Carbon tax to aid Phl’s green recovery

Imposing a carbon tax in the Philippines will significantly help the country and the region address further risks of climate change and will aid in the long-term recovery from the pandemic.

During the second day of the 54th Annual Meeting of the Board of Governors of the Asian Development Bank, the International Monetary Fund (IMF) said raising the price of carbon can be an effective way of reducing carbon emissions.

Asia Pacific is both very exposed to climate risk and a major contributor to greenhouse gas emissions considering that the region is home to the majority of the world’s population and has been the main driver of global growth in decades.

IMF Asia Pacific department division chief Era Dabla-Norris said even a relatively modest carbon tax of $25 per metric ton implemented collectively and gradually in the next 10 years can reduce regional emissions by over 20 percent.

Doing this could easily achieve the region’s overall Paris Agreement targets. A much higher tax, however, would be needed to limit global warming to two degrees Celsius or less.

“Carbon tax has the benefit of generating potential revenues to compensate the most vulnerable and finance priority spending on health, education and infrastructure,” Dabla-Norris said.

“Investing in adaptive infrastructure can yield high returns as it reduces the damage on the economic disruption from disasters and supports a quicker recovery,” she said.

But imposing a carbon tax may not always be the best and most preferred choice considering every country’s circumstances, just like in the Philippines where power rates are among the costliest in the region, reducing the country’s overall competitiveness.

Last March, the Department of Energy said the Philippines is not ready for a carbon tax as it would make the country uncompetitive in terms of power rates.

However, Dabla-Norris said protecting vulnerable people, communities, firms, and workers during the transition to a low carbon economy would be critical for all countries.

“Existing social transfer schemes can be expanded to cover vulnerable groups. Countries can put in place policies to ease job transitions,” Dabla-Norris said.

“Displaced workers in the affected sector can also be supported by extending unemployment benefits, retraining and re-employment. Higher spending on clean public infrastructure can be job rich and result in new job creation in the low carbon sector,” she said.

Investments, however, do not come at a cheap price. For one, climate proofing of infrastructure is around 3.5 percent of annual gross domestic product for the region.

Most economies are already cash-strapped because of the pandemic. Dabla-Norris said large investments would be difficult and challenging to accommodate without grants or loans.

She added that governments have a critical role to play in encouraging private sector innovation that would reduce emissions. This could come in a form of public-private partnership or subsidies.