CEED Position on the Coal Tax

The Center for Energy, Ecology, and Development, Inc. (CEED) supports the enactment of an excise tax on coal, insofar as it follows the framework of energy justice, respect for ecological limits, and a people-centered sustainable development.

CEED supports a just tax mechanism for coal which:

  1. Disincentivizes the continued reliance on and unbridled consumption of fossil fuel products in the power sector;
  2. Is in tune with the state policy of promoting a healthful and balanced ecology, internalizing the externalized costs of the importation, exploration, generation, and consumption of fossil fuels in the country;
  3. Promotes energy efficiency in the consumption of energy and increases the share of renewable energy sources in the country’s energy mix, encapsulated in the country’s policies on energy efficiency, the Renewable Energy Act of 2009 and the National Renewable Energy Program;
  4. Is in line with a just transition plan, effectively supplanting dependence on fossil fuel energy to sustain the country’s development needs with an energy path which taps the country’s indigenous renewable energy resources in order to achieve energy security; and
  5. Safeguards the rights and interests of the consumers and the energy impoverished from any pass-on provision which would lead to citizens carrying the burden of additional costs brought about by the mechanism, defeating the purpose and spirit of an excise tax on coal.

CEED, an independent, non-profit, non-stock, think-do institution engaged in issues of the environment, energy, and development in the Philippines, supports the legislative initiative to levy an excise tax on coal. CEED views such a mechanism on coal as a positive step towards fulfilling the constitutional mandate of the government in promoting a healthful and balanced ecology for all generations. This is for three reasons: First, the current revenue sharing scheme of coal proceeds is lopsided in favour of the coal industry; Second, imported coal is the least taxed among pollution-heavy fuels; Lastly, taxing coal is consistent with our international climate mitigation commitments.

Current revenue sharing lopsided to the detriment of the government and the people


Table 1. Revenue-sharing scheme of the coal proceeds. Adapted from “Inequitable Share,” by A. Ragos.

At present, revenue-sharing in coal extraction and coal importation is lopsided in favor of the coal industry. Under the current policy regime, coal companies in the Philippines can deduct as much as 90 percent of gross proceeds as expenses, the highest recoverable cost in the extractive industry. On top of this, taxpayers are giving mining companies 7 percent of the remaining 10 percent of the revenue from mining. As such, local governments are entitled to only 1.2 percent of the gross proceeds from coal while the national government is left with only 1.8 percent. This is a far cry from the 7 percent of all gross proceeds from coal enjoyed by contractors alone.

The current coal operating contract (COC) system, in the form of fiscal incentives, including tax exemptions, tariff exemptions, and recovery of operating expenses fail to account for the externalized costs shouldered by communities affected by all stages of the coal life cycle through the pollution of the environment and the destruction of their sources of income.

The current policy landscape has proven very favorable to coal, at the expense not only of the country’s natural resources and the interest of its people, but also of the opportunity to pursue cleaner and more sustainable development in the power sector through renewable energy. This runs contrary with the Department of Energy’s professed “technology-neutral” policy, with the concept of fair competition in the energy market, and runs contrary with the commitment to increase renewable energy in the energy mix as espoused in the Renewable Energy Law.

Coal is the least taxed among polluting fuels

Coal-fired power plants are estimated to emit 750 grams of carbon dioxide per kilowatt-hour (g/kWh) generated, oil-fired plants emit 660 g/kWh, and gas plants 400 g/kWh.[1] Yet currently, imported coal is taxed at a mere 0.25 percent at P10. Meanwhile, gasoline is taxed at 10 per cent, and indigenous natural gas is at 43 per cent.

Other Asian countries like India, Japan, Taiwan, and South Korea are pursuing taxes on coal, ranging from what is the equivalent of 300 pesos to 1,200 pesos. Former NEDA Chair Cielito Habito projects that “if we were to set our coal excise tax at P600 per ton, it would put the rate of taxation at about 15 percent, more commensurate with (but still less than) the proposed rates on diesel and fuel oil.” He further notes that, “While it [would] yield less than P200 million now, from about 17 million tons of imports per year, the coal excise tax can actually yield more than P10 billion in government revenues, with a tax increase grounded on sound economics.”

Coal Tax consistent with climate commitments

On top of this, the continued reliance on coal contradicts the country’s commitment to decrease its emissions as a response to climate change. Despite being among the world’s most vulnerable countries, the Philippines was ranked 39th among global carbon emitters in 2016, with 41.5 million tonnes of CO2 emissions coming from coal.

It is in consideration of these realities that a tax mechanism discouraging dependence on fossil fuels in the power sector is supported by CEED. An excise tax disincentivizing reliance on coal will aid in significantly decreasing the country’s emissions, particularly in fulfilling our pledged 70% emission reductions to the Paris Climate Agreement. It will also provide the atmosphere of fair competition in choosing the most reliable, sustainable and effective energy sources, realizing the promise of the Renewable Energy Law and the National Renewable Energy Program.

That coal will fuel the country’s need for energy security is an archaic myth. Trends in the price of and technological advancements in renewable energy prove that coal is seeing its final days, and continued support for it will only subject the Filipino people to higher opportunity costs, not to mention higher electricity bills.

CEED is not blind to the country’s need for energy security, particularly for almost half of the population still without access to electricity. This is why this proposed tax mechanism must be pursued in light of a just transition plan for the Philippines to eventually rely on diversified renewable energy sources for 100% of its energy needs. The power of renewable energy to provide cheap energy to off-grid and indigent communities cannot be understated, and a responsive use of the revenue generated from such a tax mechanism would be to continue the research and development to tap the country’s renewable energy potential.

In all this, the tax mechanism must provide safeguards from any pass-on provision which would allow companies to burden consumers and the energy poor with additional costs brought about by the mechanism. Such would only defeat the purpose and spirit of an excise tax on coal. Already, the Philippines has gained infamy for having among the highest power rates in Asia-Pacific. Not only will a pass-on provision further decrease energy access, it will also protect the profitability of coal as the country’s main energy resource, the very thing being curbed by this law. This can be done by expanding “lifeline rates” which subsidizes marginalized or low-income electricity consumers.

In conclusion, CEED expresses its support for proponents of this coal tax. With the guiding framework of ecological and energy justice, with the goal of social progress with social justice, we believe that the tax mechanism on coal will yield a better energy future, and a cleaner development path for the Filipino people.

CEED also expresses its willingness to offer its insights and inputs to further develop this policy initiative in the future.

[1] Habito, C. “Let’s get the carbon tax right.” Philippine Daily Inquirer. http://opinion.inquirer.net/107419/lets-get-carbon-tax-right#ixzz4zyqZFGaY