The Ministry of Finance prefers the emissions trading system to the carbon tax


Through Beatrice M. Laforga, Journalist

THE DEPARTMENT OF Finance (DoF) said it preferred adopting an intensity-based Carbon Emissions Trading System (ETS) rather than an outright carbon tax, while the Philippines is seeking a political response to climate change.

Deputy Secretary and DoF spokesperson Paola Sherina A. Alvarez said Business world that based on a study conducted with the World Bank, an intensity-based ETS is the more appropriate carbon pricing instrument (CPI) option for the Philippines than a carbon tax, because such a form of taxation requires enormous institutional capacity to be implemented.

“Based on the technical report of the IPC PMR (Partnership for Market Readiness), the DoF supports the establishment of an intensity-based ETS mainly focused on the electricity sector rather than others. CPI options with other sectors, such as an absolute ETS and a carbon tax. on the transport and industrial sectors, ”Ms. Alvarez said in an email last week.

A ceiling based on the intensity measured by the “network emission factor” (tCO2 / MWh) will have the possibility of “buying back” excess emissions. The system limits the amount of carbon emissions that producers can generate, with a trading platform where entities can buy emission units to cover their needs or sell those they do not use.

The DoF said it sees price volatility as a major factor in the government’s decision whether or not to rely on taxation to limit carbon emissions.

“An emissions trading system is initially preferable to a carbon tax given this sectoral focus and the public’s strong sensitivities regarding energy prices and the impacts of increased taxation on the latter. Given the high levels of uncertainty surrounding economic growth and future emissions in the absence of a CPI, the use of an intensity-based emissions cap is favored to help manage this without major volatility in commodities. price, ”said Ms. Alvarez.

However, she said early findings showed that the CPI should first be limited to the electricity sector for easier but targeted implementation, while ensuring that the system covers the segment with increasing emissions.

The government also needs to carefully design the system to ensure that it does not overlap, but rather complements the Department of Energy’s (DoE) Renewable Energy Portfolio (RPS) standards.

She said the DoF would rather set an intensity-based limit than an absolute cap, as the latter carries high risk or can lead to low allowance prices, while the country still does not have an accurate forecast on shows.

“Once established, it will be possible to consider an expansion to other emitting sectors such as large industrial plants…. The CPI could also be easily combined with existing mechanisms to support clean energy, such as the Renewable Energy Technology Fund (RETF), channeling the proceeds of the ‘buyback’ of excess emissions into this fund, ”he said. she added.

Ms. Alvarez said the DoF is still developing an IPC with help from the World Bank. They are currently studying the impact of reducing emissions and the benefits of CPIs, and working to raise public awareness of the measure.

“In addition, analyzes will be carried out on the interaction of the IPC with energy sector policies and the potential for inclusion of the industrial sector,” she added.

Antique Representative Loren B. Legarda Filed House Bill 2184, which proposed a cap-and-trade system in industry to reduce greenhouse gas emissions and fight climate change. The measure is still pending at the House Committee on Climate Change.

The Philippines aims to reduce its emissions by 75% by 2030 as part of its commitment to the Paris Agreement.


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