DOF asked to scale up tax perks for energy efficiency investments
(PE2 Note: Energy journalist Myrna Velasco of Manila Bulletin reports on PE2’s request to DOF and FIRB for the re-classification of energy efficiency to Tier III under the CREATE incentive framework.)
In line with the Philippine government’s aggressive pledge to the 26th Conference of the Parties (COP26) Climate Change Summit on carbon emissions reduction, the investors in the energy efficiency (EE) space are batting for higher reclassification on fiscal incentives to be granted to them so the targeted massive capital influx in the sector will be realized.
In a letter to Finance Secretary Carlos G. Dominguez III, the Philippine Energy Efficiency Alliance (PE2 Alliance) is formally seeking that this nascent industry be re-classified for “Tier III” instead of “Tier I” under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, so they can avail of tax perks like six-year income tax holiday (ITH) and duty free importation as the floor package of fiscal incentives.
“PE2 respectfully requests that the Fiscal Incentives Review Board (FIRB) chaired by the DOF (Department of Finance) Secretary, enable the Board of Investments and other relevant investment promotion agencies to reclassify energy efficiency projects from Tier I to Tier III,” Alexander Ablaza, president of PE2 Alliance, has stipulated in his correspondence to the DOF chief.
The PE2 executive said “scaling up EE is critical to the structural transformation and industrial revolution of the economy, primarily because of steady reduction of the energy intensity of the entire economy, and the decelerated rise of energy prices due to deferred energy infrastructure upgrades.”
He qualified that “EE projects approach low mid-teens after-tax IRR (internal rates of return) and start to become attractive to potential portfolio investors with at least six years ITH and duty free importation.”
Ablaza further noted that “Tier III re-classification compensates for the locational incentive framework of EE projects, which should be focused and targeted heavily at the urban and industrialized localities,” with him citing the National Capital Region (NCR) and other metropolitan areas as the pivot for investments.
In the assessment of the EE investors, Ablaza indicated that “the Philippine economy will need to mobilize over P12 trillion in energy efficiency investments through 2040 to shave off 182 Mtoe (million tonnes of oil equivalent) in final energy consumption – from non-fossil and fossil-fuel energy resources.”
In addition, he emphasized that such scale of EE investments would be able to spare the country of P36 trillion worth in energy purchases; while at the same time, paving the way for the creation of at least 9.0 million jobs and could likewise defer thousands of megawatts of greenfield power investments.
When the targeted EE capital flow is mobilized, Ablaza said this can “deliver up to 1.7 gigatons of CO2e (carbon dioxide equivalent) in greenhouse gases (GHG) emissions reduction; while also contributing to the gross domestic product (GDP) growth.
“While energy efficiency will reduce fossil fuel dependence on the pathway toward the net-zero targets and Paris climate obligations, the reduction will be gradual – through a 20-30 year phasedown, and that energy efficiency in the first 5-10 years, will be implemented more aggressively in the end-use sectors that are less dependent on fossil fuels,” Ablaza stressed.
He thus opined that “the additional income tax revenues caused by energy savings would be more than enough to compensate for the foregone DOF revenues due to the gradual reduction in excise taxes on imported fossil fuels attributed to energy efficiency investments.”