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Navigating The Net Zero Transition - Chapter 3: The Philippines

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The Philippines is among the world’s most vulnerable countries to climate change. Increases in the frequency and intensity of typhoons, changes in rainfall patterns, rising sea levels and increasing temperatures all pose a serious threat to the archipelago nation’s ecosystems and its 115 million+ population. This makes poverty-reduction efforts even harder.

This vulnerability is why adaptive measures feature heavily in the National Climate Change Action Plan 2011-2028 (NCCAP). The NCCAP also has mitigation measures and the Philippines has set an emissions-reduction target under the Paris Agreement. This is despite the fact that its share of global CO2 emissions - historical and present day - is minuscule in comparison to developed economies, like the vast majority of developing economies.

The government has developed innovative policies to combine investment incentives with green growth, in a bid to leverage the energy transition to tackle climate change and poverty together. This includes ‘green jobs’ tax deductions for training and tax-free equipment imports. The nation’s shift to clean and efficient energy technologies is likely to generate an additional 95,023 jobs in the first year of the 2020-2040 Philippine Energy Plan.

Navigate the opportunities and challenges in the net zero transition:

Energy Transition | Carbon Markets | Financing | Transport | Housing and Buildings | Agriculture | International Collaboration

 

Energy transition

Challenges

The energy sector is the nation’s largest contributor of GHG emissions, with fossil fuels sourcing approximately 87% of energy consumption. The energy transition in the Philippines is complicated by the nation’s rapid urbanisation and consequential energy security challenges. The share of renewable energy fell slightly in the decade to 2019, due to a dramatic increase in coal power generation.

Despite this, the Philippines has set ambitious renewable energy targets – including reaching 50% of energy supply by 2040. Substantive hurdles include a complex permitting process and grid interconnection issues.

Opportunities

The Philippines has made significant efforts to increase the uptake of renewable energy, backed by other Southeast Asian countries and entities. In its commitment to cut coal use, the government enforced a moratorium on building new coal-fired power plants effective in October 2020 which continues to be in effect under the present administration.

Tax breaks and feed-in tariffs introduced more than 15 years ago incentivise renewable energy development and use. The Renewable Energy Act, which sets out the measures, also introduced a Renewable Energy Trust Fund to finance research and support development. More recently, the complex permitting process was streamlined via an online platform introduced in 2019 under the Energy Virtual One-Stop Shop Act (EVOSS Act).

The Feed-in Tariff (FiT) policy is credited as the main reason renewable installations increased between 2014 and 2019. Solar, wind, biomass, ocean technology and run-of-river (ROR) hydropower are among technologies covered. The FiT gives fixed payments per kilowatt hour of electricity produced from renewable energy resources (excluding generation for own use). Priority connection to the main grid is another benefit.

Hydro and geothermal power provide most of the renewable energy today and are expected to remain the highest sources by 2030.

Wind power is targeted to become the third largest source of renewable capacity by 2030, requiring significant investment to take it from 427MW in 2019 to 2378MW.

Solar power increased by 958MW of capacity between 2011 and 2019 – the most of all renewable energy source. The Asian Development Bank (ADB) has supported the Romblon solar-PV mini-grid and the Malalison mini-grid with pay-as-you-go smart metering.

The off-grid solar power switching on homes

More than 1.2 million households had no electricity access as at 2020. This off-grid prevalence is where renewable energy holds a transformative power. The PV Mainstreaming Program, supported by the European Union’s Access to Sustainable Energy Programme, connected more than 5000 homes with a Solar Home Systems (SHS).

The SHS comprises of a 50-watt peak solar panel, a 24Ah battery, four LED bulbs, a transistor radio, flashlight and mobile phone charging cables.

The program is ongoing. Pursuant to the country’s goal of total electrification by 2028, the National Electrification Commission, in Technical Advisory No. 12 series of 2023 (September 6, 2023) requested that electric cooperatives submit a list of potential barangays/ beneficiaries with the number of households for PV Mainstreaming/SHS on or before October 6, 2023.

 

Carbon markets

The Philippines has no explicit carbon pricing mechanisms. This may change under the pending Low Carbon Economy Act which will introduce a new domestic cap-and-trade system. However there is no timeline for when this carbon pricing mechanism is expected to become operational.

In the meantime, fuel excise taxes on petroleum products serve as an indirect form of carbon pricing.

 

Financing

A sustainable finance taxonomy was introduced by the government in 2021. The Sustainable Finance Guiding Principles seek to give investors and other market participants a 'common understanding' of which activities are considered sustainable, improving clarity and certainty. This principles-based framework follows the approach of other Southeast Asian taxonomies.

The Philippine central bank, Bangko Sentral ng Pilipinas (BSP), is steering banks towards sustainability by implementing the Sustainable Finance Framework. Pursuant to this, banks are expected to integrate sustainability principles into their investments.

Multilateral and bilateral financing for climate change related initiatives tend to focus on mitigation efforts rather than adaptation measures. This funding bias is despite the desperate need to address adaptation: for example, the World Bank estimates annual losses from typhoons alone to reach 1.2% of the country’s GDP, potentially 4.6% in the most extreme case.

Adaptation finance emerging

There are some examples of adaptation focused investments.

  • The UNFCCC’s Green Climate Fund granted $US10m to the development of Multi-Hazard Impact Based Forecasting and Early Warning Systems
  • The Philippine People’s Survival Fund was established by the Philippine government to local government and community organisation programs, such as the installation of buffers and gabions along the Mamcas and Piyanga rivers to protect riverine communities from flood events.

Mitigation finance dominated by power

The government has taken several measures to stimulate green investment, including:

The ADB included the Philippines as one of the pilot countries in its Energy Transition Mechanism, a program launched in 2021. The program aims to use concessional and commercial capital to accelerate the retirement or repurposing of fossil fuel plants and replace them with clean energy alternatives. The ADB is currently engaged in a full feasibility study in the Philippines and is working extensively with the government to prepare an investment plan under the Climate Investment Funds Accelerating Coal Transition Program.

 

Transport

Rapid population and urbanisation growth has increased transport sector emissions. The Philippine government is aiming to improve efficiency by increasing the uptake of alternative fuels and expanding mass transport systems.

  • A biodiesel blend target of 20% by 2030 is part of the NCCAP. Biofuel producers are offered tax breaks, duty-free importation of equipment and machinery, and exemptions from wastewater charges amongst other incentives.
  • Electric vehicles attract incentives including a 30% discount for EV owners on vehicle registration and inspection fees for 8 years under the 2022 Electric Vehicle Industry Development Act (EVIDA Act). The import duty rates on electric vehicles, parts and components are temporarily reduced to 0%, 1% or 3% (from 3%, 20% or 30%) until March 1, 2028.

Housing and Buildings

In 2021 Typhoon Rai tore through various regions of the country, affecting almost two million people and leaving thousands displaced. Many residential buildings desperately need climate-proofing.

Ecologically stable and economically resilient towns - ‘ecotowns’ - are the NCCAP’s response to the lack of climate resilient residential buildings in the Philippines.

  • Ecotowns are municipalities located within key biodiversity areas that are also highly vulnerable to climate change due to geography and high poverty rate. There are more than 30 demonstration sites across the country (36 by late 2023). These are distinct from similar projects in other countries that focus on mitigation, such as low carbon-footprint buildings. Ecotowns undertake vulnerability and natural resource assessments, aiming for ‘above-sound’ hazard analyses.
  • The Climate Adaptation Support Service (CASS) is linked. This provides income to those most in need within key biodiversity areas. CASS beneficiaries living in a forest zone may have to participate in reforestation efforts and those in coastal communities may be asked to ensure their household waste does not end up in protected marine areas.

Ecotowns focus on adaptation measures including...

Ecotowns are designed to...

Agriculture

The agriculture sector is extremely sensitive to the impacts of climate change with the majority of damage caused by typhoons, followed by droughts and then floods. Dam and irrigation infrastructure throughout the country is not yet climate resilient. There is a concentration of climate-vulnerable dams and irrigation infrastructure in Luzon, where 60% of the country’s irrigated rice is produced. If this infrastructure fails, food security would likely take a significant hit.

The government’s Climate Adaptation Support Service provides income in exchange for mitigation and adaptation efforts to those most in need within key biodiversity areas.

The Adapting Philippine Agriculture to Climate Change Project (APA)

In response to the serious threats climate changes poses to the Philippine agriculture sector the government has partnered with the UNFCCC’s Green Climate Fund on an adaptation project. The APA is primarily focused on improving institutional capacities through the provision of localised climate information services and through the adoption of climate-resilient agriculture practices, such as the planting of drought resistant seeds and use of organic fertilisers.

The government grants tax and other incentives under the 2022 Strategic Investment Priority Plan to food security related products and services that are critical to competitively ensure food security or in support of green/organic agriculture.

Forestry

The Philippine government made reforestation a key priority in response to high emissions from the sector, adopting a UNFCCC forestry emissions reduction program (REDD++).

A new 2022-2031 strategy is in development. This must address data indicating that the natural forest cover only slightly increased – by 3.03% from 2015 to 2020 - suggesting more is needed.

International collaboration 

The Republic of Korea & the Philippines entered the Partnership Agreement for Air Quality in the Philippines in August 2023. Officially between the Korea International Cooperation Agency and the Philippine Space Agency, the agreement aims to enhance air quality monitoring in the Philippines.

International organisations and nations supporting the Philippines on projects include:

  • Asian Development Bank projects supported include the Romblon solar-PV mini-grid and the Malalison mini-grid with pay-as-you-go metering
  • The UNFCCC’s Green Climate Fund supports numerous projects
  • The International Labour Organisation supports the creation of green jobs
  • The Japan International Cooperation Agency has supported projects including hydropower in Laguna, Ifugao and Isabela
  • The European Union backed a PV Mainstreaming project via its Access to Sustainable Energy Programme.

 

This publication is intended to provide a high level overview of the net zero transition in the Philippines. It is provided for general informational purposes only and should not be construed as legal advice. King & Wood Mallesons does not practice Philippine law, and works closely with local lawyers to support our clients' needs in the Philippines. We are grateful to SYCIP Salazar Hernandez & Gatmaitan for their co-operation on this publication.

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