As discussed in Part 1 (Power Sector), the power and transportation sectors typically constitute over 50% of the emitted greenhouse gases. Hence, we discuss the decarbonization of the transportation sector in this Part 2.
For starters, there is no need to rehash established modes of decarbonizing the transportation sector, which is succinctly articulated by the International Council on Clean Transportation or ICCT--an independent nonprofit organization founded to provide first-rate, unbiased research and technical and scientific analysis to environmental regulators. ICCT's mission is to improve the environmental performance and energy efficiency of road, marine, and air transportation, in order to benefit public health and mitigate climate change. Click on the above link to access the publications and videos of the ICCT.
In the local scene, transport groups filed a petition with the Land Transportation Franchising and Regulatory Board (LTFRB) to increase the minimum fare for jeepneys from P9 to P12, amid rising oil prices--see the chart below.
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| The price of Brent crude oil, the global oil market benchmark, climbed above $74 per barrel on 15 June 2021 – the highest level since October 2018. Brent has doubled since the end of October 2020, when it was trading at $37 a barrel. |
In the case of the Philippine power sector, private power plants that are fueled by fossil fuels like coal, natural gas and oil have automatic adjustments (including foreign currency adjustments) to their tariffs to mitigate the fluctuating prices of fossil fuels and foreign exchange rates. These are international commodities (fossil fuels and hard currencies) with corresponding pricing risks that, at least in the case of the Philippine power sector, are absorbed by consumers--NOT the private power plant enterprises.
The question is, why should the jeepney sector (and the public transportation sector in general) have to constantly fight for an increase in tariff/fare every time crude oil prices (and correspondingly diesel and gasoline prices) increase in the world market? It stands to reason that if the Philippine power sector enjoys automatic adjustments to their tariffs, then the Philippine public transportation sector should likewise be granted the same automatic adjustments to their fares. However, note the government's response in the above petition for an increase in the minimum fare of jeepneys. Transportation Secretary Arthur Tugade rejected it, which is, of course, a political and populist response that makes no economic sense whatsoever.
One particular legislator has an equally asinine response. In a June 30, 2021 article of Business Mirror entitled "Rising global oil prices should prompt government to reconsider fuel stockpiling option," Camarines Sur Rep. Luis Raymund Villafuerte said the following:
“The steady increase in global oil prices indicate an upside risk that could further drive up inflation and exacerbate the economic shocks buffeting ordinary Filipinos as a result of the protracted coronavirus pandemic.”
He said diesel prices went up for the 10th week in a row, this time by 70 centavos per liter—or a total of P4.60 per liter as crude oil prices exceeded $70 per barrel in the world market. Gasoline prices went up by 75 centavos per liter and those of kerosene by 70 centavos per liter.
Villafuerte added pump prices of these petroleum products are expected to go up anew this week, with gasoline and diesel prices projected to rise by P1.05 to P1.15 per liter, and diesel and kerosene by a respective 60 to 70 centavos per liter and 65 to 75 centavos per liter.
[So far, Villafuerte appears to have his facts in order; however, he continues to articulate a totally counterproductive recommendation.]
The Camarines Sur legislator recalled that almost two years ago, he already backed the view by Energy Secretary Alfonso Cusi [another clueless bureaucrat] that the country needs strategic oil reserves so the government can be part of the fuel supply chain to ease the impact of global market volatilities on consumers by ensuring a stable domestic fuel supply.
[Sounds like a worse reincarnation of the Oil Price Stabilization Fund or OPSF--an ill-conceived, fiscally irresponsible, economically damaging (not to mention, shameless political grandstanding) platform, which was finally and appropriately abolished with the deregulation of the oil industry.]
For Villafuerte, the government should study thoroughly what method of oil stockpiling would be best for the country, the logistical requirements involved, and whether crude oil or petroleum products should be stored.
[Need I remind Villafuerte that Caltex and Shell have already shut-down their refineries because they were no longer globally competitive. Petron is likely to follow suit in the near future; hence, the country will eventually have no refining capacity of crude oil.]
He recalled that when oil prices fell in the first quarter of 2016, the DOE already considered stockpiling oil for future use, but estimates show that it would cost a staggering P300 billion a year to carry out this plan.
[If the government (taxpayers really) is going to spend P300 billion (roughly US$6 billion) on oil stockpiling infrastructure (another ill-conceived and worthless subsidy), it should instead spend the funds to address the root cause of the problem, which is to minimize the country's dependence on oil (fossil fuels, in general). We've already discussed the decarbonization of the Philippine power sector by shifting to renewable energy (Part 1). The same can be done to a significant segment of the transportation sector by shifting to electric vehicles or EVs in every applicable scenario.]
One of the most applicable scenarios is to mandate the public transportation sector (particularly in urban centers like Metro Manila, Metro Cebu and Metro Davao, and especially the jeepneys) to shift to electric vehicles. In fact, this is already contemplated in the Public Utility Vehicle Modernization Program of PUVMP, except that it still permits the use of Euro-4 compliant combustion engines. The PUVMP should be amended to strike-out combustion engines altogether, thereby permitting only electric vehicles in the public transportation sector in urban centers.
For starters, the air quality in urban centers will dramatically improve in the absence of combustion engines in public transport. The installation of charging stations should not be an issue in light of the inherent electric distribution density within urban centers. Done in conjunction with the shift to renewable energy of the Philippine power sector (thereby minimizing--if not eliminating--the price fluctuations of electricity due to the price fluctuations of fossil fuels), the public transportation sector's shift to electric vehicles would likewise minimize--if not eliminate--the corresponding price fluctuations of transport fares. No more petitions with the LTFRB to increase fares due to the rising cost of crude oil, diesel and gasoline.
Naturally, the issues of cost and funding are paramount with respect to the power sector shift to renewable energy and the public transportation sector shift to electric vehicles--particularly with respect to a developing country like the Philippines. While slow to manifest in terms of concrete financial support, there appears to be a general consensus that developed nations have a responsibility to not only decarbonize their own economies, but to help with the decarbonization of developing nations.
In June 2021, the World Bank Group issued a new spending plan through to 2025 that will ensure that an average of 35% of total spending is focused on climate adaptation and decarbonization in developing countries. Priority areas for spending include energy, agriculture, food, water and land, cities, transport and manufacturing – with a focus on resiliency, adaptation and decarbonization. The World Bank is the largest multilateral provider of climate finance for developing countries and delivered $83bn in climate finance during its previous five-year action plan, including more than $21bn in 2020.
Chile is one of the first developing nation to avail of climate financing as explained in the following article, "A world first: new financial model drives Chile’s decarbonization." In February 2021, the first financial package of US$125 million was awarded to ENGIE Energía Chile, comprising a loan from the IDB and financing from CIF’s Clean Technology Fund (CTF) and the Chinese Fund for Co-financing in Latin America and the Caribbean. ENGIE became eligible for the funding because it agreed to close two of its coal-based plants in Chile, which would reduce up to 1.2 million tons of CO2. The company will use the financing it has received to build, operate and maintain a wind farm near the city of Calama in the region of Antofagasta. It has committed to building more than 1,000 MW of wind and solar initiatives across the country in the next few years. This will accelerate the development of the renewable energy sector in Chile.
In April 2021, private sector entities Temasek and BlackRock Launch Decarbonization Investment Partnership to invest in next-generation private companies that provide solutions and technologies which accelerate global efforts to achieve a net zero global economy by 2050.
The above examples are only the beginning of climate funding (debt-financing and equity) that would be available to both the public and private sectors of the Philippines, provided there are clear government policies and concrete projects that warrant funding. One concrete decarbonization project that has been implemented in the public transportation sector of the Philippines is the replacement of 100,000 gasoline burning tricycles with electric tricycles (e-trikes) in Metro Manila and other urban centers as short-distance taxis. The cost of the e-trikes project was US$400 million with US$300 million debt-financing provided by the Asian Development Bank (ADB) and the balance of US$100 million funded by the government/taxpayers. More of these decarbonization projects in the power sector (replacement of fossil fuel plants to renewable energy plants like solar and wind farms) and the public transportation sector (replacement of more tricycles, jeepneys and buses in urban centers to electric vehicles) should aggressively be pursued by both the government and the private sector.
For example, the Philippine government should build on the lessons it has learned from the first e-trikes project (100,000 gasoline tricycles replaced by e-trikes in Metro Manila, Metro Cebu and Metro Davao), particularly with respect to decreasing the capex cost per unit (which appears quite high at US$4,000 per e-trike) and deploy more e-trikes projects throughout the country, which reportedly has 4.5 million registered tricycles as of 2018. In the City of Cabanatuan alone, also known as "The Tricycle Capital of the Philippines," there are at least 30,000 registered gasoline tricycles (possibly as much as 80,000) that would be eligible for e-trike replacements. Hence, it would be conceivable that the sheer economies of scale of replacing 4.5 million gasoline tricycles over a period of 10 to 20 years would eventually bring the capex cost per unit to half (or even less than half) of its original cost in the first deployment. That would be a tremendous benefit to the riding public, the people who provide this service for their livelihood and the burgeoning e-vehicle manufacturing industry in the country (just think of the export potential).
The other obvious applicable scenario is to incentivize the private automobile market to shift, either partially or completely, to electric vehicles. In this regard, there should already be Tesla dealerships, among other electric car dealerships, all over the country. However, due to the typical lack of foresight of the Philippine government, the Philippine consumer, as of today, can only purchase the Nissan Leaf at a whopping price tag of P2.8 million, which is hardly an incentive. This is because nearly half of this prohibitive price tag is comprised of taxes, duties, among other useless charges imposed by the government. Consider the starting price of the Nissan Leaf in the US at US$27,400 (roughly P1.37 million), which does not even include a federal tax credit of $7,500, which means the starting price of the vehicle in the US can reach as low as US$20,000 (roughly P1 million). Hence, the Philippine government is sending all the wrong market signals that are bound to kill the electric vehicles market and industry in the country before it even starts--when the rest of the world is incontrovertibly moving in the direction electric vehicles.
What about charging stations? They are restrictively few even though it does not take much effort to map out logistically rationale locations of an initial network of charging stations throughout the country and elicit the support of the oil companies/gasoline stations to diversity their fueling options to include electric vehicles. There is no need for the government to spend on charging stations, as long as it provides the proper incentives to the private sector to build the same. Who would bother with charging stations when the government insists on taxing electric vehicles to oblivion?
Like the oil refining sector in the Philippines, the car assembly sector of the country (i.e., assembly of knocked-down vehicles with combustion engines) is a sunset industry. If the Philippine government has any strategic sense, it should provide all the possible incentives (and more) to attract an entirely new manufacturing industry--the electric vehicle industry and every component that comes along with it--to locate and invest in the Philippines for both the local market and for export to the rest of the world. This would go a long way in (a) decarbonizing a significant segment of the transportation sector, (b) lowering the cost (and increasing the use) of electric vehicles in the country and (c) capturing a slice of a strategic and sunrise industry in the resurging manufacturing sector in Southeast Asia.
Is anybody in government listening?
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