Considering the impacts of extreme weather, continued fossil fuel dependency and climate inaction will bring about business interruption, high relocation costs and eventually hurt the private sector in the Philippines.
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A “business-as-usual” attitude is no longer feasible for survival and a cap needs to be put on the emissions of the archipelago’s largest polluting industries, said the Philippine legislator behind a low carbon bill newly approved by a Congress committee this month.
Speaking at the Unlocking capital for sustainability Philippines forum held in Metro Manila, Anna Victoria Veloso-Tuazon, congresswoman and co-author of a bill that will mandate Paris-aligned decarbonisation plans from large corporates, described the new bill as an enabler for investments to help companies in the Philippines decarbonise.
The domestic private sector will be a critical element in helping the nation meet its greenhouse gas (GHG) emission reduction targets under the Nationally Determined Contribution (NDC) implementation process, she said, while calling for the backing of the bill by businesses. This is particularly as the Philippines does not have a formal net-zero commitment, she noted.
NDCs specifically delineate how each country will meet the common climate goals with a framework designed by the United Nations. The Philippines is the only Asean nation that has yet to commit to a hard net-zero target.
“The bill is how we hope to get the private sector to decarbonise and invest in viable and cost-competitive low carbon investments…It also addresses the potential economic costs of decarbonisation and provides enterprises in impacted sectors options,” she said.
In a “business-as-usual” scenario, the Philippines’ annual economic damages from climate change could reach as high as 13.6 per cent of the country’s gross domestic product (GDP) in the coming years. In 2023 alone, four extreme weather events shaved off US$12 billion from the country’s economy or 3 per cent of its GDP.
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We have to adhere to widely accepted principles to promote transparency and ensure that there wouldn’t be any unintended consequences to the vulnerable sectors, [including] households and MSMEs. The markets should not be at the expense of the vulnerable sectors.
Lyn Javier, assistant governor, Bangko Sentral Ng Pilipinas Policy and Specialized Supervision Sub-Sector
The Low Carbon Economy Investment Act 2023, approved by the Lower House’s climate change committee on 6 August, will mandate large enterprises across covered sectors to develop decarbonisation plans that set an annual cap or “ceiling” on their GHG emissions. These plans must include clear milestones and targets, ensuring that businesses progressively reduce their emissions over time.
Veloso-Tuazon’s comments come amid uncertainty from businesses on whether they should support the legislation, with some airing concerns about the lack of capacity that the government has to monitor a proposed cap and trade scheme encompassed within the bill that will put a price on carbon.
The bill hopes to outline a Carbon Emission Pricing Framework for the country, while institutionalising a greenhouse gas inventory system. The framework is aimed at incentivising reductions in GHG emissions through market-based mechanisms such as carbon taxes, carbon offset mechanisms and emissions trading systems.
Entities with surplus emissions will ultimately be able to purchase offsets, while those with lower emissions could sell their excess allowances.
Veloso-Tuazon said an NDC investment plan overseen by four government departments, if fully implemented, will see an aggregate reduction of approximately 990 million metric tonnes of carbon dioxide equivalent (tCO2e), with the “biggest investment cost” of US$36.5 billion going to the energy sector for a corresponding reduction in 587 million tCO2e.
“This is intended to boost energy efficiency across all sectors, improve the grid, increase our electricity capacity and prompt the switch to electric vehicles,” she said.
Profits, not costs
Speaking on a panel discussing the prospects of carbon markets, Bonar Laureto, principal at accounting firm SGV, said that after multiple iterations, the low carbon economy bill has taken into consideration concerns from the private sector and consumers and it should be seen as more of an “investment pact” which provides options for money to be put into profitable businesses ahead of the curve in the low carbon shift.
“Its emphasis is not so much on the punitive aspects of trying to tax private sector players that are creating a lot of emissions but to drive decarbonisation in a way that takes advantage of the many economic benefits that low carbon investment presents, including the creation of jobs” he said.
Laureto added that rather than taxing every unit of emissions, the bill is unique in that it allows companies in the Philippines to set decarbonisation roadmaps and “slowly transition” away from fossil fuels from now to 2030 and 2050.
Decarbonisation funds can also be put in place, which could help prevent the costs of products to rise, and therefore potentially curb any inflationary impact on the economy. “Because of its design, the bill will not result in additional costs for businesses. It does not fall on ‘the red side’ of balance sheets,” he said. Red ink on balance sheets usually signifies financial losses for the business.
(From left) Bangko Sentral Ng Pilipinas assistant governor Lyn Javier, Pollination managing director Heng Dean Law and undersecretary for tax research and expenditure monitoring at the Department of Finance Dr Renato Reside Jr shared their insights on carbon markets and the low carbon economy bill at the Unlocking capital for sustainability conference in Bonifacio Global City, Taguig. Image: Eco-Business
Undersecretary for tax research and expenditure monitoring Dr Renato Reside, Jr. shared that the Department of Finance (DOF) has initiated steps to explore the establishment of a carbon pricing and emissions trading system in the country.
“As part of our due diligence, and because we share everybody’s commitment to alleviate environmental concerns, we have engaged the World Bank, ADB and other institutions to conduct a [feasibility] study,” said Reside, adding that the DOF “takes a holistic view” towards carbon abatement. It will also look at other mechanisms and instruments that will push corporates to decarbonise.
Bangko Sentral ng Pilipinas assistant governor Lyn Javier said that although the central bank supports initiatives driven towards achieving climate ambitions, it is wary of the potential economic impacts of the proposed measures.
“The robustness of this mechanism would dictate the extent of its impact on our economy,” said Javier. “We have to adhere to widely accepted principles to promote transparency and ensure that there wouldn’t be any unintended consequences to the vulnerable sectors, [including] households and MSMEs (micro, small and medium enterprises).”
“The markets should not be at the expense of the vulnerable sectors. That’s a key consideration,” she said.
Burden on consumers?
Earlier this year, the Philippine Chamber of Commerce and Industry (PCCI) called for a thorough review of the legislation, flagging that the bill’s proposed measures could put undue strain on vital industries such as food and agriculture, as well as have inflationary repercussions.
PCCI president Enunina Mangio, in a statement, called for caution, saying that the proposed solution should not “bring greater harm”, and that Filipino consumers do not bear the brunt of the “passed on costs” with implementation of carbon taxes and adoption of low-carbon technologies.
A paper by the Philippine Institute for Development Studies highlighted that the bill’s proposed carbon trading system lacked grounded policy and institutional mechanisms for a just transition.
Heng Dean Law, managing director of Singapore-based climate change investment and advisory firm Pollination, said that any carbon pricing or tax mechanism will see a trickle-down impact through the economy, and a key factor that governments have to consider is the ease of implementation.
Given limited options to decarbonise, Singapore, which has a target to achieve net zero emissions by 2050, introduced a carbon tax because it is easy to implement, while giving allowances to high-emitting sector, he said. “Whether it is a carrot or a stick, every country will have to decide.”
In her closing keynote speech, United Kingdom ambassador to the Philippines Nicole Stephanie Beaufils said that it is “an opportune time for the Philippines to explore its carbon market potential”. “The proposed legislation on the low carbon economy is interesting and exciting in that it directs the establishment of an emission trading system for the industry sector and its implementation mechanism to achieve national climate targets.”
“We are long past the point in the debate where there is even a question on the importance of reducing emissions and investing in nature,” she said.
Unlocking capital for sustainability is an annual flagship event on sustainable finance organised by Eco-Business in partnership with UN Environment Programme (UNEP).
