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IEEFA Asia: Why a Philippines Coal-Import Tax Makes Sense

September 15, 2017
Sara Jane Ahmed

Debate has picked up this week in the Philippines over proposals to enact a tax on imported coal as one of several ways to support a national public-investment initiative.

Lawmakers are suggesting a levy of up to $20 a ton on coal brought into the Philippines, a country that relies heavily on coal-fired generation for its electricity supply, and is planning—however imprudently—to add more.

The national proposed pipeline of new electricity projects is dominated currently by those that would require even more imported coal (over 10,423 megawatts of coal-capacity expansion is in that pipeline). The Philippines has a total of 7,419 megawatts of coal-fired capacity already, so much that it has a surplus in some areas, including in Mindanao, home to roughly one-fifth of the population.

In line with similar recent policy actions taken by India and South Korea  toward offsetting some of the many public costs of its use.

in line with similar recent policy actions taken by India and South Korea. It would serve effectively as a corrective tax aimed at offsetting some of the many public costs of its use.

Revenue could go specifically to finance public-health programs, universal healthcare, state-funded education, and timely energy-transition projects such as the uptake of solar-powered pumps for irrigation. All of the above are components of a Duterte administration push for US$20 billion in public programs to help lift the poorest of the poor out of poverty.

A COAL-IMPORT TAX MAKES SENSE ALSO FOR ITS TIMELINESS IN RELATION to the global transition taking place now across electricity-generation markets. This transition brings hope to a vast, underserved swath of the globe, which includes significant areas of the Philippines.

Over a million households in Mindanao, for instance, still do not have access to electricity. Energy-poor households are typically well removed from the main grid, which is largely coal-powered and is centralized, expensive, and dirty. That means they are better served by decentralized mini-grid solutions powered by renewable energy with batteries, systems that can be rapidly deployed where needed and as a cost-effective way to establish sustainable energy access. Where import-coal-fired power plants typically take 5 to 10 years to plan and complete, distributed-generation from solar and wind takes 12 months, at most, to come on line.

Opponents to sensible renewable-energy expansion, including among the proponents for construction of 27 unbuilt but government-approved coal-fired power plants, will argue that renewables will result in higher overall electricity costs. But they are mistaken.  Renewable energy in many parts of the world now costs less than coal-fired electricity, and a Philippines coal tax would incentivize cleaner energy development nationally and expedite the country’s transition from an overreliance on expensive imported coal toward cheaper options.

The examples of India and South Korea are instructive. India, the third largest coal-producing and coal-consuming market in the world, is moving aggressively toward renewables as part of its energy-policy modernization. Its shift over the past few years includes a US$6-per-ton tax on imported coal. The fourth-largest importer, South Korea, which accounts for over 10 percent of global thermal coal import demand, has recently imposed a US$20-$25-per-ton tax on imported coal as a component of program to achieve greater energy efficiency and less reliance on coal. It is planning on increasing that tax this year.

By taking similar assertive action, elected leaders in the Philippines are in a position now to drive the national electricity-generation sector toward cheap, reliable, domestic and sustainable power generation.

The time for a coal-import tax is now.

Sara Jane Ahmed is an IEEFA energy finance analyst.


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IEEFA Asia: Electricity-Sector Change Is Coming to the Philippines

Sara Jane Ahmed

Sara Ahmed is founder of the Financial Futures Center and an advisor to the Vulnerable 20 Group of Finance Ministers (V20) of the Climate Vulnerable Forum (CVF). The Financial Futures Center supports developing countries catalyze an economic transformation to launch a decade of progress with five years of fast-tracked action aimed at ultimately achieving climate prosperity by 2030.

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