DOF calls for study of carbon pricing instruments, underscores need to identify optimal mix for PH

Finance Secretary Ralph G. Recto has called for the study of carbon pricing instruments and underscored the need to identify an optimal mix thereof, which will help the Philippines move towards a greener future.

“Carbon pricing instruments serve as a powerful fiscal tool, allowing us to incorporate the social and external costs associated with carbon emissions,” he said during the Technical Working Group Meeting for Preparing Carbon Pricing Instruments for the Philippines led by the Department of Finance (DOF) on January 16, 2024.

Due to its geography, the Philippines is highly vulnerable to the impacts of global warming despite contributing only 0.48 percent to global carbon emissions.

Despite its meager contribution, the country put forward an ambitious commitment of reducing greenhouse gas (GHG) emissions by 75 percent by 2030 under its Nationally Determined Contribution (NDC) to the Paris Agreement.

“This ambitious pledge underscores our firm resolve to become a world leader in confronting climate change head-on,” Secretary Recto said.

The Finance Secretary specifically identified the development of a carbon tax and emissions trading system (ETS) as crucial steps towards achieving a low-carbon economy.

According to him, these efforts will incentivize both industries and individuals to actively reduce their carbon footprints, while allowing the government to mobilize financial resources to boost fiscal space.

“There is increased momentum in the establishment of carbon pricing systems in the Asia-Pacific region. This presents an opportunity for the Philippines to not only keep the pace, but to lead with determination,” Secretary Recto said.

Identifying the optimal combination of pricing instruments for the country is crucial to ensuring the long-term success of carbon pricing towards achieving net-zero emissions, said Secretary Recto.

He thus emphasized the need for extending focus beyond mere transformations within industrial sectors, emphasizing research and development for low-carbon technologies, and incentivizing behavioral change.

He also identified the need for stakeholder engagement, extensive research, and scrutiny, both in policy and regulation, to determine the most responsive and economically sensitive mode of carbon pricing for the Philippines.

Secretary Recto specifically thanked the World Bank (WB) and the Economic Consulting Associates (ECA) for their support in advancing the Philippines’ climate ambition by providing technical expertise in helping the country develop and examine the feasibility of carbon pricing instruments.

“We’ve also been very impressed and appreciative of the World Bank team’s willingness to consistently provide us with technical information without being prescriptive, and enabling the space and flow of knowledge that we need to make important decisions regarding carbon pricing as well as meeting our climate ambitions more broadly,” Department of Environment and Natural Resource (DENR) Secretary Maria Antonia Yulo-Loyzaga said in her welcome remarks.

She also expressed her appreciation for the Bank’s studies which allowed the government to recognize the pivotal role of ETS in helping the Philippines achieve its long-term climate objectives.

She mentioned that the DENR is collaborating with the Asian Development Bank (ADB) and the United Nations Development Programme (UNDP) to explore opportunities for facilitating foreign investments through voluntary carbon markets, and carbon trading under Article Six of the Paris Agreement.

“We firmly believe that carbon markets and carbon pricing will play a crucial role in our country’s climate change mitigation goals,” Secretary Yulo-Loyzaga said.

In response, WB Country Director for Brunei, Malaysia, Philippines, and Thailand (BMPT) Ndiame Diop said the Bank has been working with the Philippines to explore the potential role of carbon pricing instruments, providing assessments and simulation on the impact of different options, including the use of ETS, as well as the combination of ETS and a carbon tax.

“The work should also not just focus on ambition, it should assess the fiscal impact—how different sectors will be affected, how jobs will be affected—so that the policymakers around here can see the different dimensions of the problem and can adopt a policy that is environmentally sustainable, socially just, and economically sound,” Diop said.

Aside from Diop, other WB officials present in the meeting were ENB Coordinator and Senior Environmental Economist for BMPT Pawan Patil; CPI-ETS Task Team Leader Taisei Matsuki; Senior Economist Ralph Van Doorn; CPI-ETS Philippines TA Coordinator and WB Consultant Rea Epistola; and Senior Energy Specialist Bipul Singh.

CPI-ETS Specialist, WB Consultant William Derbyshire and CPI-ETS Specialist, WB Consultant Yiran Ren represented the ECA.

Representatives from the Philippine government present in the meeting were Climate Change Commission (CCC) Secretary Robert E.A. Borje; Commissioner Rachel Herrera; Department of Environment and Natural Resource (DENR) Secretary Maria Antonia Yulo-Loyzaga; Usec. Analiza Rebuelta-Teh; Department of Trade and Industry (DTI) Secretary Alfredo Pascual; Department of Energy (DOE) Undersecretary Felix William B. Fuentebella; Department of Transportation (DOTr) Director Felicisimo C. Pangilinan, Jr.; and National Economic and Development Authority (NEDA) Director Nieva Natural.

Representatives from the ADB and the UNDP were also present during the meeting.

The TWG is Chaired by the DOF, with the CCC, NEDA, DOE, DENR, DOTr, and DTI serving as members.

It offers advice on key considerations and provides context for carbon pricing in the Philippines.

The Group also reviews and provides comments on draft deliverables prepared by the WB; identifies requirements and mechanisms for stakeholder communication and engagement; and supports data collection where required.