IMF says carbon pricing may raise $7-B revenues

THE IMPLEMENTATION of carbon pricing in the Philippines could raise around $7 billion in revenues by 2030, the International Monetary Fund (IMF) said.

In a report, the IMF said the Philippines will need to implement carbon pricing to achieve a “substantial reduction in emissions.”

The Philippines has committed to reducing its greenhouse gas emissions by 75% by 2030 under the Paris Climate Change agreement.

Ideally, carbon pricing would be the centerpiece of the Philippines’ mitigation strategy, as it promotes reduced energy use and a shift towards cleaner energy sources, the IMF said.

The Philippines could start at $20 per ton in 2023, and increase $4.30 a year to hit $50 per ton by 2030, it added.

“The policy could either represent a carbon tax, which would add a charge in proportion to carbon content to existing fuel excises and apply similar carbon charges to other fuels. Or it could represent an ETS (emissions trading system) which is imposed on top of existing fuel taxes, encompassing firms in the power and industry sectors and suppliers of fuels for other sectors,” the IMF said.

“A $50 (around P2,800) carbon price (per ton) could potentially raise revenues of 1.05% of GDP ($7 billion) in 2030 (accounting for the base erosion of pre-existing fuel taxes). About 44% and 37% of the revenue would come from new charges on road fuels and coal respectively,” it added.

At this carbon price, the IMF said carbon dioxide emissions would be reduced to 144 million tons or 13% below the baseline levels, with half of the reductions coming from the power sector.

“Indeed, the reform would raise the renewable share in electricity generation to more than 40% in 2030 — well above the authorities’ current target of 30% and the current renewable share of 21%,” it added.

Between 2023 and 2030, the IMF said this policy could potentially save 10,400 fatalities from exposure to local air pollution. About half of the averted death rate are Filipinos over 65 years old.

“Overall, carbon taxes have significant practical, environmental, and economic advantages due to ease of administration, price certainty which promotes investment, the potential to raise significant revenues, and coverage of broader emissions sources,” it added.

Earlier, Finance Secretary Benjamin E. Diokno said the government is currently conducting a carbon tax feasibility study.

A carbon tax is a type of carbon pricing for businesses that emit carbon dioxide, with the proceeds helping support greenhouse gas mitigation projects while forcing companies to address their own emissions to minimize their tax exposure.

“The carbon tax would impose a modest economic cost on the Philippines, equivalent to about 0.2% of GDP in 2030 but half of these costs would be offset by domestic environmental co-benefits,” the IMF said.

These economic costs consist of mitigation expenses, or mainly the annualized costs of using more expensive technologies rather than fossil-based machineries.

However, 87% of the domestic environmental co-benefits reflect lower local air pollution deaths and a 13% reduction in traffic congestion and accident externalities.

The IMF also said a $50 carbon price would have the most impact on coal and natural gas prices and moderately affect prices for electricity and road fuels.

The IMF recommended that a balance between carbon pricing and other instruments should help enhance an effective and politically acceptable mitigation strategy.

The government should also use carbon pricing revenues to boost the economy, such as lowering taxes on work effort or funding socially productive investments, and ensure that benefits are distributed across households.

“Reforms should also be phased in progressively to give households and firms time to adjust. Recent increases in fossil fuel prices, while likely transitory in nature, are at least to some extent another reminder of the need for low-carbon energy transition to shield the economy from recurrent fuel price shocks, but they also underscore the importance of a comprehensive and inclusive approach to reform to protect the vulnerable and gain social and political support,” the IMF said.

In a report from the Organisation for Economic Co-operation and Development (OECD), 52.4% of greenhouse gas (GHG) emissions in the Philippines are subjected to a positive Net Effective Carbon Rate (ECR) in 2021, unchanged since 2018.

Although the country does not use an explicit carbon price, fuel excise taxes covered 52.4% of emissions in 2021. There were no fossil fuel subsidies in 2021, although they covered 7.9% of emissions in 2018, the OECD said. — Keisha B. Ta-asan