for gender-responsive budget. 17 This indicator will be verified through the Annual Reports on Green and Climate Expenditures required from ULGIs. 18 MoEFCC Notification No. 22.00.0000.085.24.003.24-148 dated June 27, 2024. Page 12 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) access international compliance-based carbon markets under the A6, the GoB must set up the relevant governance structure, with ground rules and institutions to ensure strict quality and integrity standards, preventing double-counting. Although voluntary carbon markets can become an important source of financing for green private investment, they need to be better regulated, avoiding low-quality carbon credits with dubious environmental benefits. 35. PA #4 has a direct implication on the pace of Bangladesh’s access to carbon finance by supporting the GoB in setting up the required governance structure to tap international carbon markets under the Paris Agreement. The GoB has established the Designated National Authority (DNA) for A6, with the MoEFCC leading the Governing Body (GB). The DNA is equipped with capacities to approve, authorize and track international carbon market credits. Each entity under the DNA has clear roles and responsibilities to support operationalizing A6-related activities in Bangladesh. In DPC3, as per the country-owned A6 Readiness Roadmap, the GoB will adopt the core policy and regulatory systems to register, approve, authorize, and transfer high-integrity carbon-emission reductions. The GoB will also address loopholes in carbon accounting, using the renewable energy as an entry point. For that, the MoEFCC will regulate the ownership of emissions-associated reductions among RE project participants, and pilot a carbon transaction aligned with A6 to showcase Bangladesh’s readiness.19 Together, these reforms will establish a national registry for emission-reduction credits, a compilation of nationally approved methodologies, and a robust nation-specific MRV system―all of which are high integrity requirements for carbon market access. 36. Overall, PT #3 will contribute to mobilize carbon markets to finance Bangladesh’s NDC goals while incentivizing investments in RE and, in the long run, other low carbon initiatives. For that reason, the policies will generate co benefits in electricity supply, urban mobility, and clean air, and will support the local exporting industry meeting the increasing regulatory review coming from international markets. Expected results will be measured by the carbon emission reduction credits registered, approved, and transferred to the domestic system (from 0 in 2023 to 1.1 million tons of CO 2 in 2026). Policy Track 4. Promoting social and environmentally sustainable procurement DPC2 Prior Action #5. To incentivize environmentally and socially sustainable businesses and public investments, the MoP has adopted the Sustainable Public Procurement (SPP) Guide, to gradually incorporate environmental and social sustainability principles in standard bidding documents of targeted sectors, including gender criteria for fostering participation of women-owned businesses in public procurement, through BPPA Order20. 4. DPC3 (Indicative) Trigger #5. To consolidate the legal coverage of SPP, the MoP has amended the Public Procurement Rules to incorporate relevant SPP provisions, based on lessons learned from the application of the SPP Guide in targeted sectors. 37. As recommended by the CCDR, PT #4 focuses on promoting SPP by incorporating economic, social, and environmental considerations in the public procurement (PP) framework. Bangladesh spends more than US$25 billion on PP annually (about 33 percent of its annual budget) (BPPA 2023). However, SPP is yet to be incorporated in the legislation and practices to shift from only seeking the lowest cost to achieving value for money (VfM), to also incentivize environmentally, climate-smart, and socially sustainable businesses. SPP would, for example, promote participation of SMEs, start-ups, and women-led businesses in the bidding process. It is estimated that only about 7.2 percent of MSMEs, which comprise over 99 percent of businesses in Bangladesh, are owned by women (UN Women 2020). Globally, only 1 percent of the $11 trillion spent annually on PP is awarded to women- owned businesses. In Bangladesh, the situation is believed to be worse, and there are no sex-disaggregated PP data. Furthermore, women-owned firms have not historically had the capacity, size, or network to submit public 19 The country has already garnered interest from international donors for purchasing ITMOs from Bangladesh. The country will be able to capitalize on these expressions of interest quickly, mobilizing carbon finance for its NDC goals. 20 BPPA Order No. 21.00.0000.363.22.141.23(01)-94 dated September 11, 2024. Page 13 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) procurement bids, which has deemed it almost completely inaccessible. Given the Government’s massive public expenditure on infrastructure, there is a unique opportunity to use SPP as an engine for more inclusive economic growth, innovation and green jobs. To start integrating SPP into the PP framework, the GoB developed its first SPP Policy, setting time-bound strategic actions and corresponding targets to progressively integrate social and environmental sustainability principles and procedures in its public procurement framework. This phased approach allows the private sector to gradually develop the supply of sustainable goods and services. 38. PA #4 adopts requirements for incorporating environmental, climate21, and social sustainability principles in standard bidding documents of targeted sectors in a phased approach. The SPP Guide, which is legally binding, sets the definition of sustainable products, services and/or supplier operations, rated selection criteria, and monitoring, evaluation, and enforcement mechanisms. The Guide will promote participation of SMEs, start-ups, and women-owned businesses in the bidding process by introducing prequalification criteria, flexible procedures, bids divided into smaller lots, among other measures to facilitate participation. This PA supports women’s economic empowerment by providing greater opportunities and enhanced capacity to access previously inaccessible contracts and resources and helping them refine their business strategies, build networks, and enhance their visibility. Based on a lifecycle approach, the PA promotes climate adaptation and mitigation by reducing GHG emissions, waste, and resource depletion in all stages of the productive chain. It encourages the use of resilient, low-impact materials and technologies, reducing climate vulnerability. In DPC3, the GoB will consider lessons learned from the application of the SPP Guide and amend the Public Procurement Rules, 2008, to fully regulate SPP in all sectors. The expected results will be measured by (a) the percentage of women-owned businesses submitting bids in public procurement per fiscal year (from 0 in GoB FY27 to 7 percent in GoB FY27), and (b) the amount (in US$) of procurement processes of selected Public-Sector Organizations using SPP rated criteria in relevant contracts per fiscal year (from 0 in GoB FY22 to US$200 million in GoB FY27).22 Policy Track 5. Strengthening environmental governance 5. DPC1 Prior Action #3. To strengthen environmental management for cleaner and more resilient investments, the Recipient, through the Ministry of Environment, Forest and Climate Change (MoEFCC), has reformed the environment clearance process to ensure timely, adequate assessment and mitigation of environmental and social impacts of industrial units and projects, as evidenced by the amendment to the Environmental Conservation Rules, published in the Official Gazette dated March 5, 2023. DPC2 Prior Action #6. To enhance pollution control, the MoEFCC has adopted environmental enforcement guidelines, with provisions for (i) applying the polluter pays principle with rules-based, progressive sanctions; (ii) using remote, digital information tools, and (iii) fostering cooperation among public agencies, and citizen-driven accountability, through MoEFCC Circular23. DPC3. (Indicative) Trigger #6. To enhance enforcement of environmental regulations, the MoF has amended the Environmental Protection Surcharge Rules 2017 to (i) strengthen the criteria for including companies in the list of non-compliance, (ii) set procedures for regular update of such list, and (iii) establish a formula for applying the surcharge rate. 39. PT #5 aims to strengthen environmental governance to reduce Bangladesh’s environmental pollution and depletion of natural resources and to increase climate resilience. Major environmental health risks are associated with 275,000 premature deaths, 5.2 billion days lived with illness annually, and impaired intelligence among children amounting to a loss of 20 million IQ points.24 The country’s significant environmental degradation 21 Within the environmental and climate principles, the policy adopts a lifecycle approach. This includes consideration to the energy use and source, water use, resource use (including identification of non-renewable ones), volume and type of waste, end of life options (recyclability, resource recovery), and CO2 emissions. 22 The target is based on the implementation of the SPP Guide in selected sectors and first year of the implementation of the amended SPP Rules. Therefore, this initial target reflects a small share of total public procurement volume in Bangladesh (US$25 billion). The GoB estimates that such share will increase exponentially in the medium-term once the country expand its capacity to supply SPP goods and services. For that reason, the Bank team may revisit and increase ambition of this target in DPC3. 23 MoEFCC Circular No. 22.00.0000.075.06.001.19.458 dated October 23, 2024. 24 2023 CEA. See footnote 4 supra. Page 14 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) is linked to constraints in environmental governance. Those shortcomings include imprecise regulations, limited coordination across agencies, limited public participation and transparency in monitoring and oversight, and ad hoc application of the polluter pays principle with sanctions that are not able to deter polluting activities. These constraints also affect business development through delays in the environmental clearance (EC) processes, arbitrary decisions, lack of legal certainty, and limited access of local enterprises to international markets, since they do not comply with environmental standards. 40. Building on the Environmental Conservation Rules (DPC1) that strengthened the EC process, PA #6 sets guidelines for increasing effectiveness of oversight activities, with a transparent, rule-based system for applying the polluter pays principle. At inspections, the Department of Environment (DoE) checks the facilities’ compliance with all requirements of the EC certificate, including climate mitigation and adaptation measures (e.g. emissions standards, abatement technologies, building materials). DoE inspections also cover restrictions on vegetation and hill cutting, inadequate waste management, and other requirements to reduce flooding and other climate-change impacts. The harmonized procedures for enforcement activities will reduce errors and arbitrary decisions; increase transparency; provide legal certainty to business developers; and decrease appeals of sanctions. Along with the amended ECR, this PA aims to improve efficiency, performance, and public participation in Bangladesh’s environmental management. In DPC3, the GoB plans to amend the Environmental Protection Surcharge Rules 2017, which will systematically strengthen the application of surcharges to non-compliant companies. 41. Altogether, these policies will allow the GoB to use more effective environmental instruments, such as fiscal and citizen-based instruments. Bangladesh will shift to a transparent and more accountable rules-based system for managing important commons, while making the playing field more predictable and efficient for private-sector actors. In the medium to long term, the PT will contribute to reduce environmental degradation and associated health effects and will contribute to climate mitigation and resilience. The expected results will be measured by number of industry units, project facilities and individuals inspected by DoE’s Enforcement Wing and mobile courts for environmental compliance per calendar year (from 6,744 in 2022 to 9,000 in 2026).25 Pillar B – Promoting key sector reforms for clean and resource efficient production and services Policy Track 6. Improving air quality management across productive sectors 6. DPC1 Prior Action #4. To improve air quality management and contribute to reduce short-lived climate pollutants, the Recipient, through MoEFCC, has adopted (i) air pollutants standards; (ii) established the National Committee on Air Pollution Control (NCAPC) as the main decision-making body for air quality management; and (iii) set forth mandates and key management tools for controlling outdoor and indoor air pollution across sectors, as evidenced by the Air Pollution Control Rules (APCR) published in the Official Gazette dated July 26, 2022. DPC2 Prior Action #7. To improve air quality management and contribute to reducing short-lived climate pollutants, the MoEFCC has adopted, with endorsement from NCAPC, the National Air Quality Management Plan, ordering a set of coordinated multi-sector actions to reach World Health Organization Interim Target 1 for annual PM2.5, through MoEFCC Circular and NCAPC Minutes26. DPC3 (Indicative) Trigger #7. To improve compliance with emissions standards, the MoEFCC has established a continuous emissions monitoring program (CEMP) to track air pollutant emissions from major point sources (stacks), combined with regular disclosure of preliminary data and immediate enforcement of emissions standards by DoE. 7. DPC3 (Indicative) Trigger #8. To reduce emissions from the transport sector, the Ministry of Road Transport and Bridges (MoRTB) has adopted a scrappage and retrofitting policy, with time-bound measures to phase out highly polluting motor vehicles. 25 The indicator refers to unannounced enforcement inspections performed by the DoE through its Enforcement Wing and mobile courts. The latter inspect industries, projects, and individuals for compliance with environmental regulations on (a) the polythene ban, (b) vehicle emissions standards, (c) brick kilns, and (d) construction materials. The Enforcement Wing carries out compliance inspections for all other matters, such as effluent treatment and emissions limits from industries. 26 MoEFCC Circular No. 22.00.0000.075.22.001.19 (Part-1).353 dated July 30, 2024, and Minutes of the Third Meeting of the NCAPC dated September 22, 2024. Page 15 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) 42. PT #6 aims to improve air quality management across economic sectors. The annual cost of health effects from air pollution in Bangladesh was equivalent to 8.3 percent of country’s GDP (2019), considering 160,000 premature deaths and 2.6 million of days of illness. Major sources of air pollution in Bangladesh are residential cooking with solid fuels, power generation, brick kilns and heavy industry, open burning of solid waste, road dust and transport.27 Despite initial interventions such as installation of air quality monitoring stations and policies on brick kilns, Bangladesh lacked a comprehensive, multi-sectoral policy and institutional framework for AQM – in both households and outdoor environments. Because of that, the MoEFCC and the DoE have managed air quality mainly through ad hoc activities, without adequate coordination with relevant sectors. AQM in Bangladesh has relied mostly on the EC process, rather than oversight and enforcement and more effective policy instruments such as market-based, information/stakeholder policies. With cost-effective policies, however, the GoB could reduce premature deaths from air pollution by 44‒50 percent (nearly 1 million lives) up to 2030, with complete elimination of mortality and morbidity related to air pollution by 2041. 43. Building on the Air Pollution Control Rules (APCR) 2022 (DPC1), in PA #7 the MoEFCC adopted, with endorsement from the NCAPC, the National Air Quality Management Plan. This adoption set coordinated multi- sector actions for Bangladesh to meet the WHO Interim Target 1 for annual PM2.5 of 35 µg/m3.28 Based on an airshed-based approach, the Plan envisages cost-effective interventions to enhance the GoB’s capacity for AQM and control emissions in critical sectors such as power generation, residential cooking, industry and transport. Through its monitoring and evaluation (M&E) system, the Plan describes clear roles and responsibilities across relevant agencies, outputs, timeline, and results indicators. As part of this system, the MoEFCC, DoE, and all sector agencies must report to the NCAPC on the implementation of their assigned interventions. Periodic progress reports must be disclosed to the public. Based on CCDR and CEA recommendations, the Plan would also help decrease the import bill for fuels and reduce GHG and SLCPs emissions.29,30 In DPC3, the GoB will establish a continuous emissions-monitoring program (CEMP) to track air-pollutant emissions from major point sources (stacks), combined with regular disclosure of preliminary data and immediate enforcement of emissions standards by the DoE. In addition, a scrappage and retrofitting policy with time-bound measures to phase out highly polluting motor vehicles will be adopted to reduce emissions from the transport sector. The expected results will be measured by the percentage of rural and urban households using solid fuels as primary cooking fuels (from 89.5 percent and 42 percent of rural and urban households, respectively, in 2022, to 85 percent and 37 percent of rural and urban households, respectively, in 2026). 27 World Bank. 2023. Country Environmental Analysis. 28 PM2.5 means fine particulate matter that are 2.5 microns or less in diameter. These particles pose the greatest risk on human health. 29 AQM interventions can reduce CO , black carbon, and CH , respectively, in (a) power and heating plants (reduction up to 20 MtCO 2 4 2 emissions by 2030), industrial combustion, and industrial processes; (b) residential combustion (reduction up to 30 kilo tons by 2030), agriculture, heavy duty vehicles (diesel), and industrial combustion; and (c) agriculture (reduction up to 768 kilo tons by 2030), waste (reduction up to 122 kilo tons by 2030 and 540 kilo tons by 2040), and residential combustion sector (reductions up to 150 kilo tons by 2030) (World Bank CCDR and 2023 CEA). 30 Activities to reduce SLCPs include clean cooking, reduced open burning of waste and crop residue, reducing vehicular emissions, and promoting biogas. Addressing SLCPs significantly aids climate mitigation by reducing warming in the near term, as these pollutants are many times more potent than CO₂ but remain in the atmosphere for a shorter duration. Air pollution is likely to intensity ove r time driven by climate change and compounded by contributing factors like urbanization, which will aggravate the associated health risks. Thus, tackling SLCPs and other pollutants also supports climate adaptation by improving air quality and reducing health risks, which in turn strengthens community resilience to climate impacts and reduces stress on ecosystems that are already vulnerable to changing climate conditions. Page 16 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) Policy Track 7. Increasing energy efficiency 8. DPC1 Prior Action #5. To systematically assess energy saving potential and improve the energy efficiency of the largest consumers, the Recipient, through the Power Division of the Ministry of Power, Energy and Mineral Resources (MoPEMR), has adopted an amendment to the Energy Efficiency and Conservation Rules, with provisions, inter alia, on annual energy consumption reports; periodic energy audits; and capacity development, as evidenced by the Official Gazette dated February 1, 2023. DPC2 Prior Action #8. To increase energy efficiency, the Power Division of the MoPEMR, has adopted (i) the Energy Efficiency Labeling for Appliances Regulations (EELAR), setting Minimum Energy Performance Standards (MEPS) to prevent commercialization of inefficient appliances, through the Official Gazette31, and (ii) the Building Energy Efficiency and Environment Regulation (BEEER) to benchmark and certify energy and environmental performance of buildings, through the Power Division Circular 32. 9. DPC3 (Indicative) Trigger #9. To increase energy efficiency, the Recipient, the Power Division of the MoPEMR has established energy efficiency standards and a labeling system for air conditioners and other selected appliances, to promote energy efficient appliances and help consumers in choosing higher efficiency products. 44. PT #7 focuses on energy end-users and aims to untap low abatement cost potential by increasing energy efficiency in industries, buildings, and appliances. Short-term, cost-effective measures can be taken to improve energy efficiency, reduce the energy sector’s carbon intensity, and improve low-carbon competitiveness (2022 CCDR). Despite impressive gains over recent decades to expand energy access, power outages remain common in Bangladesh. Economic losses from unreliable electricity to households and firms are estimated at US$3.3 billion (1.5 percent of GDP) annually. The lack of cost recovery and energy inefficiency in the energy value chain are holding back investment and innovation in the value chain. Subsidized fuel prices and suboptimal gas-allocation practices amplify the problem, with inefficient public power plants and energy-intensive facilities, such as fertilizer plants, receiving gas allocations. Further downstream in the energy value chain, gas use in Bangladesh has never been metered for residential consumption. Power generation asset utilization remains low —at below 50 percent—due to fuel shortages, poor dispatch, and transmission constraints. To address those challenges, energy tariffs and fuel prices (targeted in PT# 8) need to adequately reflect cost to incentivize energy efficiency and invite investments in less carbon-intensive generation, and system operation needs to improve. Additionally, demand- side energy efficiency in various end-user segments, such as industry, buildings, and appliances, represents a significant and often low-cost opportunity. For example, as per the GoB’s Energy Efficiency and Conservation Master Plan (EECMP), energy-efficiency solutions can reduce energy consumption in the ready-made garment and textile sector by around 30 percent and increase productivity by 10‒15 percent. 45. PA #8 will improve the energy efficiency of buildings and appliances, incentivize the construction sector to become greener by applying sustainable building practices, and improve building users’ awareness of the benefits of energy efficiency and sustainable habitats. The GoB has adopted (a) the BEEER to benchmark the energy and environmental performance of buildings based on the Bangladesh National Building Code (2020), and (b) the Energy Efficiency Labeling for Appliances Regulations (EELAR) that ensures minimum energy efficiency standards to perform a specific task and prohibit the marketing of equipment and appliances that do not meet the required performance level. In DPC3, the GoB will also establish specific energy-efficiency standards and a labeling system for air conditioners and other appliances in the subsequent operation. Reforms in this PT are expected to improve the energy efficiency of industrial activities and buildings, incentivize the construction sector to become greener by applying sustainable building practices, and improve awareness of building users and appliance consumers of the benefits of energy efficiency and sustainability. By reducing energy consumption, which in Bangladesh is mostly generated from fossil fuels, this PT will also contribute to reduce GHG and air pollutant emissions. The expected results will be measured by the cumulative energy savings from the new 31 SRO No. 248/Law/2023 published in Official Gazette dated November 13, 2023. 32 Power Division Circular No. 27.00.0000.094.22.006.21-22 dated March 31, 2024. Page 17 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) provisions of Energy Efficiency and Conservation Rules (EECR), BEEER and EELAR (from 0 in 2022 to 1,000 GWh in 2026).33 Policy Track 8. Reducing the fiscal costs of the energy sector 10. DPC1 Prior Action #6. To reduce supply costs and enhance the financial sustainability of the power sector, the Recipient, through the Power Division of the MoPEMR, has issued a circular prohibiting minimum capacity charge in the contract renewal of any existing rental power plant, as evidenced by BPDB Circular dated January 8, 2023. DPC2 Prior Action #9. To ensure cost reflective fuel prices and avoid subsidies, the Energy and Mineral Resources Division of the MoPEMR has adopted a formula based and market-linked periodic automatic price adjustment system for diesel, heavy fuel oil and octane, through the Official Gazette34. 46. PT #8 targets a reduction in the fiscal costs of liquid fuel-based generation and fossil fuel subsidies, and efficient operation of power generation system – two major recommendations of the CCDR. Based on an emergency legislation, Bangladesh has procured generation capacity from quick rental power plants to close gaps in generation, particularly in demand peaks. Contracts for these fossil-fuel rental plants included minimum capacity charges to enable operators to recover investment costs. In parallel, expenditures in electricity subsidies through the Bangladesh Power Development Board (BPDB) increased by 34.1 percent to BDT 120 billion in FY22. Furthermore, Bangladesh maintains substantial subsidies on fossil-fuel use, which create disincentives for decarbonization and affect fiscal sustainability. The use of fixed (administered) energy prices in Bangladesh has resulted in unpredictable implicit subsidy costs in the budget (as transfers from the GoB to the Bangladesh Petroleum Corporation), depending on the gap between international and domestic prices. Retail fuel prices have been administered on a discretionary basis, instead of market-linked or formula-based. For many fuel types, prices were kept below import costs. Another challenge is the non-transparent and inefficient dispatch of power generation assets in the system. The non-automated dispatch that is not based on clear economic merit order leads to inefficiencies, suboptimal cost of power supply, and reduced confidence of private-sector investors, including renewable energy project sponsors. 47. To address these challenges, PA #9 established a market-linked price-adjustment system for high-speed diesel (HSD), high-sulfur fuel oil (HSFO), and octane prices. The pricing formula is based on the import costs of fuels and adjusted monthly. This policy will contribute to sustained reduction of fossil fuel subsidies, increasing the efficient use of energy commodities and reducing carbon emissions through behavior change in energy consumption and transport modes.35 The share of total liquid fuel-based generation (both from rental and non- rental plants) would also need to be reduced to lower reliance on expensive imported fuels and avoid related emissions. The expected results will be measured by (a) the government expenditure in fuel subsidies for diesel (HSD), heavy fuel oil (HSFO), and octane (from US$150 million in GoB FY22 to US$50 million in GoB FY26); and (b) liquid fuel (HSD and HSFO) used annually for power generation (from 4.92 million tons in GoB FY22 to 3.25 million tons in GoB FY26). DPC2 Prior Action #10. To improve the financial sustainability of the energy sector, the President has reinstated the mandate of the Bangladesh Energy Regulatory Commission (BERC) in end-user electricity tariff setting, through the Ordinance36. DPC3 (Indicative) Trigger #10. To improve transparency and financial sustainability in the energy sector, the BERC has regulated the criteria and procedures for setting cost-reflective tariffs across all segments of the electricity supply value chain, including a methodology for periodic end-user tariff review. 11. DPC3 (Indicative) Trigger #11. To increase the share of renewables in the energy mix while ensuring financial sustainability, the MoPEMR has (a) amended the Renewable Energy Policy to promote private sector investments in renewables, and allow direct supply of electricity from renewable energy power generators to large power consumers, and (b) adopted standard Power Purchase Agreements for RE projects with clauses to access green and carbon credits. 36 Ordinance No. 07, 2024 published in the Official Gazette on August 27, 2024. Page 18 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) 48. PT #8 also seeks to reduce the fiscal burden of electricity supply, which is crucial for effective climate change adaptation and mitigation, as it ensures the alignment of energy pricing with actual costs and encourages investments in low-carbon infrastructure. As a first step towards this goal, the GoB needs to strengthen the role and independence of the electricity regulator, the Bangladesh Energy Regulation Commission (BERC). This is essential to determine efficient sector costs and their allocation across the various segments of the electricity sector (generation, transmission, and distribution), as per the agreed pre-determined formula and in a periodic manner. However, stemming from the need for the GoB to reduce the fiscal burden of electricity subsidies, the GoB amended the BERC Act in 2022 to transfer to the MoPEMR the authority to set prices independent of the standard regulatory process and stakeholder consultations. This weakened the role of the regulator and hampered independent oversight or control over the evolution of sector costs and the end user tariff that would be required to meet the sector’s revenue requirements. 49. In PA #10, the GoB has reinstated the mandate of BERC as the independent and impartial regulator for end-user fuel and electricity-tariff setting. This will strengthen the capacity and independence of the regulator to implement a transparent tariff-setting process, balancing the interests of the various stakeholders (consumers, utilities, investors) and maintaining the principle of economic efficiency.37 In DPC3, the BERC will set out the criteria and procedures for the periodic and systematic setting of cost reflective tariffs across the value chain to ensure the financial sustainability of the electricity sector. This would clearly depict the gap (where necessary) between the annual revenue requirement of the utilities and the end-user tariff. Additionally, the MPEMR will amend the RE policy to promote private-sector investments and allow direct supply of electricity from renewable energy power generators to large power consumers. In parallel, the MoPEMR will encourage carbon finance through the adoption of green/carbon market-related clauses in standard Power Purchase Agreements for RE projects. These reforms will contribute to Bangladesh’s energy-transition targets, strengthen energy security, reduce reliance on fossil fuel-based power generation, and reduce average generation costs in the energy mix. The expected results will be measured by the total capacity of renewable energy projects that have reached financial close under the auspices of the amended RE policy (from 0 in FY24 to 150 MW in FY27). Policy Track 9. Improving efficiency of water supply and sanitation (WSS) services 12. DPC1 Prior Action #7. To increase access to quality, efficient and climate resilient Water Supply and Sanitation (WSS) services, the Recipient, through the Local Government Division of the MoLGRDC, has established WSS services principles for ULGIs, setting service quality and efficiency standards, cost-efficient tariffs principles, and provision for private sector participation in the sector, as evidenced by WSS Guidelines issued by the Government Circular dated March 13, 2023. 13. DPC3 (Indicative) Trigger #12. To ensure enhanced access to efficient and climate resilient WSS services, the LGD under the MoLGRD has established a unit to advise on tariff rationalization and establish and monitor service standards and performance of WSS providers, including WASAs. 50. Under the GCRD Credits, the GoB will adopt complementary reforms to address the major bottlenecks in WSS services at the national and local levels. Despite high levels of access to improved drinking water supply, the quality and reliability of services are still poor in Bangladesh. Despite that, there is neither a central legislation nor a central institution governing the entire WSS sector in the country. LGIs conduct WSS functions in a disconnected and uncoordinated manner, based on local regulations and with no formal authority to monitor service standards and performance of service providers. Tariff schemes are not conducive to meeting the full 34 Official Gazette dated February 29, 2024. 35 This is expected from increased prices in the costs of producing goods and services with high lifecycle GHG emissions. 36 Ordinance No. 07, 2024 published in the Official Gazette on August 27, 2024. 37 The activity is expected to increase the effective prices paid by end-users for fossil fuels – except for the lifeline tariff. A well-regulated and independent system can also help reduce reliance on fossil fuel subsidies, and create a stable environment for integrating clean energy, which is key to achieving long-term resilience against climate impacts. Page 19 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) operational, maintenance, and upgrading needs of existing capital stock (such as pipe and sewer networks). This limited cost recovery has led to underperformance by WSS providers and limited private-sector investments in the sector. In DPC 1, the GoB has regulated the planning and provision of WSS services by Pourashavas, covering private-sector participation in the construction and operation of WSS facilities; criteria and procedures for setting tariffs and service fees; consumer-oriented operational procedures; and quality and efficiency standards of services. In DPC 3, the government will establish a unit to advise on tariff rationalization and establish and monitor service standards and the performance of WSS providers, including WASAs. This reform is key to improving service quality and encouraging private-sector investment in the sector. Improved financial sustainability through tariff reforms and the establishment of a sector advisory and monitoring function will free up resources and substantially improve the enabling environment for private-sector investment. This also contributes to improving the operational performance of utilities, such as by reducing coping costs from fossil-fuel-intensive pumping of groundwater by domestic consumers, adopting energy-efficient measures, and ensuring continuity of services during crises. The expected results will be measured by the number of new municipalities with at least 80 percent cost recovery on operations and maintenance (from 0 in GoB FY22 to 15 in GoB FY26).38 C. Consultations and Collaboration with Development Partners 51. The reforms supported by the DPC derive from GoB’s 8th FYP and sectoral strategies, which went through an extensive nationwide consultation process. Additionally, each prior action has been submitted to stakeholder consultations. The Bank has coordinated closely with development partners (DPs). The GoB has a well-established approach to stakeholder consultation for the FYPs and for any major sectoral strategies. These involve public meetings with stakeholders including from the private sector, civil society, and DPs. For most strategies, consultations are held at the district level across the country. New rules, as well as amendments to existing rules, require a formal stakeholder-consultation process and an interministerial meeting before submitting the draft regulation to the Legislative Division or the Cabinet. Documentation of how those consultations have been reflected in the proposed regulations is required prior to approval. The GoB followed those procedures for all prior actions, including interministerial meetings and workshops with public agencies at national and local levels, academia, practice sector, and nongovernmental organizations. World Bank staff joined most of those activities as a relevant stakeholder. Additionally, the World Bank is coordinating closely with DPs in Bangladesh, including the IMF, the French Development Agency, the Asia Development Bank, and the Japan International Cooperation Agency, which are also financing budget support operations with reforms well aligned with the CCDR and CEA. Building on the RSF arrangements, the GCRD Credits and other policy engagement, the GoB and Development Partners are setting up the Bangladesh Climate and Development Platform (BCDP), including a multi-donor project-preparation facility to attract private investments across Bangladesh. IV. OTHER DESIGN AND APPRAISAL ISSUES A. Poverty and Social Impacts 52. The proposed PAs are expected to initially have neutral impacts on poor households and vulnerable groups, with positive effects emerging in the medium to long term. These actions, guided by the Poverty and Social Impact Analysis (PSIA) according to Bank guidelines, aim to enhance household welfare, employment, and resilience to economic and environmental shocks. In the short term, Pillar A policies may not significantly affect welfare, yet they promise long-term contributions to poverty reduction and improved access to public goods and 38As the target is based on the first years of implementation of the WSS Guidelines, it reflects a small share of Pourashavas (330) and City Corporations (12). However, the number of ULGIs with water tariffs are expected to increase exponentially in the medium term. For that reason, the Bank team may revisit and increase the ambition of this target when preparing DPC3. Page 20 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) services. Specifically, PAs #1 to #6 are expected to create jobs, enhance public service access, and foster resilience and environmental sustainability over the long run. For instance, integrating GCR goals at national and local governments (PAs #1 and #3) and implementing the BDP (PA #2) are expected to boost employment with green infrastructure, promote climate resilience and better environmental quality. That will contribute to reduce climate shocks and pollution, which disproportionally affect the health, productivity and livelihoods of the poorest groups. Similarly, actions like promoting access to international carbon markets (PA #4) and adopting sustainable procurement practices (PA #5) aim to transition to a greener economy and support sustainable business practices, respectively. As some initiatives may pose short-term challenges, such as job transitions in polluting sectors due to climate and environmental regulations (PAs #4, #6 and #7), support programs for retraining and job placement must be implemented to mitigate these impacts, emphasizing the development of green industries. The SPP policies (PA #3) can play a crucial role in this process, fostering sustainable business practices, promote efficient public spending, and support women-owned businesses. Other Government initiatives have supported MSMEs to adjust their processes to the environmental standards and for workers affected by environmental regulations. MoEFCC and DoE are also planning awareness campaigns, technical assistance, and other incentives to encourage businesses to adopt eco-friendly practices early, potentially avoiding layoffs. 53. The prior actions under Pillar B have some neutral or negative impacts on more vulnerable populations in the short term if they are not accompanied by proper compensation measures . Yet, they are expected to be mixed in the long term. The coordinated multi-sector actions under the NAQMP (PA #7) could have mixed short- term impacts on poverty and inequality. Initiatives like promoting clean cooking can improve household air quality for low-income households, but stricter emissions standards may lead to job losses in highly pollution sectors and higher transportation costs, potentially exacerbating inequalities. However, improved air quality will benefit health, cognition, and productivity in the long run, provided the policies are effectively implemented and monitored. In addition, the NAQMP can create new job opportunities in greener sectors. The EELAR and the BEEER (PA #8) are expected to yield favorable distributional outcomes in the medium to long term by encouraging energy efficiency, reducing energy costs, and fostering energy security. These measures will particularly benefit low- income households. Reinstating the BERC for tariff determination (PA #10) will not impact welfare in the short run, yet the overall net effect remains uncertain in the medium and longer run. 54. PA #9 on the market-linked price-adjustment system for diesel, heavy fuel oil, and octane is not expected to significantly affect the welfare of the bottom 40 percent directly . In case of a sharp increase in fuel prices, the policy allows the GoB to reduce margins of the Bangladesh Petroleum Corporation and other marketing companies. Additionally, BERC’s reinstated mandate (PA #10) will ensure that (i) costs involved in the fue l supply chain are assessed in energy prices adjustments; (ii) energy tariff determination, including for lifeline consumers, is based on clear criteria and includes stakeholder participation (through public hearings). However, eliminating fuel subsidies could still adversely affect the poor, unless accompanied by additional policies to offset inflation, transportation and electricity costs. Targeted subsidies or compensatory transfers will be essential to prevent negative distributional impacts and protect the welfare of vulnerable populations. The GoB will continue consultations with key stakeholders to identify new or complement current mitigation measures, combined with regular communications with the public throughout implementation of those measures. The World Bank will continue to follow up with the GoB on those mitigation measures. B. Environmental, Forests, and other Natural Resources Aspects 55. Overall, the PAs are likely to have positive or neutral effects on Bangladesh’s environment, forests, and other natural resources, including climate mitigation and adaptation. None of the PAs is likely to have significant negative environmental effects. PAs #1, #2, #3, #4 and #5 will promote more and better investments that will Page 21 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) support environmental sustainability, climate resilience, and low carbon growth. PA #1 will incentivize the ministries to prioritize and allocate more resources to GCR activities. Similarly, PA #2 is likely to improve resilience to climate change and enhance environmental management in the long run. PA #3 will provide technical guidelines for selecting and implementing GCR interventions financed through fiscal transfers to ULGIs, including environmental and social criteria. PA #4 is likely to have significant positive impacts, since the institutional reforms will improve access to international carbon markets to create incentives and drive adoption of solutions to reduce carbon emissions. PA #5 may have a positive impact on the environment, since the SPP Guide incorporates environmental considerations in the public procurement framework and promote acquisition of high-quality goods and works that are resource efficient, low carbon, and environment friendly. PA #6 (Enforcement Guidelines) may have significant positive effects by increasing effectiveness of oversight activities. PA #7 may have medium- and long-term positive impacts by improving AQM through time-bound, cost-effective interventions to control emissions across economic sectors. PA #8 is likely to have significant positive effects since the proposed policy instruments will promote short-term, cost-effective measures to improve energy efficiency, PA #9 will contribute to sustained fuel-subsidy reduction, increasing the efficient use of energy commodities. PA #10 will support tariff determination and rationalization to improve the financial sustainability of the energy sector and enhance energy efficiency, balancing financial recovery with social and environmental considerations. 56. Some GCR activities of PAs #1, #2, and #3 are expected to also incentivize infrastructure projects, which could cause negative environmental impacts, such as temporary effects on air pollution resources (for example, during construction) if not well managed. Although these potential impacts are not expected to be significant, the team assessed the country’s environmental governance system to address those effects. Those potential infrastructure projects must be aligned with GCR principles and comply with environmental regulations, especially the reformed ECR provisions (DPC1) for environmental clearance and subsequent monitoring. Despite shortcomings in the clearance process and enforcement, the GoB has worked to improve its environmental management capacity, by (a) adopting the enforcement guidelines (PA #6) and other regulations, (b) investing the analytical equipment, automated systems and training for monitoring and oversight, (c) increasing transparency of DoE’s activities, among other. The Bank has financed some of those activities and will continue to follow up with the GoB the improvements in the country’s systems. C. PFM, Disbursement, and Auditing aspects 57. Over the past two decades, Bangladesh has improved its Public Financial Management (PFM) systems as part of overall governance reforms, although challenges remain. The 2016 PEFA assessment noted strong aggregate fiscal discipline, improved fiscal risk oversight, and progress with accounting-systems implementation through iBAS++. The 2021 PEFA suggests that certain pillars of PFM performance are good or above average, while others have lower scores. Strengths include comprehensive budget documentation, e-procurement covering 70 percent of public procurement, and independent review boards for complaints management. Weaknesses include delayed financial reporting, deviation from the initial budget, underachievement of revenue targets, and limited monitoring of extra-budgetary operations. The GoB has adopted measures to address these shortcomings through recent and ongoing PFM reform actions. 58. The GoB PFM Action Plan (2018–23)39 guided the implementation of the PFM Reform Strategy (2016– 23). A new PFM Reform Action Plan (2024–28) based on PEFA 2021 was approved in February 2023, and the third PFM Reform Strategy (2024–2028) is now underway.40 The interim government is supportive of the reform actions 39 The GoB is preparing the new GoB PFM Action Plan for 2024–28. The draft Plan is currently under public consultation. 40 The Strengthening PFM Program to Enable Service Delivery Program-for-Results (P167491) is supporting the PFM Action Plan components directly led by the Finance Division. The Bank-executed Strengthening Public Expenditure Management Program Multi-Donor Trust Fund Page 22 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) taken based on PEFA 2021. Key progress stated in the PEFA report includes (a) a macro-forecasting model to make revenue projections and expenditure allocations more realistic; (b) preparation of a medium-term revenue strategy and a medium-term budget framework; (c) debt Bulletin, annual budget, and budget execution reports published on the Finance Division’s website; (d) reducing the timeline from three months to one month for the release of budget to 56 percent of drawing and disbursing officers; (e) 100 percent electronic funds transfer to pensioners; (f) SOEs Independent Performance Evaluation Guideline to develop turnaround strategies; and (g) rollout of iBAS++ in all ministries and all the 541 account offices throughout the country under the Controller General of Accounts, among others. Under the recently approved 2024–28 Action Plan, time-based reform targets will increase the flexibility and transparency of information systems. This will help ensure improved reporting, integration, and interoperability, with a clear linkage between service-delivery data and financial information. 59. Over the last decade, Bangladesh has strengthened its public procurement system. The key interventions include bringing the procurement process online through the e-GP, implementing an extensive capacity-development program for procurement, introducing citizen engagement in public procurement, approving the SPP Policy and Guide, and contract implementation monitoring. Bangladesh’s e-GP system is a good example of the use of disruptive technology that has contributed an estimated average annual saving of 6 percent (approximately US$1.1 billion). During the COVID pandemic, the e-GP system provided continuity of operations in Bangladesh. The World Bank’s support to strengthen the public procurement system will continue through the Bangladesh Institutions Strengthening for Transparency and Accountability Project (P506691), which also supported the expansion of e-GP. 60. Fund flow arrangement and foreign exchange control environment. BB’s autonomy continues undermined as the present legal framework allows for considerable government influence over bank operations. As a mitigation measure, a Dedicated FX Account will be required for the two IDA credits of this DPC, based on experience from the Bangladesh Programmatic Jobs DPCs and the First GCRD Credit. The GoB will open a dedicated United States Dollar foreign currency account with the BB into which the proceeds of the credits will be disbursed on a single tranche basis. The account will be used exclusively for the proceeds of the credits and will form part of GoB FX reserves. A withdrawal application for payment should be made after the submission of the authorized signatories’ letter under both credits with the respective credit payable in US dollars. The GoB will make internal withdrawals from this dedicated foreign currency account either directly for budgetary expenditures in foreign currency or transfer the resources in the local currency to the consolidated fund to finance budgeted expenditures in the local currency. Disbursement from the dedicated foreign currency account will not be tied to any specific purchases, and no special procurement requirement will be needed. Within thirty days of the withdrawal of the DPC proceeds, the GoB will provide written confirmation as provided in the Financing Agreement, including that the credits have been received in the dedicated foreign currency bank account and that they have been accounted for in the GoB’s integrated budget and accounting system. The program’s closing date is January 15, 2026. The World Bank will reserve the right to have the dedicated foreign currency account audited by independent auditors acceptable to the World Bank. The GoB will not use the credits proceeds to pay for expenditures included in the World Bank’s standard negative list. If any portion of the credits is used to finance ineligible expenditures as defined in the Financing Agreement, the World Bank will require the GoB to refund the amount, and refunded amounts for ineligible expenditures would be canceled. An IMF Safeguards Assessment was completed in 2022. The BB published audited financial statements for FY2023, which were issued with an unqualified audit opinion. (SPEMP-DMTF, P167491) is also supporting timely and quality technical assistance and providing several studies to help enhance understanding of key public resource management constraints at the central or sectoral levels. Page 23 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) D. Monitoring, Evaluation, and Accountability 61. The MoF leads the effort in coordinating the overall implementation of the DPC. The Ministry is experienced with World Bank policies and procedures through lending and technical assistance operations. The World Bank team will continue to provide support in monitoring the reform progress and results. This will be facilitated by regular engagement of the teams implementing technical assistance and investment operations in support of the reforms in this DPC series. 62. Grievance Redress. Communities and individuals who believe that they are adversely affected by specific country policies supported as Prior Actions or tranche release conditions under a World Bank Development Policy Financing may submit complaints to the responsible country authorities, appropriate local/national grievance mechanisms, or the Bank’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address pertinent concerns. Project affected communities and individuals may submit their complaint to the Bank’s independent Accountability Mechanism (AM). The AM houses the Inspection Panel, which determines whether harm occurred, or could occur, as a result of Bank non-compliance with its policies and procedures, and the Dispute Resolution Service, which provides communities and borrowers with the opportunity to address complaints through dispute resolution. Complaints may be submitted at any time after concerns have been brought directly to the World Bank’s attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate GRS, please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the Bank’s Accountability Mechanism, please visit https://accountability.worldbank.org. V. SUMMARY OF RISKS AND MITIGATION 63. The overall residual risk rating is Substantial. Table 4 represents the residual risk ratings by category. Political and governance risks are substantial. The interim government has prioritized law and order, but safety and security concerns persist until law enforcement is fully operational. Through several commissions, the interim government is identifying critical reforms to be adopted prior to holding elections. The incumbent 24-member cabinet, which includes representatives from civil society and youth, is prioritizing economic, institutional, and political reforms as prerequisites for a free and fair election. As requested by political parties, it will be important that the roadmap to elections is announced to avoid an increase of political tensions. The political risks are partially mitigated by the continuous engagement between DPs and the GoB to (a) follow up on the work of the reform commissions, (b) support the interim government to deliver priority reforms, such as through the proposed Strengthening Governance and Institutional Resilience (SGIR) DPC,41 and (c) ensure that the commission’s recommendations are followed by a roadmap of the critical reforms and a timetable for the elections. 64. Macroeconomic risk is substantial. Downside risks have increased, related to uncertainties in the political process and the security situation, which impact the recovery of economic activities. The financial sector remains vulnerable with deviations from international regulatory and supervisory standards, and weak corporate governance. Despite recent improvements, the BoP remained in deficit and the FX reserves remained under pressure. The macroeconomic risks are partially mitigated by the GoB’s reform program (see Section II on Macroeconomic Policy Framework), supported by the IMF arrangements, ongoing World Bank and other DPs policy lending. Additionally, the risks will be partially mitigated through key reforms under the proposed SGIR DPC. 41The proposed SGIR DPC pursues reforms on the financial sector (e.g. on asset classification and non-performing loans), revenue generation (e.g. strengthened tax policymaking) and expenditure (e.g. more transparent tax expenditures, e-GP for public procurement, and digitally authenticated dynamic registry for social programs), and data production and dissemination (e.g. open-data policy and codifying the independence of BBS in releasing unbiased data). Page 24 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) 65. Stakeholder risks are high. Some reforms may face resistance from interest groups, particularly on fuel pricing and stricter environmental regulations. To mitigate these risks, the GoB will continue consultations and awareness activities to implement the approved policies. With support from DPs, including the World Bank, the GoB will improve stakeholder engagement and communications on the government’s measures to mitigate potential negative effects from increased fuel prices, enhance its enforcement capacity, adopt incentives to stakeholders for compliance with new regulations. 66. Technical design, institutional capacity and fiduciary risks are substantial. Several PAs are complex and innovative. Limited technical capacity to implement those reforms, a complex organizational structure, and weak interagency coordination pose additional risks to the achievement of the PDO. Risk mitigation, which is supported by the World Bank’s existing and upcoming operations, includes strong government ownership of the proposed reforms and commitment to (a) stakeholder engagement, (b) enhanced regulatory and enforcement capacity of relevant authorities through training, and (c) additional interventions to support stakeholders’ compliance with regulations. Fiduciary risks are substantial, including FX control risks. Fund flow arrangements are designed to mitigate these risks, including the use of a dedicated foreign currency account, right to call for audit of the fund transfer and its accounting and budgeting in the national accounting system (iBAS++). Table 4: Summary Risk Ratings @#&OPS~Doctype~OPS^dynamics@padrisk#doctemplate Risk Categories Rating 1. Political and Governance ⚫ Substantial 2. Macroeconomic ⚫ Substantial 3. Sector Strategies and Policies ⚫ Moderate 4. Technical Design of Project or Program ⚫ Substantial 5. Institutional Capacity for Implementation and Sustainability ⚫ Substantial 6. Fiduciary ⚫ Substantial 7. Environment and Social ⚫ Moderate 8. Stakeholders ⚫ High 9. Other ⚫ Overall ⚫ Substantial Page 25 The World Bank Second Bangladesh Green and Climate Resilient Development Credit(P180439) ANNEX 1. Policy and Result Framework Prior actions and Triggers Results Prior Actions under DPC 1 Prior Actions under DPC 2 Triggers for DPC 3 Indicator Name Baseline Target Pillar A – Enhancing public planning, financing, and delivery of green and climate resilient interventions Policy Track 1. Embedding green and climate resilient growth in planning and budgeting at the national level Prior Action #1. To strengthen Prior Action #1. To integrate GCR goals in (Indicative) Trigger #1. To embed Results Indicator #1. Score D Score C public investment management planning and budgeting, (i) the Planning GCR principles in the state-owned Bangladesh’s score in (GoB FY22) (GoB FY26) with green and climate resilient Commission (PC) of MoP has adopted the enterprises (SOEs), the MoF has (i) Dimension 1 - Budget development (GCRD) criteria, the Multi-Year Public Investment Programme formulated a policy requiring Alignment with Recipient, through the Planning (MYPIP) Guidelines for key sectors, climate risk management for Climate Change Division of the Ministry of integrated with the Medium-Term Budget SOEs; and (ii) institutionalized a Strategies of the PEFA Planning, has issued an addendum Framework through the PC Circulars42, and GCR-related Independent Assessment (Text). to integrate GCRD goals to the (ii) key sectoral agencies have incorporated Performance Evaluation Guidelines for the Preparation, GCR objectives and results indicators in Guidelines. Processing, Approval and Revision MYPIPs and MBFs, through FD Circular and of Projects in the Public Sector, as corresponding MBFs43. evidenced by the Supplementary Guideline issued by the Government Circular dated February 13, 2023. 42 PC Circular No. 20.06.0000.633.14.039.24-29 dated May 16, 2024, and PC Circulars No. 20.06.0000.633.14.039.24-31 (MYPIP for the Local Government and Rural Development sector, No. 20.06.0000.633.14.039.24-32 (MYPIP for the Power and Energy sector), and No. 20.06.0000.633.14.039.24-33 (MYPIP for the Health sector) dated May 30, 2024. 43 FD Circular dated September 29, 2024, and 2024-2025 MBFs of Ministry of Science and Technology, Power Division, Energy and Mineral Resources Division, Local Government Division, Rural Development and Co-operatives Division, and Health Services Division published on September 29, 2024. Page 26 The World Bank Second Bangladesh Green and Climate Resilient Development Credit(P180439) Prior actions and Triggers Results Prior Actions under DPC 1 Prior Actions under DPC 2 Triggers for DPC 3 Indicator Name Baseline Target Prior Action #2. To effectively implement (Indicative) Trigger #2. To provide Results Indicator #2. 1 15 the Bangladesh Delta Plan (BDP) 2100 for the long-term legal and BDP projects with (December (December increased climate resilience, the Planning institutional arrangements for Development Project 2022) 2026) Division (PD) of the MoP has adopted the implementing the BDP, the Proformas approved Delta Appraisal Framework, setting Government has enacted the by ECNEC, based on 5- appraisal criteria on adaptive delta Delta Ordinance vetted by the year re-prioritized management and specific procedures for President. investment program the preparation, processing, approval and and ADM principles revision of BDP-related projects, through (number) PD Circular44. Policy Track 2. Enhancing local planning and financing of green and climate-resilient priorities Prior Action #2. To incentivize Prior Action #3. To strengthen locally led (Indicative) Trigger #3. To 0 (GoB 107 (GoB locally led actions for GCRD, the actions for GCRD, the MoLGRDC has incentivize locally led actions for Results Indicator #3. FY22) FY26) Recipient, through the Local adopted new guidelines for ULGIs to apply GCRD, the MoLGRDC has adopted Urban Local Government Division of the GCR criteria in local planning, financing, performance criteria in the block Government Ministry of Local Government, and implementation of their investments grant system to incentivize GCR Institutions (City Rural Development and Co- and services financed by discretionary priority expenditures at ULGIs. Corporations and operatives (MoLGRDC), has resources, through LGD Office Order 45. Category A introduced a Block Grant System Pourashavas) to ensure resources for GCRD spending more than priority activities to Urban Local 10 percent of block- Government Institutions (ULGIs), grant resources on as evidenced by Government GCR projects Circulars dated February 9, 2023. (number) 44 PD Circular No. 20.00.0000.404.14.061.2020 (Part-II), 184 dated November 7, 2024. 45 LGD Office Order No. 46.00.0000.070.22.005.22-584 dated June 3, 2024. Page 27 The World Bank Second Bangladesh Green and Climate Resilient Development Credit(P180439) Prior actions and Triggers Results Prior Actions under DPC 1 Prior Actions under DPC 2 Triggers for DPC 3 Indicator Name Baseline Target Results Indicator #3.1 0 (GoB 7 (GoB City Corporations FY22) FY26) (number) Results Indicator #3.2 0 (GoB 100 (GoB Category A FY22) FY26) Pourashavas (number) Policy Track 3. Expanding access to carbon markets Prior Action #4. To promote access to (Indicative) Trigger #4. To promote Results Indicator #4. 0 tons of CO2 1.1 million international carbon markets, the Ministry access to international carbon Carbon emission (2023) tons of CO2 of Environment, Forest and Climate markets, the MoEFCC has (a) reduction credits (2026) Change (MoEFCC) has established the established the domestic core policy registered, approved, Designated National Authority with the and regulatory systems to register, authorized, and mandate to approve, authorize and track approve, authorize and transfer high transferred through the carbon credit transfers under the Article 6 integrity carbon emission reductions, domestic system (Text). of the Paris Agreement, through the and (b) regulated the ownership of MoEFCC Notification46. emissions reductions across renewable energy project participants and procedures to tap the voluntary and compliance markets. Policy Track 4. Promoting social and environmentally sustainable procurement 46 MoEFCC Notification No. 22.00.0000.085.24.003.24-148 dated June 27, 2024. Page 28 The World Bank Second Bangladesh Green and Climate Resilient Development Credit(P180439) Prior actions and Triggers Results Prior Actions under DPC 1 Prior Actions under DPC 2 Triggers for DPC 3 Indicator Name Baseline Target Prior Action #5. To incentivize (Indicative) Trigger #5. To Results Indicator #5. 0 (GoB 7 percent environmentally and socially sustainable consolidate the legal coverage of Women-owned FY22) (GoB FY27) businesses and public investments, the SPP, the MoP has amended the businesses MoP has adopted the Sustainable Public Public Procurement Rules to submitting bids in Procurement (SPP) Guide, to gradually incorporate relevant SPP public procurement incorporate environmental and social provisions, based on lessons per fiscal year sustainability principles in standard bidding learned from the application of (percentage) documents of targeted sectors, including the SPP Guide in targeted sectors. US$200 Results Indicator #6. gender criteria for fostering participation million Procurement 0 (GoB of women-owned businesses in public (GoB FY27) processes of selected FY22) procurement, through BPPA Order47. Public-Sector Organizations using SPP rated criteria in relevant contracts per fiscal year (Amount(USD)) Policy Track 5. Strengthening environmental governance Prior Action #3. To strengthen Prior Action #6. To enhance pollution (Indicative) Trigger #6. To Results Indicator #7. environmental management for control, the MoEFCC has adopted enhance enforcement of Industry units, project cleaner and more resilient environmental enforcement guidelines, environmental regulations, the facilities and investments, the Recipient, with provisions for (i) applying the polluter MoF has amended the individuals inspected 6,744 9,000 through the Ministry of pays principle with rules-based, Environmental Protection by DoE’s Enforcement (2022) (2026) Environment, Forest and Climate progressive sanctions; (ii) using remote, Surcharge Rules 2017 to (i) Wing and mobile Change (MoEFCC), has reformed digital information tools, and (iii) fostering strengthen the criteria for courts for the environment clearance cooperation among public agencies, and including companies in the list of environmental process to ensure timely, non-compliance, (ii) set compliance per adequate assessment and procedures for regular update of 47 BPPA Order No. 21.00.0000.363.22.141.23(01)-94 dated September 11, 2024. Page 29 The World Bank Second Bangladesh Green and Climate Resilient Development Credit(P180439) Prior actions and Triggers Results Prior Actions under DPC 1 Prior Actions under DPC 2 Triggers for DPC 3 Indicator Name Baseline Target mitigation of environmental and citizen-driven accountability, through such list, and (iii) establish a calendar year social impacts of industrial units MoEFCC Circular48. formula for applying the surcharge (number) and projects, as evidenced by the rate. amendment to the Environmental Conservation Rules, published in the Official Gazette dated March 5, 2023. Pillar B – Promoting key sector reforms for clean and resource efficient production and services Policy Track 6. Improving air quality management across productive sectors Prior Action #4. To improve air Prior Action #7. To improve air quality (Indicative) Trigger #7. To Results Indicator #8. 74 percent 69 percent quality management and management and contribute to reducing improve compliance with Households using of of contribute to reduce short-lived short-lived climate pollutants, the MoEFCC emissions standards, the MoEFCC solid fuels as primary households households climate pollutants, the Recipient, has adopted, with endorsement from has established a continuous cooking fuels (2022) (2022) through MoEFCC, has adopted (i) NCAPC, the National Air Quality emissions monitoring program (percentage) air pollutants standards; (ii) Management Plan, ordering a set of (CEMP) to track air pollutant Results Indicator #8.1 established the National coordinated multi-sector actions to reach emissions from major point 89.5 percent 85 percent Rural households Committee on Air Pollution World Health Organization Interim Target 1 sources (stacks), combined with of rural of rural using solid fuels as Control (NCAPC) as the main for annual PM2.5, through MoEFCC Circular regular disclosure of preliminary households households primary cooking fuels decision-making body for air and NCAPC Minutes49. data and immediate enforcement (2022) (2022) (percentage) quality management; and (iii) set of emissions standards by DoE. forth mandates and key Results Indicator #8.2 (Indicative) Trigger #8. To reduce management tools for controlling Urban households 42 percent 37 percent emissions from the transport outdoor and indoor air pollution using solid fuels as of urban of urban sector, the Ministry of Road across sectors, as evidenced by primary cooking fuels households households Transport and Bridges (MoRTB) the Air Pollution Control Rules (percentage) (2022) (2022) has adopted a scrappage and 48 MoEFCC Circular No. 22.00.0000.075.06.001.19.458 dated October 23, 2024. 49 MoEFCC Circular No. 22.00.0000.075.22.001.19 (Part-1).353 dated July 30, 2024, and Minutes of the Third Meeting of the NCAPC dated September 22, 2024. Page 30 The World Bank Second Bangladesh Green and Climate Resilient Development Credit(P180439) Prior actions and Triggers Results Prior Actions under DPC 1 Prior Actions under DPC 2 Triggers for DPC 3 Indicator Name Baseline Target (APCR) published in the Official retrofitting policy, with time- Gazette dated July 26, 2022. bound measures to phase out highly polluting motor vehicles. Policy Track 7. Increasing energy efficiency Prior Action #5. To systematically Prior Action #8. To increase energy (Indicative) Trigger #9. To Results Indicator #9. 0 (2022) 1,000 GWh assess energy saving potential and efficiency, the Power Division of the increase energy efficiency, the Cumulative energy (2026) improve the energy efficiency of MoPEMR, has adopted (i) the Energy Recipient, the Power Division of savings from the new the largest consumers, the Efficiency Labeling for Appliances the MoPEMR has established provisions of EECR, Recipient, through the Power Regulations (EELAR), setting Minimum energy efficiency standards and a BEEER and EELAR Division of the Ministry of Power, Energy Performance Standards (MEPS) to labeling system for air (Gigawatt-hour Energy and Mineral Resources prevent commercialization of inefficient conditioners and other selected (GWh)) (MoPEMR), has adopted an appliances, through the Official Gazette50, appliances, to promote energy amendment to the Energy and (ii) the Building Energy Efficiency and efficient appliances and help Efficiency and Conservation Rules Environment Regulation (BEEER) to consumers in choosing higher (EECR), with provisions, inter alia, benchmark and certify energy and efficiency products. on annual energy consumption environmental performance of buildings, reports; periodic energy audits; through the Power Division Circular 51. and capacity development, as evidenced by the Official Gazette dated February 1, 2023. Policy Track 8. Reducing the fiscal costs of the energy sector 50 SRO No. 248/Law/2023 published in Official Gazette dated November 13, 2023. 51 Power Division Circular No. 27.00.0000.094.22.006.21-22 dated March 31, 2024. Page 31 The World Bank Second Bangladesh Green and Climate Resilient Development Credit(P180439) Prior actions and Triggers Results Prior Actions under DPC 1 Prior Actions under DPC 2 Triggers for DPC 3 Indicator Name Baseline Target Prior Action #6. To reduce supply Prior Action #9. To ensure cost reflective (Indicative) Trigger #10. To Results Indicator #10. US$150 US$50 costs and enhance the financial fuel prices and avoid subsidies, the Energy improve transparency and Government million (GoB million sustainability of the power sector, and Mineral Resources Division of the financial sustainability in the expenditure in fuel FY22) (GoB FY26) the Recipient, through the Power MoPEMR has adopted a formula based and energy sector, the BERC has subsidies for diesel Division of the MoPEMR, has market-linked periodic automatic price regulated the criteria and (HSD), heavy fuel oil issued a circular prohibiting adjustment system for diesel, heavy fuel oil procedures for setting cost- (HSFO), and octane minimum capacity charge in the and octane, through the Official Gazette52. reflective tariffs across all (Amount(USD)) contract renewal of any existing segments of the electricity supply Prior Action #10. To improve the financial rental power plant, as evidenced value chain, including a sustainability of the energy sector, the by BPDB Circular dated January 8, methodology for periodic end- Results Indicator #11. President has reinstated the mandate of 4.92 million 3.25 millio 2023. user tariff review. Liquid fuel (HSD and the Bangladesh Energy Regulatory tons (GoB n tons HSFO) used annually Commission (BERC) in end-user electricity (Indicative) Trigger #11. To FY22) (GoB FY26) for power generation tariff setting, through the Ordinance53. increase the share of renewables (Text). in the energy mix while ensuring financial sustainability, the MoPEMR has (a) amended the Results Indicator #12: 0 MW 150 MW Renewable Energy Policy to Total capacity of (FY24) (FY27) promote private sector renewable energy investments in renewables, and projects that have allow direct supply of electricity reached financial from renewable energy power close under the generators to large power auspices of the consumers, and (b) adopted amended RE policy standard Power Purchase (Megawatt). Agreements for RE projects with clauses to access green and carbon credits. 52 Official Gazette dated February 29, 2024. 53 Ordinance No. 07, 2024 published in the Official Gazette on August 27, 2024. Page 32 The World Bank Second Bangladesh Green and Climate Resilient Development Credit(P180439) Prior actions and Triggers Results Prior Actions under DPC 1 Prior Actions under DPC 2 Triggers for DPC 3 Indicator Name Baseline Target Policy Track 9. Improving efficiency of water supply and sanitation (WSS) services Prior Action #7. To increase (Indicative) Trigger #12. To ensure Results Indicator #13. 0 (GoB 15 (GoB access to quality, efficient and enhanced access to efficient and New municipalities FY22) FY26) climate resilient Water Supply and climate resilient WSS services, the with at least 80 Sanitation (WSS) services, the LGD under the MoLGRD has percent cost recovery Recipient, through the Local established a unit to advise on on operations and Government Division of the tariff rationalization and establish maintenance MoLGRDC, has established WSS and monitor service standards and (number) services principles for ULGIs, performance of WSS providers, setting service quality and including WASAs. efficiency standards, cost-efficient tariffs principles, and provision for private sector participation in the sector, as evidenced by WSS Guidelines issued by the Government Circular dated March 13, 2023. Page 33 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) ANNEX 2. Paris Alignment Assessment This operation aligns with the goals of the Paris Agreement (see table below for detailed discussion). The DPC reform program is consistent with the country's climate commitments (NDC and NAP) and is designed to implement key recommendations of the Bangladesh CCDR. Regarding mitigation goals, none of the prior actions (PAs) is likely to cause a significant increase in GHG emissions or any persistent barriers to transition to low-GHG emissions. None of the PAs will likely introduce or reinforce significant and persistent barriers to transition to the country's low-GHG emissions development pathways. Therefore, all prior actions align with the mitigation goals. Regarding adaptation and resilience goals, risks from climate hazards are not likely to adversely affect the prior action and its contribution to the PDO for PAs 1, 2, 3, 4, 5, 9 and 10. For PAs 6, 7 and 8, their contributions to the PDO will likely be at risk from climate hazards. However, their design reduces these risks to an acceptable level in the country's context. Program Development Objective: The PDO is to support the Government of Bangladesh to transition to green and climate resilient development by (a) enhancing public planning, financing, and delivery of green and climate resilient interventions; and (b) promoting key sector reforms for clean and resource efficient production and services. Step 1: Taking into account our climate analysis Answer: Yes (for example, Country Climate and Development Explanation: The proposed DPC is consistent with Nationally Reports or CCDRs), is the operation consistent Determined Contributions (NDCs) and National Adaptation Plan (NAP). with the country climate commitments, Regarding NDCs, the DPC supports Bangladesh’s commitment by (a) including for instance, the NDC, NAP, LTS, and embedding climate resilience objectives directly into fiscal planning, other relevant strategies? enhancing the strategic coherence of climate action across governmental sectors; (b) enhancing environmental enforcement guidelines, crucial for pollution control including GHG emissions; (c) improving air quality, directly contributing to the NDC's goal of reducing emissions and aligning with global health standards; (d) advancing energy efficiency, which is critical for reducing greenhouse gas emissions and improving the energy sector's sustainability; and (e) ensuring that energy pricing reflects the true cost of energy production and consumption, promoting more efficient energy use. And lastly, Prior Action #4 establishes a governance structure for accessing international carbon markets under Article 6 of the Paris Agreement. This is a direct implementation of the NDC, aiming to leverage global carbon market mechanisms to achieve emission reduction targets. Further, it is consistent with Bangladesh’s NAP. Prior Action #2 advances the implementation of the Bangladesh Delta Plan 2100, a key component for long-term climate adaptation and resilience. Incorporating ADM criteria into project appraisals directly support the NAP's focus on sustainable delta management. Prior Action #3 emphasizes locally led climate resilience, in line with NAP’s strategy to empower local governments and communities. This ensures that climate resilience criteria are embedded in local governance, enhancing the granularity and effectiveness of climate adaptation measures. MITIGATION GOALS: ASSESSING AND REDUCING THE RISKS Pillar A – Enhancing public planning, financing, and delivery of green and climate resilient interventions Page 34 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) Prior Action #1. To integrate GCR goals in planning and budgeting, (i) the Planning Commission (PC) of MoP has adopted the Multi-Year Public Investment Programme (MYPIP) Guidelines for key sectors, integrated with the Medium-Term Budget Framework through the PC Circulars, and (ii) key sectoral agencies have incorporated GCR objectives and results indicators in MYPIPs and MBFs, through FD Circular and corresponding MBFs. Step M2.1: Is the prior action likely to cause a Answer: No significant increase in GHG emissions? Explanation: PA #1 aligns governmental priorities with environmental sustainability goals by incentivizing ministries to allocate resources to green and climate-related activities. Additionally, this prior action ensures that allocated resources are utilized efficiently and effectively towards low-GHG emissions initiatives, thus minimizing wastage, and maximizing impact. Prior Action #2. To effectively implement the Bangladesh Delta Plan (BDP) 2100 for increased climate resilience, the Planning Division (PD) of the MoP has adopted the Delta Appraisal Framework, setting appraisal criteria on adaptive delta management and specific procedures for the preparation, processing, approval and revision of BDP-related projects, through PD Circular. Step M2.1: Is the prior action likely to cause a Answer: No significant increase in GHG emissions? Explanation: By facilitating effective governance structures and coordination mechanisms, PA #2 strengthens the country's capacity and solidifies the intent to address climate change impacts while supporting the transition to low-GHG emissions development pathways. Prior Action #3. To strengthen locally led actions for GCRD, the MoLGRDC has adopted new guidelines for ULGIs to apply GCR criteria in local planning, financing, and implementation of their investments and services financed by discretionary resources, through LGD Office Order. Step M2.1: Is the prior action likely to cause a Answer: No significant increase in GHG emissions? Explanation: By incentivizing locally led actions for GCRD, ensuring resources for GCRD priority activities leveraging discretionary resources to support climate-resilient initiatives, PA #3 enables local governments to allocate funds strategically towards low-GHG emissions development pathways, and thus complementing broader national efforts and maximizing impact at the grassroots level. Prior Action #4. To promote access to international carbon markets, the Ministry of Environment, Forest and Climate Change (MoEFCC) has established the Designated National Authority with the mandate to approve, authorize and track carbon credit transfers under the Article 6 of the Paris Agreement, through the MoEFCC Notification. Step M2.1: Is the prior action likely to cause a Answer: No significant increase in GHG emissions? Explanation: This action is likely to decrease GHG emissions by facilitating the integration of the country into international carbon markets. This access enables the country to trade carbon credits, incentivizing reductions in GHG emissions domestically and supporting global emissions reduction goals. Prior Action #5. To incentivize environmentally and socially sustainable businesses and public investments, the MoP has adopted the Sustainable Public Procurement (SPP) Guide, to gradually incorporate environmental and social sustainability principles in standard bidding documents of targeted sectors, including gender criteria for fostering participation of women-owned businesses in public procurement, through BPPA Order. Step M2.1: Is the prior action likely to cause a Answer: No significant increase in GHG emissions? Page 35 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) Explanation: By providing preferential treatment for acquiring high-quality goods and works that are resource-efficient, low carbon, and environmentally friendly, this prior action creates a market demand for eco-friendly products and services, driving investment in sustainable production methods and technologies. As a result, the transition to low-GHG emissions development pathways is facilitated by the availability of more sustainable options in the marketplace. Prior Action #6. To enhance pollution control, the MoEFCC has adopted environmental enforcement guidelines, with provisions for (i) applying the polluter pays principle with rules-based, progressive sanctions; (ii) using remote, digital information tools, and (iii) fostering cooperation among public agencies, and citizen-driven accountability, through MoEFCC Circular. Step M2.1: Is the prior action likely to cause a Answer: No significant increase in GHG emissions? Explanation: PA #6 establishes a clear regulatory framework that incentivizes polluters to internalize the environmental costs of their actions, thus promoting behavior change and encouraging investment in cleaner, climate inclusive, low-GHG emissions technologies and practices. Additionally, this prior action reduces barriers to transitioning to low-GHG emissions development pathways by fostering public trust and confidence in environmental governance through promoting citizen engagement and cooperation among public agencies in this aspect. Pillar B – Promoting key sector reforms for clean and resource efficient production and services Prior Action #7. To improve air quality management and contribute to reducing short-lived climate pollutants, the MoEFCC has adopted, with endorsement from NCAPC, the National Air Quality Management Plan, ordering a set of coordinated multi-sector actions to reach World Health Organization Interim Target 1 for annual PM 2.5, through MoEFCC Circular and NCAPC Minutes. Step M2.1: Is the prior action likely to cause a Answer: No significant increase in GHG emissions? Explanation: By focusing on reducing SLCPs, setting mandates and key management tools for controlling outdoor and indoor air pollution across sectors, PA #7 addresses the potent contributors to climate change that have immediate and significant impacts on both air quality and the climate. Moreover, this prior action capitalizes on existing momentum and resources to accelerate progress towards low-GHG emissions development pathways by leveraging synergies with existing climate actions and initiatives. Prior Action #8. To increase energy efficiency, the Power Division of the MoPEMR, has adopted (i) the Energy Efficiency Labeling for Appliances Regulations (EELAR), setting Minimum Energy Performance Standards (MEPS) to prevent commercialization of inefficient appliances, through the Official Gazette, and (ii) the Building Energy Efficiency and Environment Regulation (BEEER) to benchmark and certify energy and environmental performance of buildings, through the Power Division Circular. Step M2.1: Is the prior action likely to cause a Answer: No significant increase in GHG emissions? Explanation: By improving energy efficiency and reducing carbon intensity, PA #8 supports the transition to a low-GHG emissions development pathway while maintaining or enhancing the country's competitiveness in a carbon-constrained global economy. Prior Action #9. To ensure cost reflective fuel prices and avoid subsidies, the Energy and Mineral Resources Division of the MoPEMR has adopted a formula based and market-linked periodic automatic price adjustment system for diesel, heavy fuel oil and octane, through the Official Gazette. Step M2.1: Is the prior action likely to cause a Answer: No significant increase in GHG emissions? Explanation: PA #9 removes economic incentives that favor high-carbon energy sources by reducing fiscal costs associated with liquid fuel-based generation and fossil fuel subsidies, thereby leveling the playing field for low-GHG emissions Page 36 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) alternatives such as renewable energy. This shift towards more economically viable and sustainable energy sources aligns with the goals of transitioning to a low-GHG emissions development pathway. Prior Action #10. To improve the financial sustainability of the energy sector, the President has reinstated the mandate of the Bangladesh Energy Regulatory Commission (BERC) in end-user electricity tariff setting, through the Ordinance. Step M2.1: Is the prior action likely to cause a Answer: No. significant increase in GHG emissions? Explanation: Reinstating BERC's mandate in tariff determination could lead to a decrease in GHG emissions. As tariffs are structured to increase energy efficiency through reduction of subsidy for high GHG-emitting energy forms, this action could result in a reduction in GHG emissions. Conclusion for PAs 1 to 10: All prior actions are aligned with the mitigation goals of the Paris Agreement. Mitigation goals: Conclusion of the Paris Alignment Assessment for the Program All prior actions of the proposed program are aligned with the mitigation goals of the Paris Agreement. The prior actions under Pillars A and B adopt a comprehensive approach that aligns incentives, improves planning, fosters cooperation, and builds capacity towards green and climate resilient development. ADAPTATION AND RESILIENCE GOALS: ASSESSING AND MANAGING THE RISKS Pillar A – Enhancing public planning, financing, and delivery of green and climate resilient interventions Prior Action #1. To integrate GCR goals in planning and budgeting, (i) the Planning Commission (PC) of MoP has adopted the Multi-Year Public Investment Programme (MYPIP) Guidelines for key sectors, integrated with the Medium-Term Budget Framework through the PC Circulars, and (ii) key sectoral agencies have incorporated GCR objectives and results indicators in MYPIPs and MBFs, through FD Circular and corresponding MBFs. Step A2: Are risks from climate hazards likely to Answer: No. have an adverse effect on the prior action’s Explanation: By incentivizing ministries to allocate more resources to contribution to the Development Objective(s)? green and climate-related activities, PA #1 encourages investment in low-carbon technologies, renewable energy, and sustainable land use practices that not only mitigate greenhouse gas emissions but also contribute to climate resilience supporting climate inclusive infrastructure design and safeguarding policies Prior Action #2. To effectively implement the Bangladesh Delta Plan (BDP) 2100 for increased climate resilience, the Planning Division (PD) of the MoP has adopted the Delta Appraisal Framework, setting appraisal criteria on adaptive delta management and specific procedures for the preparation, processing, approval and revision of BDP-related projects, through PD Circular. Step A2: Are risks from climate hazards likely to Answer: No. have an adverse effect on the prior action’s Explanation: PA #2 deals with supporting the establishment of an contribution to the Development Objective(s)? enabling environment and promoting better interministerial coordination for implementing adequate climate resilient principles. Passive impacts created through PA # 2 can reduce the risk from climate hazards to an acceptable level. Prior Action #3. To strengthen locally led actions for GCRD, the MoLGRDC has adopted new guidelines for ULGIs to apply GCR criteria in local planning, financing, and implementation of their investments and services financed by discretionary resources, through LGD Office Order. Page 37 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) Step A2: Are risks from climate hazards likely to Answer: No. have an adverse effect on the prior action’s Explanation: By strengthening locally led actions and adopting climate contribution to the Development Objective(s)? resilient criteria in local planning and implementation processes and allocating fund for climate inclusive initiatives, this prior action can contribute to reducing the risk from climate hazards to an acceptable level while enhancing the adaptive capacity and resilience of local communities in the face of climate change impacts. Prior Action #4. To promote access to international carbon markets, the MoEFCC has established the Designated National Authority with the mandate to approve, authorize and track carbon credit transfers under the Article 6 of the Paris Agreement, through the MoEFCC Notification. Step A2: Are risks from climate hazards likely to Answer: No. have an adverse effect on the prior action’s Explanation: The risks from climate hazards do not directly impact the contribution to the Development Objective(s)? functioning of the governance structure for accessing carbon markets. Prior Action #5. To incentivize environmentally and socially sustainable businesses and public investments, the MoP has adopted the Sustainable Public Procurement (SPP) Guide, to gradually incorporate environmental and social sustainability principles in standard bidding documents of targeted sectors, including gender criteria for fostering participation of women-owned businesses in public procurement, through BPPA Order. Step A2: Are risks from climate hazards likely to Answer: No. have an adverse effect on the prior action’s Explanation: Risks from climate change are not likely to have any direct contribution to the Development Objective(s)? adverse effect on the prior action’s contribution to the Development Objective. Indirect effects like impact on the availability and quality of goods, disruption of supply chains, and increases in costs associated with procurement may occur due to extreme weather events (for example, floods, storms, and heatwaves). However, these can be mitigated through incorporating climate-resilience measures like developing supply-chain mapping to identify critical suppliers and assess their exposure to climate risks. By incorporating climate adaptation good practices applicable to the country context, such as prioritizing resilient infrastructure procurement, climate-resilient services, and support for climate- resilient businesses, the prior action can enhance the resilience of public assets and infrastructure, build community resilience, and reduce vulnerability to climate risks. Prior Action #6. To enhance pollution control, the MoEFCC has adopted environmental enforcement guidelines, with provisions for (i) applying the polluter pays principle with rules-based, progressive sanctions; (ii) using remote, digital information tools, and (iii) fostering cooperation among public agencies, and citizen-driven accountability, through MoEFCC Circular. Step A2: Are risks from climate hazards likely to Answer: No have an adverse effect on the prior action’s Explanation: As part of the enforcement activities, DoE will check the contribution to the Development Objective(s)? facilities’ compliance with all requirements of the environmental clearance and the corresponding Environmental Management Plans, including climate adaptation measures. Additionally, DoE will enforce more effectively the restrictions on vegetation and hill cutting, inadequate waste management, and other regulations that are essential to reduce the impacts of flooding and other climate-related disasters. Climate hazards are not expected to affect the Page 38 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) implementation of the Enforcement Guidelines directly. Climate hazards can affect projects and facilities – including damages to chemical storage tanks and waste disposal sites - that are subject to the inspections envisaged in the Guidelines. However, such infrastructure is out of the scope of this DPC. Pillar B – Promoting key sector reforms for greener and resource efficient production and services Prior Action #7. To improve air quality management and contribute to reducing short-lived climate pollutants, the MoEFCC has adopted, with endorsement from NCAPC, the National Air Quality Management Plan, ordering a set of coordinated multi-sector actions to reach World Health Organization Interim Target 1 for annual PM 2.5, through MoEFCC Circular and NCAPC Minutes. Step A2: Are risks from climate hazards likely to Answer: Yes have an adverse effect on the prior action’s Explanation: The NAQMP will require installation of monitoring contribution to the Development Objective(s)? stations and other AQM infrastructure such as vehicle inspection centers. For reducing emissions in key sectors, the GoB will require new infrastructure and supply chains (such as charging stations for e- vehicles, renewable energy projects, and clean cooking devices and fuels). Climate hazards such as extreme weather events, changes in precipitation patterns, and temperature extremes can disrupt energy infrastructure, leading to power outages, supply chain disruptions, and infrastructure damage. Step A3: Does the design of the prior action Answer: Yes reduce the risk from climate hazards to an Explanation: By implementing early warning systems for air quality and acceptable level, considering climate adaptation climate-related hazards like dust storms and developing flexible good practices applicable to the country response strategies like adjusting emission reduction targets during context? heatwaves to reduce air pollution, this prior action can reduce the risk from climate hazards to an acceptable level. Other policies in this DPC series (PAs #1, #2, #3 and #6) aim to ensure that climate risks and the corresponding mitigation measures are considered in (a) public planning by national and local governments, including for designing public infrastructure projects, and (b) the environmental clearance and enforcement activities for private and public projects and activities. Prior Action #8. To increase energy efficiency, the Power Division of the MoPEMR, has adopted (i) the Energy Efficiency Labeling for Appliances Regulations (EELAR), setting Minimum Energy Performance Standards (MEPS) to prevent commercialization of inefficient appliances, through the Official Gazette, and (ii) the Building Energy Efficiency and Environment Regulation (BEEER) to benchmark and certify energy and environmental performance of buildings, through the Power Division Circular. Step A2: Are risks from climate hazards likely to Answer: No. have an adverse effect on the prior action’s Explanation: Climate hazards are not expected to affect the adoption contribution to the Development Objective(s)? of the EELAR directly. Climate hazards affecting energy infrastructure are out of the scope of this DPC. Prior Action #9. To ensure cost reflective fuel prices and avoid subsidies, the Energy and Mineral Resources Division of the MoPEMR has adopted a formula based and market-linked periodic automatic price adjustment system for diesel, heavy fuel oil and octane, through the Official Gazette. Step A2: Are risks from climate hazards likely to Answer: No. have an adverse effect on the prior action’s Explanation: Risks from climate change are not likely to have any direct contribution to the Development Objective(s)? adverse effect on the prior action’s contribution to the Development Page 39 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) Objective. Indirect effects like disruption in fuel supply chains and impact on the transportation networks may happen due to extreme weather events, leading to potential disruptions in fuel distribution and availability. These disruptions can result in fluctuations in fuel prices, affecting the effectiveness of the price adjustment system and potentially leading to market instability. Prior Action #10. To improve the financial sustainability of the energy sector, the President has reinstated the mandate of the Bangladesh Energy Regulatory Commission (BERC) in end-user electricity tariff setting, through the Ordinance. Step A2: Are risks from climate hazards likely to Answer: No. have an adverse effect on the prior action’s Explanation: The impact of climate hazards on the financial contribution to the Development Objective(s)? sustainability of the energy sector, as influenced by tariff determinations, is low. Adaptation and Resilience: Conclusion of the Assessment of the Program All prior actions of the proposed DPC program are aligned with the adaptation goals of the Paris Agreement. Overall Conclusion of Paris Alignment Assessment: All prior actions of the proposed DPC program are aligned with the adaptation and resilience goals of the Paris Agreement. Page 40 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) ANNEX 3. Operation Specific Annex Matrix of Key Changes to Original Policy Matrix Original Pillars, Indicative Triggers, Updated DPC Results Framework Comments and Indicators PDO: to support the Government of PDO: to support the Government of Bangladesh to The team refined the second Bangladesh to transition to green and transition to green and climate resilient part of the PDO to better climate resilient development by (a) development by (a) enhancing public planning, reflect the expected enhancing public planning, financing, financing, and delivery of green and climate resilient outcomes of Pillar B. and delivery of green and climate interventions; and (b) promoting key sector reforms resilient interventions; and (b) for clean and resource efficient production and promoting key sector reforms for services. climate-smart production and services. Pillar B – Promoting key sector reforms Pillar B – Promoting key sector reforms for clean and for climate-smart production and resource efficient production and services services DPC2 (Indicative) Trigger #1. To Prior Action #1. To integrate GCR goals in planning No substantial change in the integrate GCR goals in planning and and budgeting, (i) the Planning Commission (PC) of policy reform. The wording of budgeting, the Recipient, through the MoP has adopted the Multi-Year Public Investment the PA has been refined to Ministry of Finance (MoF) and MoP, Programme (MYPIP) Guidelines for key sectors, clarify the different policy (a) has adopted the Multi-Year Public integrated with the Medium-Term Budget actions and responsible Investment Programmes for key Framework through the PC Circulars, and (ii) key agencies. sectors, integrated with the Medium- sectoral agencies have incorporated GCR objectives Term Budget Framework, and (b) has and results indicators in MYPIPs and MBFs, through incorporated GCR objectives and FD Circular and corresponding MBFs. results indicators in both instruments. DPC2 (Indicative) Trigger #2. To Prior Action #2. To effectively implement the The establishment of the effectively implement the Bangladesh Bangladesh Delta Plan (BDP) 2100 for increased Delta Wing (DW) has been Delta Plan (BDP) 2100 for increased climate resilience, the Planning Division (PD) of the removed from this PA. The climate resilience, the Recipient, MoP has adopted the Delta Appraisal Framework, GoB created an interim DW through the MoP, has (i) established setting appraisal criteria on adaptive delta and assigned permanent to it. the Delta Wing at the General management and specific procedures for the The permanent status of such Economics Division; and (ii) added preparation, processing, approval and revision of unit will be ensured by the appraisal criteria on adaptive delta BDP-related projects, through PD Circular. upcoming Delta Ordinance, management for BDP projects in the planned for DPC3. The Guidelines for the Preparation, wording of the PA related to Processing, Approval and Revision of the DAF has been refined to Projects in the Public Sector. better reflect the reform. Instead of an amendment, PA#2 adopted a stand-alone procedure that complements the Green Book. DPC2 (Indicative) Trigger #3. To Prior Action #3. To strengthen locally led actions for Clarified that the guidelines strengthen locally led actions for GCRD, the MoLGRDC has adopted new guidelines are applicable to investments GCRD, the Recipient has adopted, for ULGIs to apply GCR criteria in local planning, financed by all discretionary Page 41 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) through the MoLGRDC, new financing, and implementation of their investments resources, not limited to the guidelines for ULGIs to apply GCR and services financed by discretionary resources, mandatory minimum 10 criteria in local planning, financing, through LGD Office Order. percent of ADP block grant and implementation of their that ULGIs are required to tag investments and services. as GCR as per DPL 1. Prior Action #4. To promote access to international PA added to strengthen the carbon markets, the Ministry of Environment, program. Forest and Climate Change (MoEFCC) has established the Designated National Authority with the mandate to approve, authorize and track carbon credit transfers under the Article 6 of the Paris Agreement, through the MoEFCC Notification. DPC 2 (Indicative) Trigger #6. To Prior Action #7. To improve air quality management The prior action is expected improve air quality management and and contribute to reducing short-lived climate to reduce GHG emissions. reduce GHG emissions, the Recipient, pollutants, the MoEFCC has adopted, with However, its focus is on through NCAPC, has ordered a set of endorsement from NCAPC, the National Air Quality controlling emissions of air coordinated multi-sector actions to Management Plan, ordering a set of coordinated pollutants (especially PM2.5), reach World Health Organization multi-sector actions to reach World Health while contributing to PM2.5 interim targets, as evidenced Organization Interim Target 1 for annual PM2.5, reducing SLCPs. The revised by a Government Circular. through MoEFCC Circular and NCAPC Minutes. wording reflects better the scope and contents of the prior action. DPC2 (Indicative) Trigger #7. To Prior Action #8. To increase energy efficiency, the There is no substantial increase energy efficiency, the Power Division of the MoPEMR, has adopted (i) the change in the PA. Its wording Recipient, through the Power Division Energy Efficiency Labeling for Appliances was refined to specify the of the MoPEMR, has adopted Regulations (EELAR), setting Minimum Energy EELAR as the policy Minimum Energy Performance Performance Standards (MEPS) to prevent instrument. Standards (MEPS) to prevent commercialization of inefficient appliances, commercialization of inefficient through the Official Gazette, and (ii) the Building appliances, and a Building Energy Energy Efficiency and Environment Regulation Efficiency and Environment Regulation (BEEER) to benchmark and certify energy and (BEEER) to benchmark and certify environmental performance of buildings, through energy and environmental the Power Division Circular. performance of buildings. Prior Action #10. To improve the financial PA added to strengthen the sustainability of the energy sector, the President has program and reflect the reinstated the mandate of the Bangladesh Energy GoB’s priorities in the energy Regulatory Commission (BERC) in end-user sector. electricity tariff setting, through the Ordinance. DPC2 (Indicative) Trigger #2. To DPC3 (Indicative) Trigger #2. To provide the long- No substantial change in the provide the long-term legal and term legal and institutional arrangements for contents of the trigger. institutional arrangements for implementing the BDP, the Government has Wording changed to reflect implementing the BDP, the National enacted the Delta Ordinance vetted by the the current governance Parliament has enacted the Delta Act. President. framework. DPC3 (Indicative) Trigger #4. To promote access to Trigger added to strengthen international carbon markets, the MoEFCC has (a) the program and reflect established the domestic core policy and regulatory GoB’s priorities in climate systems to register, approve, authorize and transfer finance to enable high integrity carbon emission reductions, and (b) investments in clean and Page 42 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) regulated the ownership of emissions reductions resource efficient projects, across renewable energy project participants and such as renewable energy. procedures to tap the voluntary and compliance markets. DPC3 (Indicative) Trigger #5. To Dropped / Replaced with: Although MoEFCC prepared a enhance environmental enforcement DPC3 (Indicative) Trigger #6. To enhance draft, the act cannot be and accountability, the Recipient, enforcement of environmental regulations, the MoF approved on time for DPC3 through the National Parliament, has has amended the Environmental Protection because of the changes in the amended the Environment Court Act, Surcharge Rules 2017 to (i) strengthen the criteria GoB. This trigger is being (i) allowing any citizen to directly file for including companies in the list of non- replaced with the lawsuits before environmental compliance, (ii) set procedures for regular update of amendment of courts, and (ii) expanding the courts’ such list, and (iii) establish a formula for applying the Environmental Protection mandate to all major environmental surcharge rate. Surcharge Rules, a fiscal policies and acts. instrument with high potential of changing behavior and promoting environmental compliance. DPC3 (Indicative) Trigger #6. To Dropped / Replaced with: Based on the priority policies encourage investments for reducing DPC3 (Indicative) Trigger #7. To improve of the NAQMP, MoEFCC and GHG emissions and air pollutants, the compliance with emissions standards, the MoEFCC DoE requested the Bank to Recipient has set the legal and has established a continuous emissions monitoring replace the original trigger #6 institutional framework for economy- program (CEMP) to track air pollutant emissions with more impactful policies. wide Monitoring, Reporting and from major point sources (stacks), combined with As MRV systems and registry Verification (MRV) systems and regular disclosure of preliminary data and for SLCPs are also relevant for registry mechanisms to ensure immediate enforcement of emissions standards by the GoB, the proposed accuracy and transparency of GHG and DoE. Bangladesh Clean Air Project short-lived climate pollutant will support these activities. DPC3 (Indicative) Trigger #8. To reduce emissions emissions and emissions savings. from the transport sector, the Ministry of Road Transport and Bridges (MoRTB) has adopted a scrappage and retrofitting policy, with time-bound measures to phase out highly polluting motor vehicles. DPC3 (Indicative) Trigger #8. To Dropped / Replaced with: The original trigger would not reduce costs of and enhance power DPC3 (Indicative) Trigger #10. To improve be ready for DPC3. generation services, the Recipient, transparency and financial sustainability in the Establishing an ISO will through the Power Division of the energy sector, the BERC has regulated the criteria require a phased approach, MoPEMR, has established an and procedures for setting cost-reflective tariffs with in-depth analytics and Independent System Operator (ISO) as across all segments of the electricity supply value continuous engagement with envisaged in the Electricity Act to chain, including a methodology for periodic end- relevant stakeholders – for improve the dispatch and efficiency of user tariff review. example, transmission the power generation system. DPC3 (Indicative) Trigger #11. To increase the share operators. Before setting up of renewables in the energy mix while ensuring the ISO, the GoB needs to financial sustainability, the MoPEMR has (a) establish sector structures to amended the Renewable Energy Policy to promote facilitate competition and private sector investments in renewables, and allow non-discriminatory access to direct supply of electricity from renewable energy the transmission grid. power generators to large power consumers, and (b) The new triggers #10 and #11 adopted standard Power Purchase Agreements for are also essential to reduce RE projects with clauses to access green and carbon fiscal costs in the energy credits. sector, including through Page 43 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) private capital enabling reforms. DPC3 (Indicative) Trigger #9. To Dropped Although the original trigger enhance quality and efficiency in WSS is still relevant, CWASA has services, the Chattogram Water agreed to adopt it Supply and Sewerage Authority independently of the DPC, (CWASA) has adopted and rolled out a building on Bank-financed TA volume-based justified economic tariff and upcoming Chattogram to water users. Water Supply Improvement Project (P176249). DPC3 (Indicative) Trigger #10. To DPC 3 (Indicative) Trigger #12. To ensure enhanced Based on international good increase access to efficient and access to efficient and climate resilient WSS practices, the Government climate resilient WSS services, the services, the LGD under the MoLGRD has will take a phased approach Recipient, through the National established a unit to advise on tariff rationalization to build a sustainable and Parliament, has enacted the WSS and establish and monitor service standards and effective WSS regulatory Regulatory Commission Act, creating performance of WSS providers, including WASAs. system in the country. As an authority to enforce tariff such, before creating a new regulations, facilitate dispute Water Regulatory Agency, resolution, and monitor the the GoB will initiate these performance and service standards of functions through a unit WSS providers. within LGD, which will gradually evolve to take on more complex functions with a more independent and legally robust set up. Results Indicator #3. City No substantial change. The Results Indicator #3. City Corporations and Corporations and Category A indicator was adjusted to Category A Pourashavas publishing Annual Pourashavas publishing Annual highlight the disaggregated Reports on Green and Climate Expenditures that Reports on Green and Climate targets. reflect more than 10 percent spending of block Expenditures that reflect more grant resources in GCR projects (number) than 10 percent spending of block grant resources in GCR projects Results Indicator #3.1. City Corporations (number) (number) Results Indicator #3.2. Category A Pourashavas (number) Results Indicator #4. Carbon emission reduction Added to measure the results credits registered, approved, authorized, and of new policy reforms in transferred through the domestic system (Text). policy track #3 – Expanding Baseline: 0 tons of CO2 (2023) access to carbon markets. Target: 1.1 million tons of CO 2 (2026). Results Indicator #6. Industry units, Results Indicator #7. Industry units, project facilities After hiring additional project facilities and individuals and individuals inspected by DoE’s Enforcement personnel, DoE achieved the inspected by DoE’s Enforcement Wing Wing and mobile courts for environmental original target in 2023, when and mobile courts for environmental compliance per calendar year (number) it inspected 7,609 industry compliance per calendar year Target: 9,000 (2026) units, project facilities and (number) individuals. Therefore, a Target: 7,500 (2025) more ambitious target was agreed to reflect the impact of the policy reforms. Page 44 The World Bank Second Bangladesh Green and Climate Resilient Development Credit (P180439) Results Indicator #7. Rural and No substantial change. The Results Indicator #8. Households using solid fuels urban households using solid fuels as indicator was adjusted to as primary cooking fuels (percentage) primary cooking fuels (percent) highlight the disaggregated Results Indicator #8.1 Rural households using targets. solid fuels as primary cooking fuels (percentage) Results Indicator #8.2 Urban households using solid fuels as primary cooking fuels (percentage) Results Indicator #8. Cumulative Results Indicator #11. Cumulative energy savings There is no substantial energy savings from the new from the new provisions of EECR, BEEER and EELAR change in the results provisions of EECR, BEEER and MEPS (Gigawatt-hour (GWh)) indicator. Its wording was (GWh) refined to specify the EELAR as the policy instrument, rather than MEPS. Results Indicator #12. Total capacity of renewable Added to measure the energy projects that have reached financial close results of new policy reforms under the auspices of the amended RE policy in policy track #8 - Reducing (Megawatt). fiscal costs of energy sector. Results Indicator #12. New Results Indicator #13. New municipalities with at The indicator was revised to municipalities with water tariff models least 80 percent cost recovery on operations and better measure the policy (number) maintenance (number) outcomes. Page 45 ANNEX 4. Required Accompanying Documentation Letter of Development Policy Page 46 Page 47 Page 48 Page 49 Page 50 Page 51 Page 52 Page 53 Page 54 Fund Relations Note Page 55 Page 56 Page 57 Page 58 Page 59 Page 60 Bibliography Prior Operational Support Bibliography Actions Pillar A: Enhancing public planning, financing, and delivery of green and climate resilient interventions World Bank Group 2022. Bangladesh – Country Climate and Development Report Bangladesh Institutions Strengthening for (English). Washington, DC: World Bank Group. Transparency & Accountability (P506691), http://documents.worldbank.org/curated/en/099510110202254063/P1767 Technical Assistance (TA) to develop 570f316560ae08d1b0e29aef0a3f14 integrated ADP-budget process to support World Bank. Framework for Implementing Green Growth in Bangladesh strengthening of GCR public investments (English). Washington, DC: World Bank and enhance coordination among Group. http://documents.worldbank.org/curated/en/09905312410453895 relevant ministries. 1/P1759081b0329d0281ad171c2f8f0a5bce1 World Bank Group 2021. Bangladesh Public Expenditure & Financial Accountability (PEFA) Assessment. https://www.pefa.org/country/bangladesh PA #1 World Bank Group. 2021. Infrastructure Governance Assessment. (For Official Use Only) International Monetary Fund. 2018. Bangladesh Public Investment Management Assessment. 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