PH urged to impose $75/ton carbon tax

Slapping higher carbon taxes of up to $75 a ton will allow the Philippines to slash carbon dioxide (CO2) emissions close to its commitment under the global Paris Agreement on climate change, according to the International Monetary Fund (IMF). IMF staff calculations showed that implementing at least $25-a-ton carbon tax would cut emissions by about 15 percent, while a bigger levy of $50 would reduce CO2 emissions by almost 25 percent.

With a carbon tax of $75 a ton, the Philippines could lessen emissions by as much as 30 percent—near the country’s updated 2020 pledge to lower CO2 emissions by about 35 percent. Fiscal revenues coming from a maximum of $75-a-ton carbon tax would generate collections equivalent to more than 1 percent of gross domestic product (GDP).

These estimates were contained in the Washington-based IMF’s report “Fiscal Policies to Address Climate Change in Asia and the Pacific” published Friday.

“Even a gradually introduced and relatively modest carbon tax of $25 per ton would achieve the region’s aggregate Paris Agreement target. But Asia’s Paris targets, like other regions’, are well below what is needed and models suggest that $50-100 per ton is required globally to keep warming below 2 degrees,” IMF Asia-Pacific department director Chang Yong Rhee and fiscal affairs department director Vitor Gaspar said in a separate blog post.

The IMF report said levying carbon tax would be “moderately progressive” or “disproportionately borne by the rich” in the Philippines, citing that electricity and fuel were consumed disproportionately by the richest households here.

“In the Philippines, a carbon tax of $25 per ton would raise fewer resources than in other countries in the regions—it would raise 0.5 percent of GDP compared to the 2.2 percent that would be collected in Mongolia.

As a result, there would be more limited room to compensate households,” the IMF said. ‘Lump-sum subsidy’ “A universal lump-sum transfer would raise welfare for 44 percent of the households and reduce inequality, increasing welfare by 3 percent, on average, for the poorest households and reducing it by 2 percent for the richest. Better targeting would be achieved through child grants.

Although less well-targeted to the most vulnerable, a lump-sum subsidy to electricity users would raise the welfare of 44 percent of the households and still reduce inequality,” the IMF added. For the IMF, rather than taxing all emissions, much can be done by targeting the most polluting fuels.

In a report published last January, the Organization for Economic Cooperation and Development said the 15 developing countries covered by its study, which included the Philippines, needed to implement carbon pricing policies to increase their tax revenues, despite relatively lower emission rates compared to developed nations.

“Tax revenues could increase by almost 0.9 percent of GDP if ECRs (effective carbon rates) were raised to reach the benchmark rate of 30 euros per total carbon dioxide for all fossil fuels” in the Philippines, the OECD said. INQ