DOF Expresses Preference of Emissions Trading Scheme Over Carbon Tax

As the Philippines continues to adopt policies targeted at addressing the worsening climate crisis, the Department of Finance (DOF) said that it prefers an intensity-based carbon emissions trading scheme (ETS) over an outright carbon tax.

A carbon tax will require huge institutional capacity before it can be implemented, whereas an intensity-based ETS is a more viable avenue of carbon pricing instrument (CPI) for the Philippines.

“Based on the PMR (Partnership for Market Readiness) CPI technical report, the DoF supports the establishment of an intensity-based ETS primarily focused on the power sector rather than other CPI options with other sectors, such as an absolute ETS and a carbon tax on the transportation and industry sectors,” said DOF Assistant Secretary and Spokesperson Paola Alvarez.

Through an intensity-based ETS, producers will only be allowed to generate a limited volume of carbon emissions. Additionally, a trading platform will be established where said producers can buy more emission units to meet their needs or sell the excess units they may have.

“An emissions trading scheme is initially preferable to a carbon tax given this sectoral focus and the strong public sensitivities around energy prices and the impacts of increased taxation on these. Given the large levels of uncertainty around future economic growth and emissions in the absence of a CPI, the use of an intensity-based cap on emissions is favored to help manage this without major price volatility,” Alvarez explained further.

Moreover, the government is making sure to carefully design this system to complement and not overshadow the Department of Energy’s (DOE) Renewable Portfolio Standards (RPS).

As part of its commitment to the Paris Agreement, the Philippines is determined to significantly reduce its emissions by 75% by 2030.

Source: Business World