Tax expert encourages investors to bet on renewables

Posted at 08/14/09 3:27 PM

“Now is the best time to invest in renewable energy.”

Surprisingly, this advice is coming not from an environmental advocate but from a tax accountant.

According to Emmanuel Bonoan, chief operating officer of the accounting firm Manabat Sanagustin & Co. CPAs, Philippine business corporations can profit from renewable energy in two ways: by taking advantage of the clean development mechanism (CDM) under the Kyoto Protocol as well as by availing of tax incentives set by the Renewable Energy act of 2008.

Manabat San Agustin & Co. hosted a seminar on Thursday, April 13, on “How to make the Clean Development Mechanism work for your business: Investment opportunities in renewable energy in the Philippines.”  Among the topics included in the seminar are the renewable energy financing, government policy and infrastructure, taxation and incentives, and carbon credits trading.

Renewable Energy

The Kyoto Protocol is an international treaty seeking to reduce the amount of greenhouse gases (GHG) such as carbon dioxide, methane, nitrous oxide, ozone, chlorofloro carbon and water vapor in the atmosphere to prevent climate change and global warming. The Clean Development Mechanism, on the other hand, is an arrangement in the Kyoto Protocol allowing industrialised countries to invest in projects that reduce emissions in developing countries.

In an interview after his speech, Bonoan told abs-cbnNEWS.com/Newsbreak he is urging the Department of Energy, Department of Natural Resources and Department of Trade and Industry to promote CDM projects in the country under the Renewable Energy Act of 2008.

He cited “certain tax exemptions for companies who invest in CDM” as an incentive to private companies. For instance, the renewable energy law exempts the sale of carbon credits from all taxes, said Bonoan who is also vice-chair for Tax and Corporate Services at Manabat San Agustin.

Aside from the exemptions, “Companies will have a great return when they have proper financial projections from their investments in renewable energy,” he said. “Power generated from renewable energy technologies could also be sold” to the grid, adding increased capacity for the country’s electricity requirements, he added.

Carbon Trading

Another revenue boosting benefit of investing in CDM is that which businesses can gain from trading carbon credits derived from renewable energy production, Bonoan said.

The Clean Development Mechanism allows companies to earn certified emission reduction (CER) credits, also called carbon credits, when they invest in renewable energy projects as well as in projects that help reduce the levels of greenhouse gases in the atmosphere.

Such credits can be traded in the global market, each sale corresponding to the transfer of emission reduction from the project’s host country to an industrialized country.

Earnings from carbon credits are nothing to scoff at. Carbon can be sold for as much as $30 per ton, and this can still increase with inflation, Yale University economics Prof. William Nordhaus suggests in his paper.

Each credit is equivalent to one ton of carbon dioxide or CO2, and this can be reckoned towards meeting Kyoto Protocol targets.

Examples of CDM projects are rural electrification projects using solar panels or the installation of more energy-efficient boilers, or investments in renewable energy, Bonoan said.

Sustainable development

Profits derived from the sale of carbon credits is separate from that which the company can earn from sale of electricity derived from the project. This is because in CDM projects, companies from industrialized countries pay not for the actual electricity or fuel produced. Instead, they could be the project developer in a developing country, according to Alberto Magalang, CDM Project Implementer of the United Nations Framework Convention on Climate Change (UNFCCC), one of the speakers at the seminar.

The mechanism stimulates sustainable development and emission reductions, while giving industrialized countries some flexibility in meeting their GHG limitation targets, Magalang added.

Magalang said such investments also result in “an increase in the profitability of cleaner and more efficient technology in energy, industry and transport sectors.”

He added that waste management operations under a CDM project could turn landfill waste into energy, directly benefitting the local community.

Land-use strategies and practice will be improved as well, he said.

“CDM will contribute to sustainable development of the host country,” since it will help generate jobs in manufacturing and agriculture, he said.

CDM Status in the Philippines

As of June 2009, the Philippines ranked 7th in the world in terms of the number of CDM project activities with 30 individual projects (1.79% of worldwide number of CDM projects), according to UNFCCC studies.

China is the country with the most number of CDM projects with 576 (34%). India is second with 433 (25.82%), then Brazil with 159 (9.48%), Mexico has 114 (6.80%), Malay has 50 (2.98%) and Chile is 6th with 32 (1.91%).

Other host countries with CDM projects constitute 16.88% of the total number of CDM projects. 

In the country, 75 corporations are currently applying to be CDM certified. Fifty-eight have been approved as of 2008. Fourteen of these are regular scale projects while small-scale projects are 44.

Small scale projects gather 241 to 79,000 CERs per year while the regular scale projects get 53,000 to 582,000 CERs per year.


For more information about project approval of CDM visit: http://cdmdna.emb.gov.ph
For more information about Kyoto Protocol and CDM visit: http://cdm.unfccc.int