Central Bank of the Philippines to Introduce Incentives for Green Financing

Central Bank of the Philippines to Introduce Incentives for Green Financing

The Bangko Sentral ng Pilipinas (BSP), the central bank of the Philippines, is set to introduce a series of new incentives aimed at promoting sustainable and green project financing within the country. This initiative forms part of the BSP’s 11-point Sustainable Central Banking (SCB) strategy, which seeks to integrate sustainability principles into its core operations.

The BSP’s proposed incentives are geared towards encouraging local banks to participate in funding sustainable projects and activities, particularly those related to decarbonization. These incentives include providing banks with an additional 15 percent single borrower limit on loans, credit accommodations, and guarantees for sustainable projects until December 31, 2030. Additionally, the BSP plans to impose a zero percent requirement rate for sustainable bonds to further motivate investment in sustainability initiatives. This zero percent requirement rate will remain in effect until December 31, 2025.

As the Philippines strives to address its vulnerability to climate change, with the frequent occurrence of typhoons and natural disasters, these initiatives are a vital step toward building a more resilient and sustainable future.

Expanding Green Initiatives

The Philippines government is continually expanding its green initiatives to mitigate the adverse effects of climate change. The country, situated in the Pacific Ocean’s typhoon belt, experiences an average of 20 typhoons annually between July and October. These storms often result in catastrophic flooding and landslides, highlighting the urgent need for sustainable solutions.

One of the most significant steps taken by the government to combat climate change is the full opening of the renewable energy sector to foreign ownership through Circular No. 2022-11-0034. This represents a significant shift in the nation’s energy policies, aimed at accelerating the transition to renewable energy sources. The government’s goal is for renewables to constitute 35 percent of power generation by 2030 and 50 percent by 2040.

Foreign Investment in Renewable Energy

With the policy change allowing foreign ownership of renewable energy projects, foreign investors can now hold 100 percent equity in the exploration, development, and utilization of solar, wind, hydro, and ocean or tidal energy resources. This change is part of the government’s strategy to attract foreign investment and meet long-term climate targets.

Previously, regulations required that these energy projects could only be undertaken by Filipino citizens or entities with at least 60 percent Filipino ownership, limiting foreign investors to a maximum of 40 percent equity. Now, foreign investors can take full control of such ventures, even those currently operating in joint ventures with Filipino partners.

Supportive Policies and Incentives

To stimulate the development and utilization of renewable energy, the Philippine government has introduced numerous incentives and supportive policies. For instance, the Renewable Energy Act of 2008 offers incentives for investing in renewable energy, including:

  1. A seven-year corporate income tax holiday.
  2. A reduced 10 percent corporate income tax rate upon expiration of the tax holiday.
  3. Tax exemptions for carbon credits generated from renewable energy sources.
  4. A 1.5 percent realty tax cap on the original cost of equipment and facilities used for renewable energy production.
  5. Value-added tax exemptions for the purchase, grid connection, and transmission of electricity generated from renewable sources.

Untapped Renewable Energy Potential

The Philippines possesses a substantial untapped renewable energy potential, estimated at 246,000 megawatts (MW). It ranks third globally in geothermal capacity, with 1,900 MW, surpassed only by the United States and Indonesia. The country’s current renewable energy mix comprises 4.3 gigawatts (GW) of hydropower, 896 MW of solar energy, and 427 MW of wind power.

To meet its ambitious renewable energy targets of 35 percent by 2030 and 50 percent by 2040, the Philippines plans to expand geothermal capacity by 75 percent, increase hydropower capacity by 160 percent, raise wind power capacity to 2,345 MW, and add 277 MW of biomass power. The Department of Energy estimates that the country will require $120 billion in investment by 2040, offering significant opportunities for foreign investors looking to participate in the nation’s sustainable energy future.

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