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Review on the Possibility of Imposing a Carbon Tax on Emissions of Carbon Dioxide, July - August 2010

The study reviews the possibility of imposing a carbon tax on selected priority sectors as a mechanism for reducing carbon emissions in the country. It also provides background information on the carbon tax practices in other countries to serve as inputs to fiscal policymakers. A carbon tax is a corrective tax on emissions of carbon dioxide to reduce pollution in the environment. A carbon tax works like an excise tax. Polluters pay for the damage to the environment that they generate. It is a tax on the production, distribution or use of fossil fuels based on how much carbon they emit. It is well acknowledged that there is an urgent need to address the alarming state of the environment brought about by the continued CO2 emission in the atmosphere. Among the seven continents, Asia and Oceania are collectively considered to be the heaviest emitters of CO2 in 2006 with the Philippines contributing 0.2% (18.6 million metric tons) of the total 11.2 billion metric tons of CO2 emitted by the said continents. Albeit, it was shown that the country’s CO2 emission has been declining from its 2004 level, there is still a need to ensure that the level of CO2 emission would be controlled in order to end the social costs it poses to people and the environment. Protecting the environment is likewise part of the country’s adherence to the Kyoto Protocol. Over the years, the country has passed numerous laws which encourage the use of cleaner and safer sources of energy and mitigate the worsening problems of solid waste management and air and water pollution in the country, among others. However, given the rationale of imposing a price on CO2 emission, which has been in practice for 20 years now, as experienced in highly industrialized countries, the paper sees wisdom in collecting a carbon tax on sectors that emit CO2 most specifically the electric and road transport sectors, to help obliterate or minimize GHG emissions resulting from human activities. Said sectors are suggested to be initially under the carbon tax in order to ensure large reductions of CO2 emissions. Later on, other sectors may also be subject to the tax. However, although the paper supports a carbon tax on selected sectors of the local economy, it is still worth mentioning that the carbon tax alone cannot solve climate change. Other synergistic actions are required as well. But even with a carbon tax, the most aggressive regulatory regime will fail woefully short of the necessary reductions in carbon dioxide emissions. There should be other alternatives available to people who wish to choose fuels other than those which are high carbon dioxide emitters. Otherwise, people would still choose to pay a carbon tax due to lack of available substitutes, thus, rendering the rationale for the imposition of the carbon tax futile.


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