Lessons on setting up carbon markets in the Philippines

By many accounts, the Philippines is all in on Article 6 [of the Paris Agreement].

The country’s mitigation strategy largely rests on these rules that define international cooperation on climate action. It is not only clearly stated in its first Nationally Determined Contribution (NDC); in its communication to civil society groups, it frames much of its mitigation positions in the global climate negotiations on calls for operationalizing market and non-market approaches (NMAs).

With the climate COP29 finalizing the ‘rulebook’ for international carbon trading, the country is joining the rest of the world in setting up its national policies and frameworks to guide participating stakeholders in how to engage in activities relevant to Article 6.

Yet from the observations of civil society groups, there are several issues that must be addressed for the Article 6 implementation, especially on carbon markets, to be genuinely effective.

What is the path?

Establishing an emissions trading scheme (ETS) has been a priority across several proposals in the Philippines. In the national legislature, the Low Carbon Economy Investment (LCE) Bill is being proposed to create such a national system in aid of reducing greenhouse gas (GHG) emissions and enable the big businesses to start decarbonizing. 

In the executive branch, a proposed ETS as part of setting up a carbon credit mechanism for the energy sector has also been presented to the private sector and civil society groups, scheduled for finalization a few weeks after. Plans are also in place to establish a national carbon registry and define the conduct of entities involved in the international, domestic, and voluntary carbon markets, connecting it to Article 6.

Yet any ETS relies on placing an emissions cap that determines how much allowances companies that do not exceed this limit can sell and trade. This requires a decarbonization pathway that sets economy-wide and sectoral caps that decrease over time to be aligned with the goal of limiting warming to 1.5°C under the Paris Agreement.

However, the Philippines still lacks a decarbonization pathway aligned with 1.5°C, or even 2°C, which was also the case when developing its first NDC. The ongoing formulation of its Long-Term Strategy, which likely contains said pathways, is unlikely to be finished before UNFCCC COP30. 

This not only means its updated NDC, which it aims to submit before the Belem climate talks, would again be missing this component; all proposed ETS-relevant policies would be at risk of being ineffective at reducing the country’s emissions, especially those being pushed to be finalized immediately.

What about safeguards?

The aggressive approach of the Philippine government regarding Article 6 is an indicator of its strategies to further mobilize private sector participation in climate action. Yet this can also be seen as the current administration favoring business interests over that of communities and civil society groups.

Outside of carbon markets, signs have been evident about this approach in recent years. Whether on protecting the Verde Island Passage, managing its remaining forests, reclamation, or mining, many have regarded the government as preferring to sing the praises of big businesses, multinational or domestic, over listening to the cries of the earth and the poor. 

This raises valid concerns on whether or not environmental and social safeguards would be properly enforced once the Philippines’ carbon market schemes are operational.   

For example, civil society groups criticized how a recent version of the LCE Bill gives businesses too much flexibility in what to do with the carbon pricing imposed on them if they exceed their caps. They point to the options afforded to these entities such as allowing them to reinvest said money in their own climate-aligned initiatives like renewable energy. 

While branded as means to further enable private sector participation, such provisions could also weaken accountability on the same businesses viewed to be contributing to ecological decline in the Philippines. It also goes contrary to the “polluter pays” principle that is vital to decarbonization, especially without strengthening rules to prevent greenwashing.

What about non-market approaches?

In recent COPs, the government delegation has framed NMAs through means of cooperation on climate policy. At the domestic level, the same proposal for energy carbon crediting elaborates on them as cooperation, capacity-building, and technology transfer, aligned with the Paris Agreement and NDC goals.

Nonetheless, compared to market approaches, the state of NMAs in the country remains undeveloped like with the current status at the global level. To be consistent with its own calls for climate justice under the climate negotiations, it needs to present a strong call at COP30 on how developing and executing NMAs must proceed. 

It is understandable why developing nations like the Philippines are relying so much on Article 6. Developed countries continue to refuse providing sufficient means of implementation to support their mitigation, adaptation, and loss and damage strategies, despite the urgency and their necessity to pursuing their respective national development goals.

Ultimately, the implementation of Article 6-relevant mechanisms in the Philippines will determine its impact. The country must learn from global carbon markets instead of mostly trying to play catch-up.  For a developing vulnerable country, strong regulations, capacitated policymakers, sufficient environmental oversight, and ensuring ecological integrity and accountability are unconditional.

Policymakers do not really have to look abroad to be reminded of the importance of these principles. As of this writing, the country is enveloped in a scandal involving flood control projects due to their ineffectiveness in preventing disastrous flooding from recent extreme rainfall. 

Overlooking these imperatives has effectively wasted billions of dollars spent for these infrastructure projects, resources that could have made the country’s NDC commitments more unconditional and less reliant on carbon markets to begin with.  

illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

Track the real‑world impact behind the sustainability headlines. illuminem's Data Hub™ offers transparent performance data and climate targets of companies driving the transition.