By Renato Redentor Constantino
Climate change leadership is not often attributed to work undertaken by the Department of Finance (DOF), but it is hard to miss the stand-up job Secretary Carlos Dominguez has been leading. This is evident in the tax reform initiatives his team has proffered to the Senate.
On last Thursday’s tax reform hearing, Undersecretary Karl Chua announced that the DOF will submit a coal tax to legislators later this year as the fifth part of its stimulus package. This is consistent with the petroleum excise tax the department has asked Congress to approve, as well as with the aim of Energy Secretary Alfonso Cusi to level the playing field and ensure competition is fair and robust, and drives down power prices.
Senators JV Ejercito and Risa Hontiveros appeared to welcome Chua’s response. They had initially wondered why DOF was not prioritizing a tax on coal as the dirtiest fossil fuel, echoing an earlier statement made by Sen. Migz Zubiri suggesting a tax on coal instead of cola and other sugary substances.
A carbon tax could raise around P122 billion per year, the National Tax Research Center stated in a report last year. Instead of subsidizing pollutive behavior, the government could better lift poor families out of poverty while advancing the protection of the environment and the climate. For instance, it could fund bus rapid transit and other low-carbon and cost-effective solutions for public transportation.
Likewise, taxes on diesel and bunker fuel would fast-track the hybridization of generation systems in the country’s 233 small islands, which rely on imported diesel and oil. As it is, over 70 percent of these islands have less than eight hours of electricity per day, and less than 10 percent of these islands have 24-hour power.
Hybridization, or integrating variable renewable energy (VRE) sources into existing diesel systems, would further benefit Filipinos, given that the average cost of solar, wind and hydro are already lower than the fuel and other variable costs of diesel.
Storage costs are already low enough to make even 100% VRE financially viable, according to the battery department of AES, the world’s leader in utility-scale storage and the owner-operator of the Masinloc coal plant.
Moreover, a recent report by the Institute for Energy Economics and Financial Analysis, a US-based international think tank, and my organization, the Institute for Climate and Sustainable Cities, shows that modernizing small island grids through renewable energy could save the country at least P10 billion in harmful fossil fuel subsidies annually while attracting over $1 billion in investments over five years.
Even in the short run, many island power systems are better served by 100% renewable energy (RE) systems, with VRE and storage. Not only would it put in place a more reliable source of power for small island consumers, it would also provide cheaper power for both main island and small island ratepayers.
The country’s energy reform agenda has always stood on three interlinked pillars: sustainability, affordability and security. For too long, the benefits of renewable energy have been confined to the pillar of sustainability. Yet RE is key to delivering the country’s desire for affordable and secure energy.
The transition to a clean energy-fueled economy is at hand. With the right policy changes, and closer collaboration between DOF and DOE, government can provide truly affordable, reliable and secure energy early to our islands. Let countless families and enterprises on the margins reap first the economic benefits of transformation driven by climate action.