[OPINION] TRAIN at a crossroads on a coal tax

The Department of Finance has described the Tax Reform for Acceleration and Inclusion (TRAIN) program as the first package of the comprehensive tax to correct several deficiencies in the tax system to make it simpler, fairer, and more efficient. The expectation is that overall, there will be revenue gains from TRAIN which the government can then use for its ambitious infrastructure program. There will be no “Build, Build, Build” unless TRAIN is enacted and tax reform is launched.

This past week, the bicameral conference of the Senate and House of Representatives have been meeting for hours to come to an agreement on their different versions of the tax reform law. It is possible that this weekend or early next week, the two panels will find a consensus and the TRAIN will be approved by both chambers on Monday, December 1,  or any day before Congress adjourns for its Christmas break next week. If it misses this deadline, the TRAIN will be derailed and it could take another few months.

Procedurally, there is of course no question that the House and Senate must both approve TRAIN. The Constitution does provide that tax bills originate from the House but the Senate is allowed to propose amendments while both chambers must eventually agree on the final content of such bills. (READ: How will the proposed tax reform package affect Filipinos?)

According to Senator Sonny Angara, who has done a good job pulling this bill together in the upper house, more than 75 contentious provisions have already been resolved by the bicameral conference. His House counterpart, Dakila Cua, also exudes confidence that this can be done on time.

Knowing the two chairs well as serious, committed, and skilled legislators, with an eye of the big picture, and as a witness to this process, I am also confident. I laud the two panels for their flexibility and hope that they will be able to come up with a final package by next week. Both Speaker Pantaleon Alvarez and Senate President Koko Pimentel have also shown patience and flexibility as the negotiating process continues. (READ: Redirecting TRAIN against inequality)

Among other issues, there is an important, indeed historic opportunity that TRAIN provides if the panels and the Congress makes the right decision – the imposition finally of a coal tax as part of a package of reforming excise taxes. Already, the latter is notoriously low in the Philippines because of the historic influence of the traditional natural resource industries (logging and mining).

But in the case of coal, the government has not imposed an increase in the tax on coal for decades. Even as it is the dirtiest fuel and is being phased out all over the world, coal has been spared the same kind of treatment as other fossil fuels. (READ: From P10 to P300: Senate OKs nearly 3,000% increase in coal tax)

Negligible impact for a coal tax increase

An increase in the coal tax makes sense economically in terms of revenues gained by the government, in terms of its impact on the energy sector and our consumer bills, and in its equity implications as the poor will not bear the burden of such an increase.

It is also good for the environment and climate change as it will help us transition to a cleaner, cheaper, and more sustainable energy system.

From a fiscal point of view, the argument for a coal tax, as for a big increase in the excise on mining taxes, is impeccable. Depending on the final amounts involved, revenues gained from a coal tax range from P25 billion to P75 billion, easing considerably the burden of other sectors.

As Senator Loren Legarda, the champion in the Senate, has repeatedly said, we tax oil, gas, LPG, etc, but not coal. This even as any tax increase on coal, whether the P300-increase proposed by the Senate (imposed in a phased way with P100 on the first year, P200 on the second year, and P300 on the final year) or to even the P600-increase that economists like Ciel Habito have proposed will have a negligible impact on our electricity bills.

It is simply not true as some legislators are claiming that an increase in the tax on coal would impose a burden on certain regions or industries. The Department of Finance has been forthright about this with the scenarios it has provided.

In my view, our electricity bills would likely increase not because of a coal tax but because coal will become more expensive in the years to come relative to renewable energy. To the extent that a coal tax eases us faster into a transition to renewable energy, we will then be better off.

Rise of renewable energy

Despite the naysayers, renewable energy has seen an unprecedented rise in the last decade.

In 2000, wind energy was projected to reach 30 GW by 2010. However, in 2015, that goal was exceeded 14.5 times, bringing global wind capacity to a total of 432 GW. In 2002, it was projected that the solar energy market would grow 1 GW per year by 2010. By that year, that goal was exceeded 17 times. 2015 saw that goal exceeded 58 times, and 2016 will likely exceed that goal once again by 68 times. All in all, global solar capacity grew an average of 59 GW per year in the last decade.

This exponential growth has driven down the costs of renewable energy, with some cities and towns in Germany, Australia, Scotland, and Portugal, among others, running on solar and/or wind energy at little to no cost to consumers. Investments in renewable energy are at an all-time high, and in 2013 clean energy officially surpassed fossil fuels in investment in new generating capacity by almost 100%.

In 2015, global investments in renewable energy were at a record of $329 billion, 30% more than investments the previous year. Renewable energy has officially become the biggest new investment opportunity for the private sector, which accounts for $243 billion globally. (READ: Renewable energy is healthy energy)

Indeed, the future of renewable energy is looking much brighter than what was predicted not 5 years ago. Countries like Chile have had impressive trends in renewable energy – from 11 megawatts of solar panel at the end of 2013,  that number shot up 400% to 402 megawatts a year later, and in 2015 that number almost doubled to 848 megawatts.

Their 2016 numbers look even more astounding: a whopping 10,000 megawatts of solar energy capacity. In Costa Rica, 99% of its electricity came from renewable energy in 2015, and Pakistan is building one of the largest solar facilities in the world, with a capacity to produce over 1,000 megawatts of electricity upon completion. These are only a number of macro manifestations in the impressive global rise of renewable energy. (READ: A low carbon future)

The private sector is not only investing in renewable energy, but it is also removing its investment capital from oil, gas, and coal companies. During the past decade, fossil fuel divestment has become the fastest-growing divestment campaign in history, driven not only by moral reasons, but by financial reasons as well.

The Rockefeller Brothers Fund, for example, divested almost all of its assets from coal and tar sands (amounting to $60 million), and invested even more in “clean energy technologies and other business strategies that advance energy efficiency, decrease dependence on fossil fuels, and mitigate the effects of climate change.” Universities, such as Stanford, Oxford, Georgetown, and the University of California system, have also committed to divest from fossil fuel. The current total of educational institutions’ divestment pledges are now at $130 billion.

The public sector has also begun divesting from fossil fuels – the city governments of San Francisco and Washington DC, for example, have divested their pension and retirement funds from fossil fuels. To date, a total of $2.6 trillion in assets have been committed to divest from fossil fuel. If targets and pledges under the Paris Agreement will be met, fossil fuel investments might very well become worthless in the near future.

Coal taxes and energy transition

While the global trends for clean energy are only slated to go up in an almost exponential fashion and more and more countries are shifting to renewable energy, the Philippines seems to be going the opposite direction.

According to data from the Department of Energy, the country will surpass baseload requirements from coal-fired power plants by 2030, with coal energy accounting for 60% of the Philippines’ energy share by the same year. Should the Philippines go against global renewable energy trends, not only will fulfilling the country’s commitment under the Paris Agreement will be a tough challenge, but achieving sustainable development will be a much harder goal to reach.

Under the Paris Agreement, the Philippines committed to reduce 70% of its emissions from energy, transport, waster, industry, and forestry sectors on a conditional basis, which means that the country can only fulfill its commitment with the assistance of financing from developed countries, international climate financing mechanisms such as the Green Climate Fund (GCF), and the private sector. It is an ambitious commitment that was applauded globally, and sets an example for all other nations, both developed and developing, to meet their targets and ratchet-up their pledges in time.

From a strictly legal perspective, this commitment is achievable and is supported by a body of environmental laws that are some of the most progressive in the world. The 1987 Philippine Constitution enshrines the concept of sustainable development, keeping in mind that “the State shall protect and advance the right of the people to a balanced and healthful ecology in accord with the rhythm and harmony of nature.” (READ: Environment and climate change: Duterte owns the problems now)

The energy sector, of course, plays an integral part of economic development, and it is the country’s main energy law, the Electric Power Industry Reform Act (EPIRA), that emphasizes the importance of social and environmental compatibility as a component of energy security. The Clean Air Act and the Renewable Energy Act also reinforce support for clean energy in the country. All in all, there is strong legislative foundation for the Philippines to fulfill its commitments under the Paris Agreement.

However, what is good in theory isn’t always what is seen in practice. The current playing field of the Philippine energy sector focuses primarily on meeting the demand for electricity in order to keep what EPIRA describes as a steady supply of “environment-friendly, indigenous, and low-cost sources of energy,” in effect prioritizing what is cheap and readily available. The well-established institutional arrangements that are afforded to coal energy makes it the easiest and cheapest way to light up a bulb. Coal energy, therefore, has become the most dominant player in the country’s energy sector. (READ: INFOGRAPHIC: The real cost of coal power)

Because institutions have given preference to a specific energy source in the last few decades, the energy sector rarely takes the social and environmental consequences of energy production into consideration. Even with the advances on pollution control technology, waste and emission by-products of coal-fired power plants result in adverse environmental impacts – pollutants from its smokestacks, wastewater, ash, among others, discharge a significant amount of chemical stressors to the environment such as selenium, mercury, and arsenic.

Coal-fired power plants also cannot function without putting a considerable strain on natural resources, as coal energy requires an exorbitant amount of water to operate its turbines and cool its thermoelectric plants. (READ: Environment groups file case vs DENR, DOE over coal plants proliferation)

Aside from the environmental consequences brought about by its emissions and discharges, coal-fired power plants also have health and social impact that affect the immediate communities around them. The 84 out of 187 hazardous air pollutants that these plants emit cause respiratory, cardiovascular, and neurological health hazards that children and the elderly are most vulnerable to. Countries with fewer and less stringent air pollution standards are even more likely to experience deaths and serious illnesses due to the by-products of coal-fired power plants.

An increase in coal taxes would reverse these anomalies, which is positioning us badly in the future, and help ease the transition to renewable energy and a better – cheaper, more sustainable, climate change and environmentally friendly, and equitable – energy future. – Rappler.com

Tony La Viña is former dean of the Ateneo School of Government.