The case for the carbon tax

I recently wrote on why our excise tax on coal should be raised from a ridiculously low P10 per ton (a tax rate of about 0.25 percent) to as much as P600 per ton (about 15 percent), consistent with rates for other fossil fuels. This would also follow the worldwide trend of imposing carbon taxes aimed to arrest the rapid rise in the atmosphere of greenhouse gases (GHGs) — notably carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), and others.

Dominated by CO2 (72 percent), GHGs trap heat from the sun, warming our atmosphere and the earth’s surface. That had always been good for supporting biological life on the planet — until GHGs began shooting up exponentially in the 1980s, and led to major changes in climate patterns. Science has established that atmospheric CO2 averaged about 280 parts per million (ppm) for the last 10,000 years. In 2015, the US National Oceanographic and Atmospheric Administration (NOAA) reported that the level breached 400 ppm for the first time. Last year, it also reported the second straight record 3 ppm annual rise in CO2, warning that it “has grown 100-200 times faster than what the planet experienced during the transition from the last Ice Age.” The NOAA calls it “a real shock to the atmosphere,” now triggering much more frequent extreme weather events that inflict great harm to affected areas, with the Philippines prominent among them.

Prominent economists have long endorsed a carbon tax, or a tax on CO2 emissions by taxing the fuels that produce it, as an efficient tool for arresting climate change, implemented in various forms by many countries around the world. It is based on the sound economic prescription to make economic actors who inflict external costs on society—i.e., costs not part of the financial costs they bear, such as pollution or climate change-inducing GHG emissions—internalize those costs. Economists see it as superior to command-and-control instruments to achieve economically efficient outcomes.

Still, my call for more proper taxation of coal—which I explained to be a relatively painless way of raising much needed revenues for the government (“Let’s get the carbon tax right,” 9/26/17)—met strident resistance even from some of my economist-friends. Resistance from those in the coal power business can be expected. But economists opposing a carbon tax also have a misplaced aversion to further raising the contribution of renewable energy to our energy mix—never mind that the world is clearly moving in that direction, for good reason.

They argue that renewable energy will raise our already high power costs, and curtail economic growth by hurting our industries’ competitiveness, perhaps overlooking that (1) our manufacturing sector has grown faster than the entire economy since 2010 (nearly 8 percent annually), high power costs notwithstanding; (2) even with more costly power, we now rank fourth globally in power-hungry shipbuilding; and (3) our latest input-output data show power making up a mere 2.7 percent of manufacturers’ total costs on average, with nearly two-thirds of our industries at less than 2 percent. Still, they uncharacteristically endorse coal power like it is key to our future prosperity.

They argue that Filipino households will unduly suffer from higher cost power and “high cost” renewable energy, with one even painting an alarmist picture of massive blackouts and dark streets if coal becomes more expensive. They neglect to consider that the technology and economics of noncoal energy (including of cleaner natural gas, which now dominates the energy mix of Thailand, Malaysia and Singapore) has changed rapidly and continues to do so. Indeed, many countries are aiming for full renewable power within 10-15 years. Some, like Costa Rica, are already there.

They also assert that we have long relied on renewable energy (hydro and geothermal) more than most countries, making us either “saints or suckers” by wanting more now. Being among the most vulnerable to climate change, we certainly can’t be suckers by demonstrating that we will do our part, no matter how meager. And I have no problem with us being saints now, if it means not being sorry later.

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