Friday, December 28, 2018

BWorld 275, The LNG bill

* This is my article in BusinessWorld on December 14, 2018.

To have cheaper, stable energy sources, especially in electricity generation, there should be maximum competition and minimum taxation, distortion and government favoritism among players using different technologies and energy sources.

So if an energy or environment tax should be imposed, it should apply to all energy technologies and sources. If a subsidy should be given, it should also apply to all energy technologies.

This does not happen in the Philippines and many other countries in the world. There is always a double standard, like high taxes, unguaranteed dispatch to the grid for some technologies, and high subsidies and guaranteed dispatch to the grid for wind-solar and other new renewables.

Among power plants using fossil fuels — oil, coal and natural gas — there is also favoritism. Oil and coal are slammed with higher excise taxes to make them more expensive while natural gas has no excise tax, which makes it artificially cheaper.

Now another favoritism scheme is being prepared in Congress. I saw at least two reports in BusinessWorld on the subject this year:

1. “Gov’t may need to finance natural gas infrastructure” (June 21)
2. “LNG bill to require guaranteed offtake of import shipments” (Dec. 6)

If report #1 is done, it will compromise Philippine taxpayers. Firms put up big hydro, geothermal, coal plants using their own money and they are fine. But construction of liquefied natural gas (LNG) infrastructure — terminal, storage, regasification facilities — will be passed to taxpayers, before private natural gas plants can use the gas for their power generation.

If report #2 is done, it will compromise Philippine energy consumers. If LNG prices go up, consumers must pay for it even if cheaper energy is available during that period.

It is also related to constant lobby that government should set the energy mix, which is wrong. Setting the energy mix should be done by the market, by the energy consumers and suppliers, and not by the government.

Anti-coal hysteria and drama in the Philippines, among the reasons that renewables and natural gas are favored, is based on the wrong premise that the country’s coal use is high. Far from it. Compared to our neighbors, we have low coal use (see Table 1).

Another reason for renewable energy and gas favoritism is the belief that the Philippines is poor in environmental sustainability in its energy development. This too is wrong.

The World Energy Council (WEC) publishes an annual study, the World Energy Trilemma Index. WEC is a United Nations-accredited global energy body with over 3,000 member organizations in over 90 countries, from governments, private and state corporations, academia, nongovernmental organizations and energy stakeholders.

The Trilemma Index is composed of three factors:

1. Energy Security — reliability of energy infrastructure, ability of energy providers to meet current, and future demand

2. Energy Equity — accessibility and affordability of energy supply

3. Environmental Sustainability — energy efficiencies and energy supply from renewable and other low-carbon sources

Out of 125 countries covered, the Philippines ranked 74th overall; 96th in energy equity because of our expensive energy prices; and 1st in environmental stability (we’ve come in first for several years now) because of the country’s high input from geothermal and big hydro, energy sources that are available all year round (see Table 2).

The Department of Energy itself and Energy Secretary Alfonso G. Cusi are using and citing the WEC annual reports and take pride in our #1 global ranking in environmental sustainability. The Secretary has adopted a technology-neutral energy mix policy — it is the good and right thing to do.

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