Few newspapers gave space for the enactment last week of the Energy Law by the House of Representatives, as its 34 articles only provide a broad outline of national energy policies.
The Energy Law is nonetheless quite important not only because it is the first legislation the country has ever had on the energy industry as a whole, but also because the law outlines a holistic approach on the development of energy.
The new law will serve as the legislative umbrella for other laws on various energy resources or materials, such as a law on oil and natural gas, a law on water resources management and a law on geothermal power, as well as bills on minerals, coal and electricity currently under deliberation at the House.
The new legislation governs not only conventional energy such as oil, gas and coal, but also, and more importantly, provides more attention to the development of renewable energy sources such as biofuels, hydropower, solar and wind power, and geothermal power.
It requires the government to build up strategic energy reserves to maintain energy security, and to set up a national energy council, which would be the highest policy-making body in the energy sector.
The law still stipulates a price mechanism to stimulate efficient energy use, but also requires the central government and local administrations provide energy subsidies for the poorest segments of society.
Pricing policies can have an immediate bearing on the viability of fuel efficiency investments as large users are forced to use the most energy-efficient machinery. As our own experience has proven, subsidies are a significant disincentive for fuel efficiency investments, and the removal of this barrier can create a conducive investment climate in which fuel and electricity efficiency can thrive.
The legislation allows the central government and local administrations to provide fiscal incentives and facilities for companies or individuals who harness new energy resources or develop renewable energy sources such as biofuels, which require large plantations.
An unclear regulatory environment and inadequate incentive mechanisms have become the main barriers to large-scale investment in biofuel development, even though the country has enough resources to grow such biofuel materials as jatropha and oil palms.
Yet more important is that the new law also stipulates elaborate provisions on energy conservation, offering fiscal incentives and facilities for the producers and users of energy-conserving/saving machines. Many other countries have enacted and implemented regulations to promote energy conservation, which stipulate not only compulsory conservation measures but also fiscal and financial incentives for factories and buildings making investments in energy conservation.
The law will thus facilitate the integration of energy diversification, efficiency and conservation into a comprehensive energy development program based on special regulations that stipulate compulsory conservation measures, complete with fiscal and financial incentives for the development of renewable energy sources.
The law obliges the central government and local administrations to give incentives to industrial companies that conduct in-house management of energy efficiency through maintenance and housekeeping measures and the replacement of selected equipment, which may require additional investments.
But the legislation also requires the central government and local administrations give penalties or disincentives for energy users who ignore conservation.
The government indeed has at its disposal a variety of instruments such as tax credits or subsidized or low-interest loans through which energy efficiency improvements can be promoted. The central government, for example, can slap higher luxury sales taxes on big-capacity passenger cars, and local administrations can impose progressive car registration taxes on people owning more than one car to force fuel conservation.