Saturday, May 23, 2020

BWorld 436, Growth lockdown and low carbon economy

* My column in BusinessWorld, May 20, 2020.


The hard lockdown countries experienced deep economic contraction in their GDP in first quarter (Q1) of 2020: France -5.4%, Italy -4.8%, Spain -4.1%, Belgium -2.8%, Germany -2.3%, and UK -1.6%. In Asia, the hard lockdowners and their contractions are: Hong Kong -8.9%, China -6.8%, Singapore -2.2%, Thailand -1.8%, and the Philippines -0.2%.

Japan is not a hard lockdown country but it still experienced a contraction of -2% because it was already contracting in the previous quarter with -0.7%. Japan is now technically in an economic recession.

The most adversely affected countries in Asia are China and the Philippines. From high growth of 6%+ in Q4 2019, they just went negative the next quarter.

The Department of Finance (DoF) showed sensitivity to the plight of many losing businesses. It has tweaked the CITIRA (Corporate Income Tax and Incentives Reform Act) bill, changed it to CREATE (Corporate Recovery and Tax Incentives for Enterprises Act) bill with the following tax adjustments, among others: corporate income tax (CIT) cut from 30% to 25% by July this year; applicability of net operating loss carry over (NOLCO) extended from the current three years to five years; the 5% gross income earned (GIE) transition has been prolonged from two to seven years to four to nine years.

These are perhaps the deepest tax cuts the Philippines ever experienced. Bravo, DoF.

Now some sectors want to push very parochial interests and want to penalize Philippine businesses with more expensive energy which will be passed on to consumers.

HB 2184 or the “Low carbon economy bill,” authored by Deputy Speaker and Antique Representative Loren Legarda, plans to penalize fossil fuel energy and establish the emission Cap-and-Trade System in the industry and commercial sectors to reduce greenhouse gas emissions. The bill was discussed in a public hearing by the House Committee on Climate Change on Feb. 26.

A quick survey of GDP size and coal consumption would show that this bill is very parochial and anti-business. The Philippines’s coal use in 2018 was only 16.3 million tons oil equivalent (mtoe), among the lowest in Asia. The world’s four biggest economies are also among the world’s biggest consumers of coal energy (see the table).


According to the Department of Energy (DoE) Power Statistics 2019, the country’s total installed power capacity was 25.5 gigawatts (GW). Of this: coal was 10.4 GW (40.8%), oil-based 4.3 (16.9%), natural gas 3.4 (13.5%), hydro 3.8 (14.9%), geothermal 1.9 (7.4%), and solar+wind+biomass 1.7 (6.7%).

The actual electricity generation is not really reflective of this. Out of 106.0 terawatt hours (TWH), total generation from coal was 57.9 TWH (54.6%), natural gas 22.4 (21.1%), geothermal 10.7 (10.1%), hydro 8.0 (7.5%), oil-based 3.7 (3.5%), and solar+wind+biomass 3.3 (3.1%).

So the power source demonized by the low-carbon, cap-and-trade advocates, coal power, constituted only 41% of total capacity but actually produced 55% of total electricity consumption in the country. In contrast, the favored and pampered variable renewables solar+wind+biomass constituted 7% of power capacity but produced only 3% of total electricity consumption.

So this low carbon bill would want even more expensive electricity, a more unstable power supply, and more potential blackouts because it will restrict the already small fossil fuel capacity in the country. The lobbyists want more subsidies and mandates, direct and indirect, to variable renewables that by nature are intermittent and weather dependent. Adding batteries to solve intermittency problems would add extra costs to power. And even so, there are days and weeks that are cloudy and non-windy so there is little or no solar and wind power produced to store in batteries.

Congress, the DoE and the public should ignore parochial and self-serving interests to further penalize the Philippine economy, instead of jump starting it after the downturn caused by the COVID-19 pandemic. Expensive energy to “save the planet” — from whom and from what? From Al Gore and the UN, from less rain and more rain, less floods and more floods, less storms and more storms?

Let the people, let the market, decide the kind of energy that will give them the least cost.
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