It puts a price on carbon pollution and may be the key to low carbon innovation in the Philippines. Though the excise tax on automobiles does not apply to trucks, cargo vans, buses, and jeepneys, the higher price on petroleum-based fuel might spur the transition to low-carbon hybrid and electric forms of mass transportation.Īll in all, the Train Law may be an effective climate policy in terms of reducing carbon pollution. This creates an incentive to purchase hybrid or electric vehicles. This excise tax is halved for hybrid vehicles, and inapplicable to electric vehicles. On top of that, there is now a much higher excise tax on automobiles. Diesel, gasoline, and LPG – all land transport fuels – are taxed a relatively high rate per ton of carbon generated, even higher compared to other countries with carbon pricing policies. Train’s incentives for a low carbon transport sector is obvious from several of its key provisions. Renewable energy and battery technology have become cheaper and better in the last 10 years and promise to continue to improve in the future. To avoid increasing electricity rates for the on-grid consumers, SPUG areas should consider shifting to renewable energy and microgrid technologies. Now, with Train’s tax on petroleum products, this tax will be passed on to subsidizing on-grid users. Currently, on-grid electricity users subsidize the cost of electricity in SPUG areas through the missionary electrification charge. Small island power grids, commonly known as SPUG (Small Power Utility Group) areas, are generally powered by diesel, bunker, and other petroleum-based fuel generators. However, Train gives renewable energy an area to grow, specifically in the small island grids not connected to the main Philippine grid. This is in addition to the fact that the Train tax on coal is not significant enough to send a price signal to the market that will shift right away from coal. Because those assets are already up and running, it is in the best interest of the plant owners to keep them running, even at low margins. The industry as a whole has invested heavily in the past 7 years on coal, with an additional 2,500 MW in new power plant capacity. This could have effects on the electricity and transport sectors.ĭespite the increase in the cost of importing it, coal will still likely be a significant part of the Philippines’ energy mix for the next 10 to 15 years. This sends a price signal to consumers to pollute less. The law incorporates some of the costs of carbon pollution into the price of the commodities taxed. Though not explicitly a carbon tax, Train acts in a similar way to a carbon tax. On the other end of the spectrum, we have the tax on gasoline, which, in terms of a price on carbon, is closer to Sweden’s ($150-$170). We have coal in the low end, taxed at rates comparable to the carbon tax of Mexico ($3.50) and the US Northeast’s cap-and-trade system ($2.15-$3.00). There is an obvious variation between the carbon taxes across the fuels.

So, if we treat the Train tax rates purely as a carbon pricing mechanism, with a price per ton of CO 2, what is the equivalent carbon rate? Doing some back-of-the-envelope calculations, I came up with this list of prices per ton of CO 2 using the 2020 tax rates per commodity: Taxation on these products began this year, and will continue to grow through 2020. It imposes higher taxes on coal and petroleum products, the largest sources of CO 2 in the Philippines, on a per-ton or per-liter basis.

However, carbon pricing is a commonly used climate change policy, utilized by many states in the United States, countries in the European Union, and even Mexico.Īlthough Train’s coverage is broad, it also contains a form of carbon pricing. Historically, when we burn coal or use petroleum products, we generally do not pay for the actual price of the carbon emissions brought about by these fossil fuels. One of the things that the Tax Reform for Acceleration and Inclusion (Train) Law does is put a price on carbon.Ĭarbon pricing aims to reflect the actual cost of carbon by integrating the cost of the pollution into a fuel’s price.

Thought train pricing