Expert Perspectives

The Compelling Development Case of Long-Term Strategies: Lessons Learned in the Philippines

Climate change is bigger than everything. While this is now acknowledged by most governments, too few fully understand the magnitude of climate impacts on the long-term development goals of developing countries. The case of the Philippines clearly illustrates this underestimation and the way it jeopardizes future development aspirations, leading to missed opportunities for more inclusive and sustainable growth.

As in many other countries, Philippine plans responding to the climate crisis are mostly reactive or fixated on episodic climate extremes. They thus lack the policy impetus needed to formulate transformational long-term strategies spanning several planning cycles. Governments overlook the opportunities climate change presents to reimagine and redesign their investment agendas. The need for a new way of thinking is urgent. The task of governments is not only to survive the climate crisis but also to use disruptions posed by the global threat in order to thrive in a carbon-constrained world.

As studies continue to demonstrate, although the window for decisive action is rapidly closing, it remains scientifically and technically possible to achieve the ultimate goal of the Paris Agreement, which is to limit global temperature increase to 1.5° Celsius relative to preindustrial levels. An essential first step toward this goal is to estimate the costs of inaction, and to differentiate this from the investment required to steer economies toward an inclusive, low-carbon, resilient pathway.

The Philippine power sector is fully liberalized, so here the energy transition needs to be anchored in the elimination of explicit and implicit support of coal, and the promulgation of rules that establish as their main aim effective competition rather than mere compliance with global climate accords. The result will likely be more investments in the country, more affordable, reliable energy, and greater energy security, with adherence to Paris Agreement goals as a cobenefit.

To survive and thrive requires the integration of low-carbon resilience programs and metrics into long-term development strategies. It means taking advantage of the need to upgrade everything in order to make the economy more resilient: infrastructure, supply chains, urban services, logistics, food supply, and more. Such a vision, when pursued with effective financing mechanisms, can only invigorate the economy, and generate jobs.

Short-term policies jeopardize our future

A policy approach driven by fragmented, incremental responses to climate change will likely lock countries into inefficient and unsustainable development trajectories. The Philippines is a good example of a country where development progress could be reversed without long-term planning.

The Philippines is very vulnerable to climate change. Composed of 7,641 islands located in the typhoon belt and having a coastline of 235,973 kilometers, the country is particularly exposed to the effects of rising sea levels and storm surges. Around 20 typhoons visit the Philippines each year, with eight making landfall on average. The projected increase in the frequency and intensity of hydro-meteorological impacts is expected to exacerbate the country’s vulnerabilities, especially in the agriculture sector. However, responses by the Philippine government to slow-onset climate events such as sea level rise, ocean acidification, and gradual changes in precipitation and hydrology remain inadequate given the magnitude of the climate threat.

This vulnerability puts development progress at risk. Recent growth appears more inclusive when compared to the growth experience in the period 1991–2009. Almost 80 percent of households experienced real per capita household income growth between 2012 and 2015. Poverty incidence declined over the same period, from 25.2 percent to 21.6 percent, or a net decrease of 1.8 million poor Filipinos. These gains are unlikely to be sustained, however, without climate-sensitive long-term development strategies that recognize the particular threat posed by slow-onset climate events, as well as the economic opportunities—and risks—associated with global trends related to the energy transition.

The country is also facing the ticking economic time bomb of its current dependence on thermal coal. The increase in population from 101 million in 2015 to more than 142 million by 2045 is expected to drive growth in the country’s electricity sector. While total coal imports rose by 47.8 percent in 2016 over 2015 figures (21 million tons in 2016), the government plans to raise the country’s total supply capacity from 19,097 megawatts (MW) in 2016 to around 36,000 MW by 2030 and 63,000 MW by 2040, an annual average growth rate of 5.1 percent per year. Much of this would be powered by coal.

According to projections, such a policy would strand at least 1 trillion Philippine pesos (US$21 billion) in new build coal plant assets as a result of competition from renewable energy (RE), whose costs are rapidly falling. When coal plant assets are stranded, who will be left holding the bag? Without urgent reforms in the power sector, such reckless addition of soon-to-be stranded coal plant assets will only increase risks to the stability of the country’s economy.

The example of the Philippines highlights other inefficient features of existing energy systems relying on fossil fuels. Although the Philippines has one of the lowest per capita electricity consumption rates in Southeast Asia, its electricity tariffs are among the highest on the continent. In addition, around 4 million households remain unserved or underserved by modern energy services. Small islands are covered by minigrids powered by generators fueled with imported diesel and bunker (freighter) oil. As a result of grid instability, inadequate generation capacity, and expensive subsidized fuel, countless island residents, businesses, and economic activities suffer from regular blackouts and unplanned power outages, exacerbating poverty and vulnerability.

As a 2017 report by the Institute for Climate and Sustainable Cities and the Institute for Energy Economics and Financial Analysis showed, many islands do not have 24/7 electricity service, even with expensive subsidies. Only 22 of 233 areas examined have 24/7 electricity, with over 70 percent enjoying less than eight hours of electricity per day.

Such a context provides an opportunity to contribute to the global climate challenge by pursuing reforms that deliver clean, affordable, reliable, and secure energy.

Planning early energy transitions offer major economic opportunities

Advancing an early decarbonization agenda should not be seen only as a matter of compliance with the Paris Agreement: it also makes economic sense. The need to avoid the macroeconomic instability likely to result from dependence on carbon-intensive fossil fuels is a compelling reason for government policymakers to slow down, then cease entirely, their approval of more coal plant contracts.

With solar-powered electricity costs falling by 99 percent since 1976 (and 90% since 2009), and with the cost of wind-powered generation declining by 50 percent since 2009, the economics of renewable energy make it particularly suitable for small islands, which are unable to link to mainland electricity grids.

The Philippines could have a compelling investment strategy if it puts in place incentives that encourage distribution utilities to procure power needs from all available technologies, not just diesel or bunker. The Philippine Department of Energy acknowledges that early hybridization strategies are viable and desirable. Small island grids represent around 6 percent of the country’s electricity market. Shifting to hybrid diesel-RE systems or RE with storage in small island grids can save the country at least $200 million a year, while lowering electricity rates for main island ratepayers and generating savings that electric cooperatives can use to upgrade decaying infrastructure and services. Investment opportunities in small island renewables are also worth at least $1 billion to private developers.

Subsidies for renewable energy are less needed than government action to ensure effective competition and market design in the power sector. Policies and regulations that favor certain technologies (in the case of the Philippines, fossil power, particularly coal) over others need to go.

The very compelling case for an energy transition in the Philippines is relevant for many other developing countries. An early energy transition away from fossil fuels and toward renewable energy can moderate and stabilize electricity prices, attract new investments in sunrise industries, create more jobs, dramatically increase energy security, and bring down pollution rates and their adverse impacts on health and the environment. The contribution of an early energy transition in the Philippines to global climate protection thus becomes an outcome—a cobenefit—of the drive to power a more modern, sustainable, equitable, and inclusive economy.

Financing transformation and long-term climate resilience requires innovation: The example of the Philippine People’s Survival Fund

Long-term strategies should be accompanied by effective financing mechanisms to support concrete transformation on the ground.

Recent steps taken by the Philippine government indicate promise and strong potential to scale up approaches that prioritize and encourage ambitious and responsive resilience-driven climate action. In 2012, the Philippine government passed the People’s Survival Fund Law (PSF), which revised the Climate Change Act of 2009. The PSF established the country’s first legislated climate finance mechanism dedicated to supporting the climate resilience action plans of local governments and communities. A bold and innovative approach patterned after the UN Adaptation Fund (AF), the PSF also includes elements that fix critical deficits associated with the AF.

First, the chair of the PSF is the Department of Finance. This was a specific demand of the law’s authors: the country’s top economic manager must be invested with a clear leadership role in the national response to the climate crisis, so that the country can swiftly mainstream climate change considerations into its long-term portfolio.

Second, the multistakeholder nature of the PSF board can help build a whole-of-government-and-society approach to planning climate actions. Members include the Climate Change Commission, the National Economic and Development Authority, the Philippine Commission on Women, the Department of the Interior and Local Government, the Department of Budget and Management, as well as representatives from the private sector, academia, and civil society, who are not mere observers but also have a vote each. This distinguishes the PSF from the AF, which failed to institutionalize participation from nongovernmental actors.

Third, the PSF is demand-driven. It does not advance national or local projects or its own programs. Instead, it provides resources to approved proposals from local governments and communities, based on prioritization criteria promulgated, reviewed, and updated by the PSF board, with modalities that ensure accountability concerns and access considerations are balanced effectively. This is important. To begin with, if rules are too strict or loose, the fund is either unused or underdeployed, or dissipated and wasted. In addition, climate change adaptation measures are incredibly diverse and locally specific, if not parochial, in nature. One province might demand ecosystem-based initiatives, while others might require support for solarized community health centers or irrigation initiatives, nutrition diversification programs for areas where saltwater intrusion is expected to reduce agriculture productivity, or the establishment of climate field schools where scientific research and practices are the main activities.

The PSF law mandates that a yearly minimum of 1 billion Philippine pesos (roughly $20 million) be maintained, with initial funding from the Philippine government’s annual appropriations. The law sets no maximum for the fund. The PSF can also receive money from foreign and private sources. If demand for the fund surpasses the annual amount provided by the legislature, the government must either add to the fund or tap other sources, such as climate finance contributions from other countries.

These features of the PSF were designed to ensure that funding modalities are responsive to local development needs instead of being blunt, unresponsive cookie-cutter national programs. This approach is critical to establishing ownership of climate-sensitive strategies that lead to long-term inclusive transformation.

All the interpretations and findings set forth in this expert perspective are those of the author alone.