1. The Opportunity Cost of Climate Mitigation Policy
Promoting Renewable Power Generation in the Philippines
Angga Pradesha
Senior Research Analyst
Environment and Production Technology Division (EPTD)
IFPRI, Washington DC
Presentation given at the 40th International Association for Energy Economics (IAEE) Conference
Marina Bay Sands, Singapore
Tuesday, June 20, 2017

2. Outline Motivation Objectives Models Scenario design
Simulation results
Conclusion and Policy Recommendation

3. MOTIVATION

4. Economic Growth, Energy and GHG
Philippines showing favorable economic condition in past few years - could potentially reach high income level status in 2040
Energy - key for economic growth, especially in developing countries that undergo structural transformation process
Energy security target– relying less on imported energy (coal)
Philippines - made commitment to reduce 70% of GHG emission by 2030 (INDC 2015)

5. Green Growth Strategy Higher cost of electricity Capital constraints
Deterring structural transformation
Household welfare reduction
Energy Security (coal)
Reduction in GHG
Health externalities
Green job growth
Financial compensation from abroad

6. OBJECTIVES

7. Research Questions
What would be the optimal pathway to promote renewable power generation under strong economic growth?
How this would impact the economy and vulnerable groups?
How much it would cost?
How much the benefits?

8. Models

9. Philippine Dynamic Computable General Equilibrium (Phil-DCGE) model
61 sectors
Agriculture (15)
Mining (3)
Food industries (12)
Other industries (15)
Petroleum (2)
Electricity (9)
Transportation srv. (3)
Other Services (2)
5 factors
Labor
Land
Capital (3)
30 households
By region (3)
By location (2)
By quintile (5)

10. Macroclosures Balance Closure Fixed foreign savings Mobile factors
Flexible Gov. saving

11. TIMES Model Technology database:
Constraints:
Energy supply, targets, taxes, subsidies, externalities
Technology database:
Techno-economic attributes
Technology deployment & annual activities, power generation by fuel types
End-use energy demand, demand elasticity, discount rate, time period, time slices
Energy consumption, import/export of energy, marginal prices of energy
Marginal electricity price, emission trajectories, least cost solution to meet energy demand
Environment:
Emission coefficients, targets

12. Linkages Electricity demand Philippine-TIMES Philippine- DCGE MODEL
Philippine- DCGE
Electricity demand
Electricity supply (generation share)
Electricity price

13. Scenario Design

14. Simulation Scenarios SIM1
50 percent renewable share under conservative view
SIM1
50 percent renewable share under optimistic view
SIM2
SIM1 + Foreign transfer to government to cover welfare loss (Carbon income from abroad)
SIM3
SIM2 + Foreign transfer to government to cover welfare loss (Carbon income from abroad)
SIM4
SIM4 + Higher domestic investment share
SIM5

15. Simulation Results

16. Baseline Power Mix *Ravago, Fabella, and Alonzo (2016).
Generation share by fuel type in 2040 (%)
Plausible future*
Phil-DCGE
TIMES
Coal 57
57.0
57.4
Natural gas 16
15.7
15.2
Conventional (hydro and geothermal) renewable 24
23.7
24.5
Variable renewable (Biomass, wind and solar) 1
1.6
1.0
Others (diesel and heavy fuel oil)) 2
2.0
1.3
Total
100
*Ravago, Fabella, and Alonzo (2016).

17. Baseline GDP and Power Demand
*Danao and Ducanes (2016).

18. 50 percent renewable share
Generation share by fuel type (%)
Baseline
TIMES result
(50%
renewable share)
Phil-DCGE result
Fossil fuel-based
74.5
50.0
49.6
Coal
57.4
34.7
35.0
Gas
15.2
13.6
Diesel
0.8
0.0
0.5
HFO
1.1
Renewable
25.5
50.4
Hydro
11.0
11.3
11.5
Geothermal
13.5
16.2
17.1
Solar
0.2
19.1
18.6
Wind
0.4
3.0
2.7
Biomass
Total
100

19. Capital Demand and GDP

20. Factors reallocation

21. Economywide Wages

22. Welfare impact

23. Imported Energy and Real Exchange Rate

24. GHG Reduction and Health Co-benefit
CO2 EMISSION IN 2040
SIM MT CO2
SIM MT CO2
ELECTRICITY FROM COAL IN 2040
-70 TERAWATT HOURS
HEALTH COST PARAMETERS*
100% pollution control installed
70 Billion x US$ =
US$0.73 Billion
(PHP 32 Billion)
0% installed
70 Billion x US$ =
US$8.76 Billion
(PHP 385 Billion)
*Gunatilake, Ganesanm and Bacani (2014)

25. Foreign Transfer and Export Demand

26. Foreign Transfer and Labor Demand

27. Policy Response and Macro Performance

28. Policy Response and Labor Demand

29. Conclusion and Policy Response

30. Conclusion
Allocating more investment into renewable energy sector could potentially reduce economic growth up to 0.5 percent in 2040
Lower economic growth coupled with deindustrialisation could drive down household income and reduce economic welfare up to PHP 350 Billion
Improve energy security given less imported coal is needed to produce electricity
Reduce carbon emission by 65 million tons and provide health co-benefit up to 385 billion in 2040

31. Policy Response
Large foreign inflow as compensation for reduced carbon emissions could potentially drive the economy to suffer from Dutch disease effect
Increasing investment activity could negate the effects by absorbing the financial inflow into productive activities in the traded sector
In total, the net welfare, reflected by total absorption could increase by PHP 155 billion

32. THANK YOU!

33. Projection on Income per capita
Source: A. M. Balisacan. Powering the Future: Promoting Energy for Inclusive Growth. (EPDP presentation)