Key takeaways

The establishment of the policy famework in the Guidelines presents an opportunity for energy stakeholders to access carbon finance and prepare for future carbon market mechanisms.  Players in the energy sector should evaluate whether any of their existing and future projects and programs are eligible to generate CCCs under the regulations detailed in the Guidelines.

Quisumbing Torres is able to advise on the eligibility of energy projects and programs and the regulatory requirements under the Guidelines, and is actively monitoring developments in this area.

In more detail

CCCs

Under the Guidelines, CCC refers to a tradable certificate representing 1 tonne of carbon dioxide equivalent of GHG emissions reduced or removed from the atmosphere due to a project or program, verified by accredited independent third-party entities using internationally accepted standards and methodologies. The generation of CCCs must adhere to the following principles on carbon credits:

• Real: All activities generating CCCs must be proven to have occurred and must only be recognized after the mitigation activity has been implemented and the reduction in GHG emissions has been verified.
• Additional: The project or program is undertaken primarily to reduce GHG emissions, and this reduction would not have occurred in the absence of benefits, monetary or otherwise, from these CCCs, and whose implementation has demonstrated that the activity exceeds current legal or regulatory requirements.
• Measurable: The reductions from which CCCs are generated must be quantifiable against an identifiable baseline using standard methodologies.
• Permanent: Where CCCs are generated from mitigation activities that carry a risk of reversibility, adequate safeguards must be in place to ensure that the risk of reversal is minimized. Should any reversals occur, a mechanism must be in place to guarantee that the associated reductions will be replaced or compensated.

Eligible projects and activities

The following activities are eligible to generate CCCs:

1. Decommissioning of coal-fired power plants ahead of the project's useful economic life.
2. Installation and expansion of renewable energy systems under the Renewable Energy Act of 2008 ("RE Act").
3. Decommissioning of fossil-fuel based power project ahead of the project's useful economic life and replacing it with renewable energy.
4. Reduction of energy use and emissions through upgraded technology or optimized processes across sectors such as fuel transformation, industry, transport, buildings, agriculture and services, among others.
5. Adoption of innovative and developing energy technologies, leading to measurable reductions in energy use or emissions, such as, but not limited to, low-carbon hydrogen and derivatives, nuclear energy for power generation and energy storage systems.
6. Fuel switching, hybridization or co-firing in power generation, to replace high-emission fuels with lower-emission alternatives.
7. Shift from internal combustion engine (ICE) vehicles to electric vehicles (EVs), either through the replacement of existing ICE vehicles or the acquisition of new or additional EVs.
8. Blending of bioethanol, biodiesel and other fuels made from biomass resources with fossil fuels used in transportation, power generation and other industries.
9. Other mitigation activities in the energy sector that have the potential to generate CCCs, as approved by the DOE.

However, only projects that are supported by a recognized carbon crediting standard and a corresponding methodology will be eligible for the generation of CCCs.

Ownership of carbon rights

Under the Guidelines, the ownership of carbon rights for generated CCCs must be attributed to the project proponents of the eligible mitigation activities. The project proponent must have full rights to these activities, including the right to use, sell, trade or transfer CCCs generated from these activities. Further, project proponents must be entitled to all benefits and bear all associated risks arising from CCCs, and must have the authority to engage in transactions involving these CCCs, whether on local or international markets, and under voluntary or compliance frameworks.

Double counting of CCCs generated from any eligible activities is not allowed. CCCs must be traded or used only once within and among the carbon markets. For renewable energy generation projects, the energy output of a single facility with a dedicated revenue meter must generate either a CCC or a Renewable Energy Certificate, to prevent double counting of the same environmental benefit.

Carbon markets

CCCs can be traded or used for offsetting in the following markets:

• International compliance market: Established under Article 6 of the Paris Agreement, this market allows a participant can trade CCCs. Any entity to which carbon rights from an eligible mitigation activity are attributed may participate, and the participation of such entity will be facilitated by the Philippines, through the DOE.
• Domestic compliance market or emissions trading system recognized by the DOE: This market allows participants, which are mandated to reduce emissions, to trade allowances for compliance. The DOE must issue the corresponding guidelines on the domestic compliance market for energy-related activities.
• Voluntary carbon market (VCM): Domestic and foreign entities may voluntarily trade CCCs generated from eligible activities. Entities implementing VCM projects must apply for formal recognition, explicitly stating the intended use of the CCCs, whether for domestic use or as other international mitigation purpose, to enhance the GHG emissions accounting for the Philippines. The DOE must issue the rules and guidelines for trading of CCCs in a VCM.

Task Force on Energy Carbon Credits

The DOE will formally constitute the Task Force on Energy Carbon Credits (TFECC) to ensure the proper implementation of the Guidelines. The TFECC is mandated to oversee activities covered by the Guidelines, such as the following:

• Updating and approval on the eligibility of mitigation activities.
• Registration with, and endorsement by, the DOE of eligible mitigation activities.
• Recognition of carbon crediting standards and corresponding methodologies used to quantify CCCs generated from an eligible mitigation activity.
• Oversight of validation of mitigation activities and verification of CCCs.
• Tagging of CCCs based on the intended purpose declared by the proponent during the application and proper accounting of CCCs.
• Issuance of certification as required under the RE Act for the granting of an exemption from taxes on the proceeds from the sale of CCCs.
• Any other matters that facilitate the proper implementation of the Guidelines.

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