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Ce Republic of the Philippines
4 DEPARTMENT OF ENERGY
(Kagawaran ng Enerhiya)

DEPARTMENT CIRCULAR NO. _DC 2O2R5-—07~ 00/8

PROVIDING GENERAL GUIDELINES FOR THE GENERATION, MANAGEMENT,
AND MONITORING OF CARBON CREDITS IN THE ENERGY SECTOR

WHEREAS, Republic Act (RA) No. 7638 or the Department of Energy Act of 1992
declares it the policy of the State to ensure a continuous, adequate, and economic
supply of energy with the end in view of ultimately achieving self-reliance in the
country's energy requirements;

WHEREAS, the Philippines signed and ratified the Paris Agreement under the United
Nations Framework Convention on Climate Change (UNFCCC), which sets the
primary goal of holding the increase in the global average temperature to well below
2°C above pre-industrial levels and pursuing efforts to limit the increase to 1.5°C;

WHEREAS, the Philippines has committed to the reduction and avoidance of
greenhouse gas (GHG) emissions as outlined in its Nationally Determined
Contribution (NDC), while also pursuing sustainable development pathways that
promote climate resilience, enhance energy security, and foster economic growth:

WHEREAS, Executive Order (EO) No. 174, issued on 24 November 2014,
institutionalized the Philippine Greenhouse Gas Inventory Management and Reporting
System, and designated the Department of Energy (DOE) as the lead agency for the
energy sector's GHG inventory, with responsibility for coordinating the energy sector's
contributions to the country’s NDC:

WHEREAS, the implementation of the NDC of the Philippines is based on sector-
specific mitigation actions and adaptation measures, and is coordinated through the
NDC Technical Working Group (TWG), which was established in 2016 and is chaired
by the Climate Change Commission;

WHEREAS, the implementation of Article 6 of the Paris Agreement, including its
cooperative approaches, market-based mechanisms, and non-market approaches,
creates opportunities for the Philippines to access international finance and technology
through the issuance, authorization, and transfer of carbon credits, subject to
environmental integrity and corresponding adjustments;

WHEREAS, the Technical Working Group for Preparing Carbon Pricing Instruments
for the Philippines (CPI TWG), led by the Department of Finance (DOF), was convened
in January 2024 to study the implementation and impacts of carbon pricing
instruments, specifically the emissions trading system and carbon tax;

Energy Center, Rizal Drive cor. 34th Street, Bonifacio Global City. Taguig City, Philippines 1632
lel. No. (Trunkline) (632) 8479-2900
Website: hutp://www.doe.gov.ph: Email: infocenteradoe.gov.ph

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WHEREAS, RA No. 9513 or the Renewable Energy Act of 2008 (RE Act) establishes
the framework for the accelerated development and advancement of renewable
energy resources, and provides for the different incentives for renewable energy
projects and activities, including a tax exemption on carbon credits;

WHEREAS, RA No. 9136 or the Electric Power Industry Reform Act of 2001 mandates
the DOE to develop policies and procedures and promote a system of energy
development incentives to enable and encourage electric power industry participants
to provide adequate capacity to meet energy demand, and to formulate and implement
programs, including a system of providing incentives and penalties, for the judicious
and efficient use of energy in all energy-consuming sectors of the economy;

WHEREAS, RA No. 11285 or the Energy Efficiency and Conservation Act of 2019
establishes a framework for introducing and institutionalizing fundamental policies on
energy efficiency and conservation, including the promotion of efficient and judicious
utilization of energy and the increase in the utilization of energy efficiency and
renewable energy technologies;

WHEREAS, RA No. 11697 or the Electric Vehicle Industry Development Act of 2022
was enacted to promote the development, commercialization, and utilization of electric
vehicles in the Philippines, with the aim of reducing greenhouse gas emissions,
decreasing dependence on fossil fuels, and fostering innovation and investment in
sustainable transportation;

NOW, THEREFORE, the DOE hereby adopts the following guidelines for the
generation, management, and monitoring of carbon credits in the energy sector.

Section1. Title. This Circular shall be known as the “General Framework for
Carbon Credits in the Energy Sector.”

Section 2. General Principles. This Circular shall establish a clear set of guidelines
for the generation, management, and monitoring of Carbon Credit Certificates (CCC)
from energy sector activities, in accordance with the following principles:

2.1. Assisting and guiding all energy sector stakeholders in effectively
planning and implementing strategies to leverage CCCs, thereby
enabling the reduction of operational costs, compliance with regulatory
and fiscal requirements, access to available incentives, and enhanced
implementation of mitigation efforts;

2.2. Promoting the transparency, credibility, and effectiveness of national and
international climate change mitigation efforts, while ensuring
environmental integrity, social safeguards, and a just energy transition:
and

2.3. Ensuring alignment with the future operationalization of Article 6
engagements, the exploratory implementation of carbon pricing
instruments, and participation in voluntary carbon markets.
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Section 3.

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Definition of Terms. For the purpose of this Circular, the following terms

shall be used and understood to mean as:

3.1.

3.2.

3.3.

3.4.

3.5.

3.6.

3.7.

3.8.

Article 6 of the Paris Agreement or Article 6 refers to an article in the
Paris Agreement that provides the framework for cooperative
approaches, market-based mechanisms, and non-market approaches
between and among countries to contribute to the reduction of GHG
emissions, while promoting sustainable development and environmental
integrity;

Authorization refers to a country-driven process in which a country where
CCCs from a Mitigation Activity are generated, permits the use of such
CCCs, in the form of Mitigation Outcomes, by another country towards
the latter's NDC or Other International Mitigation Purpose (OIMP);

Carbon Credit Certificate or CCC refers to a tradeable certificate
representing one tonne of carbon dioxide equivalent (tCOze) of GHG
emissions reduced or removed from the atmosphere through the
implementation of a Mitigation Activity, verified as real and additional by
accredited independent third-party entities using internationally
accepted standards and methodologies. CCCs shall be referred to as
Internationally Transferred Mitigation Outcomes (ITMOs) when they are
authorized for transfer to another country in accordance with the rules
under Article 6 of the Paris Agreement:

Climate Finance refers to local, national, or international funding
mobilized to support climate change mitigation and adaptation efforts to
help countries reduce GHG emissions and build resilience against
climate change impacts, pursuant to international climate finance
mechanisms, including those under the UNFCCC, the Kyoto Protocol,
and the Paris Agreement, and other multilateral environmental
agreements;

Corresponding Adjustment refers to a mechanism that prevents Double
Counting of Emission Reductions when countries trade CCCs
internationally, by ensuring each reduction is claimed only once;

Designated National Authority or DNA refers to a government body
formally appointed to coordinate, authorize, and approve participation in
international cooperation and projects under Article 6 of the Paris
Agreement;

Double Counting refers to a circumstance where a carbon credit or an
associated environmental benefit is issued, claimed and/or used more
than once;

Eligibility refers to a set of pre-defined qualification criteria for Mitigation
Activities seeking to generate CCCs, subject to validation against carbon
crediting standards and methodologies;
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3.9.

3.10.

Section 4.

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Emission Reduction refers to a reduction in GHG emissions against the
business-as-usual scenario that results from the implementation of
Mitigation Activities;

Energy Certificate refers to a CCC or Renewable Energy Certificate
(REC) issued pursuant to issuances of the DOE, with the definitions,
coverage, and distinctions to be provided in a separate Circular to be
issued by the DOE;

Mitigation Activity refers to a project or program that is implemented to
generate Mitigation Outcomes;

Mitigation Outcome refers to the result of different types of activities,
defined as real, verified, and additional, representing Emission
Reductions or removals;

Other International Mitigation Purpose or OIMP refers to the use of
CCCs for purposes other than the NDC, such as the Carbon Offsetting
and Reduction Scheme for International Aviation (CORSIA) or Voluntary
Carbon Market;

Principles on Carbon Credit Certificates. CCCs generated under this

Circular shall adhere to the principles on carbon credits, which include, but are not
limited to, the following:

4.1.

4.2.

4.3.

4.4.

Real: All Mitigation Activities generating CCCs must be proven to have
occurred and shall only be recognized after the mitigation activity has
been implemented and the Mitigation Outcomes have been verified;

Additional: A Mitigation Activity that may generate CCCs is one that is
undertaken primarily for its Mitigation Outcomes and would not have
occurred in the absence of benefits, monetary or otherwise, from such
CCCs, and whose implementation has demonstrated that the activity
exceeds current legal or regulatory requirements;

Measurable: The Emission Reductions from which CCCs are generated
must be quantifiable against an identifiable baseline using standard
methodologies; and

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
Emission Reductions will be replaced or compensated.
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Section 5. Eligible Mitigation Activities. Eligible Mitigation Activities are Mitigation
Activities in the energy sector that significantly reduce GHG emissions and/or energy
consumption, and are capable of generating CCCs, such as, but not limited to, any or
a combination of the following:

5.1. Voluntary Early Retirement of Coal-Fired Power Plants (CFPPs) -
decommissioning of CFPP ahead of the project's useful economic life:

5.2. Renewable Energy Development — installation and expansion of
renewable energy systems under the RE Act:

5.3. Voluntary Early Decommissioning with Renewable Energy Replacement
- decommissioning of fossil-fuel based power project ahead of the
project's useful economic life and replacing it with renewable energy;

5.4. Energy Efficiency Improvements — 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;

5.5. Emerging Zero- and Low-Carbon Energy Technologies — adoption of
innovative and developing energy technologies, leading to measurable
reductions in energy use and/or emissions, such as, but not limited to,
low-carbon hydrogen and derivatives, nuclear energy for power
generation, and energy storage systems;

5.6. Fuel Switching, Hybridization, or Co-Firing in Power Generation —-
replacement of high-emission fuels with lower-emission alternatives:

5.7. Switch to Electric Vehicles — 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;

5.8. Biofuels Blending — blending of bioethanol, biodiesel, and other fuels
made from biomass resources with fossil fuels used in transportation,
power generation, and other industries; and

5.9. Other Mitigation Activities in the energy sector that have the potential to
generate CCCs, as approved by the DOE.

Provided, however, that classification of a project under any of the above eligible
Mitigation Activities does not automatically entitle the project for the generation of
CCCs. Only projects that are supported by a recognized carbon crediting standard
and a corresponding methodology shall be eligible for the generation of CCCs.

Notwithstanding the above-mentioned enumeration, the inclusion of a specific activity
in the NDC Unconditional activities shall automatically disqualify the activity as an
eligible Mitigation Activity for purposes of generating CCCs.
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Section6. Energy Certificates. CCC and REC are categorized as Energy
Certificates, as defined in a separate Circular to be issued by the DOE. For the
avoidance of doubt, the rules on RECs are not covered by this Circular. The accounting
of CCCs, in conjunction with other Energy Certificates, is outlined in Section 9 of this
Circular.

Section7. Nationally Determined Contributions. NDCs are the country's national
plan for climate action under the Paris Agreement, outlining mitigation actions and
adaptation measures. To achieve the NDC targets, the identified Policies and
Measures (PAMs) are categorized as Unconditional and Conditional, as defined in the
Philippines’ latest NDC submission to the UNFCCC.

Mitigation Activities accounted as NDC Unconditional activities by the NDC TWG shall
be considered ineligible for generating CCCs in accordance with Section 5 of this
Circular.

Section 8. Carbon Rights under the Energy Sector. Carbon rights are legal
entitlements to the benefits derived from Emission Reductions or emission removals
from the eligible Mitigation Activities under Section 5 of this Circular.

8.1. Unless otherwise provided in relevant DOE circulars, such as
Department Circular (DC) Nos. DC2021-05-0011 (Guidelines for the
Endorsement of Energy Efficiency Projects to the BOI for Fiscal
Incentives), DC2022-03-0004 (Guidelines for the Endorsement of
Energy Efficiency Strategic Investments to the Board of Investments for
Fiscal Incentives), DC2024-01-0001 (Hydrogen Energy Guidelines), and
DC2023-04-0008 (Prescribing the Policy for Energy Storage System in
the Electric Power Industry), the ownership of carbon rights for
generated CCCs shall be attributed to the project proponents of
Mitigation Activities identified in Section 5 of this Circular.

8.2. Project proponents shall have full rights to these Mitigation Activities,
including the right to use, sell, trade, or transfer CCCs generated from
such activities. These CCCs may be traded, transferred, or retired at the
option of the project proponent.

8.3. Project proponents shall have entitlement to all benefits and bear all
associated risks arising from CCCs. They shall also have the authority
to engage in transactions involving these CCCs, whether in local or
international markets, under voluntary or compliance frameworks.

Section 9. Provision against Double Counting. Consistent with prevailing rules
and regulations, Double Counting of CCCs generated from any Mitigation Activity shall
not be allowed. CCCs shall be traded or used only once within and among the carbon
markets defined in Section 10 of this Circular.

For Mitigation Activities generating renewable energy, the energy output of a single
renewable energy facility with dedicated revenue meter shall only generate one type
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of Energy Certificate, either CCC or REC, to prevent Double Counting of the same
environmental benefit.

Section 10.

Carbon Markets. Unless otherwise provided in this Circular, CCCs can

be traded or used in offsetting in the following markets:

10.1.

10.2.

10.3.

Section 11.

International Compliance Market:
Domestic Compliance Market; and
Voluntary Carbon Market (VCM).

International Compliance Market. An International Compliance Market

is a carbon market established under Article 6 where a participant can trade CCCs,
specifically ITMOs, from eligible Mitigation Activities.

1 fs tI

11:2.

Participants. Any entity to which carbon rights from an eligible Mitigation
Activity under this Circular are attributed may participate in the
International Compliance Market. The participation of such entity shall
be facilitated by the Philippines, through the DOE, upon prior
Authorization of the ITMOs.

Conditions for Authorization of ITMOs. Subject to Section 11.3 of this
Circular and other conditions as may be provided under applicable rules
and guidelines, the following shall apply in the Authorization of ITMOs:

11.2.1. The Unconditional targets of the NDC shall not be eligible for
Authorization of ITMOs;

11.2.2. Conditional targets of the NDC shall be eligible for Authorization
of ITMOs.

Proponents of Mitigation Activities shall ensure that financial
Additionality, the criteria for which are set by the applicable standard and
a corresponding methodology, can be demonstrated for the project,
taking into account the different sources of financing, including domestic
and international Climate Finance.

11.2.3. All activities generating CCCs for purposes other than
Authorization of ITMOs shall be used towards achieving the
Philippines’ own NDC targets and therefore shall not be subject
to a Corresponding Adjustment.

Applicable Guidelines. The stipulations under international bilateral or
multi-lateral agreements of the Philippines with a foreign sovereign or
entity on the rules and mechanisms for the relevant international
compliance market shall be recognized.
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The provisions of this Circular shall be suppletory to bilateral or multi-
lateral agreements when such provisions do not contradict the
Stipulations of the said agreements. If necessary, the DOE shall, in
consultation with stakeholders, issue guidelines complementary to a
specific bilateral or multilateral agreement for its proper implementation.

Domestic Compliance Market. A Domestic Compliance Market or

Emissions Trading System (ETS) is a carbon market recognized by the DOE where
participants, which are mandated to reduce its emissions to meet the cap set under
rules and guidelines to be promulgated by a competent authority, may trade
allowances for compliance. CCCs from eligible Mitigation Activities may be allowed to
serve as offsets for compliance with the ETS.

12:1.

12.2.

Section 13.

Participants. Entities that have eligible Mitigation Activities listed under
Section 5 of this Circular may participate in a Domestic Compliance
Market.

Applicable Guidelines. Within six (6) months after the issuance of the
Carbon Pricing Instruments (CPI) Policy by the CPI TWG or a competent
authority, the DOE shall, in consultation with stakeholders, issue the
corresponding guidelines on the Domestic Compliance Market for
energy-related activities. The provisions of this Circular shall be
suppletory to the CPI Policy insofar as such provisions do not contradict
the CPI Policy regarding energy activities.

Voluntary Carbon Market. AVCM is a market-driven mechanism where

domestic and foreign entities may voluntarily trade CCCs generated from eligible
Mitigation Activities.

13.1.

Participants. Entities that generate CCCs from eligible Mitigation
Activities listed under Section 5 of this Circular may trade such CCCs in
a VCM. Participation of such entities in the VCM shall be subject to the
following conditions:

13.1.1. Entities implementing VCM projects may or may not be granted
Corresponding Adjustments. The application of Corresponding
Adjustments for CCCs generated from VCM projects shall be in
accordance with rules and guidelines to be issued by the DOE
pursuant to this Circular.

13.1.2. Entities implementing VCM projects must apply for formal
recognition, explicitly stating the intended use of the CCCs,
whether for domestic use or as OIMP, to enhance the GHG
emissions accounting for the Philippines.

13.1.3. Entities seeking to generate CCCs from VCM projects for
domestic voluntary commitment purposes shall not require
Corresponding Adjustment and are not subject to Authorization.
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13.2.

Section 14.

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13.1.4. Entities seeking to generate CCCs from VCM projects for OIMP
shall require Corresponding Adjustment and must apply for
Authorization prior to issuance.

13.1.5. The Task Force on Energy Carbon Credits (TFECC) shall
recommend to the DOE the guidelines necessary for the
transparent, fair, competitive, and credible trading of CCCs in
the VCM, in accordance with this Circular and other relevant
policies.

Applicable Guidelines. Within six (6) months after the effectivity of this
Circular, the DOE shall, in consultation with stakeholders, issue the rules
and guidelines for VCM for CCCs generated from eligible Mitigation
Activities in the energy sector.

Task Force on Energy Carbon Credits (TFECC). The DOE

Greenhouse Gas Inventory Team, formed through DOE Department Order No.
DO2018-03-0005 and supporting Special Orders, shall also function as the TFECC. It
shall serve as the permanent body to oversee activities related to this Circular,
including, but not limited to, the following:

14.1.

14.2.

14.3.

14.4.

14.5.

Eligibility Requirements. Updating and approval on the Eligibility of
Mitigation Activities covered by this Circular;

Registration and Reporting Requirements. Registration with, and
endorsement by, the DOE of eligible Mitigation Activities and necessary
reporting to the DNA;

Carbon Crediting Standards. Recognition of carbon crediting standards
and corresponding methodologies used to quantify CCCs generated
from an eligible Mitigation Activity, consistent with the principles of CCC
outlined in Section 4 of this Circular.

Unless otherwise provided in policies, rules and guidelines,
internationally recognized carbon crediting standards and
methodologies shall be allowed.

Any eligible Mitigation Activity in the energy sector under Section 5 of
this Circular, which complies with carbon crediting standards and
methodologies set by the TFECC shall be eligible to generate CCCs;

Validation and Verification. Oversight of validation of Mitigation Activities
and verification of CCCs, including facilitating the accreditation of
independent third-party validation and verification bodies;

Carbon Accounting and Tagging. Tagging of CCCs as ITMOs or OIMP.
among others, depending on the intended purpose declared by the
proponent during the application for the source Mitigation Activity, and
proper accounting of CCCs with other Energy Certificates;
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14.6. Certification under RE Act. |ssuance of certification as required under
Section 15 of the RE Act for the grant of exemption from any and all
taxes on the proceeds from the sale of CCCs; and

14.7. Other matters. Any other matters that will facilitate the proper
implementation of this Circular.

Within three (3) months from the effectivity of this Circular, the DOE shall formally
constitute the TFECC for the proper implementation of this Circular.

Section 15. Non-Market Approaches. The DOE shall establish and promote non-
market approaches to support the country’s compliance with the NDC, such as
capacity-building, technical assistance, knowledge sharing, and the development of
climate-resilient technology programs, to ensure alignment with the global objectives
of the Paris Agreement. The DOE may seek international cooperation and support for
the financing and scaling up of these programs.

Non-market approaches are climate cooperation strategies between countries that do
not involve carbon trading or financial transactions for Emission Reductions, focusing
instead on collaboration, capacity-building, and technology transfer to support climate
goals.

Section 16. Regulatory Support. The DOE shall coordinate with relevant
government agencies, including but not limited to the Department of Environment and
Natural Resources and DOF, pursuant to their respective mandates relating to climate
action and international cooperation, for regulatory support as may be necessary for
the proper implementation of this Circular.

Section 17. Measurement, Reporting, Validation and Verification Requirements.
All Mitigation Activities developed, and their corresponding CCCs generated under this
Circular shall be in accordance with the measurement, reporting, validation and
verification procedures developed by the DOE as well as those issued by the DNA.

Section 18. Guidelines Review. Upon issuance of the general framework for the
implementation of the Paris Agreement by the DNA, the DOE shall review and amend
this Circular and other relevant issuances within six (6) months from the effectivity of
the general framework.

The DOE shall issue supplementary guidelines, as necessary, and in consultation with
stakeholders, in order to continually improve the energy sector's carbon crediting
system essential in supporting carbon markets and carbon pricing initiatives.

Section 19. Transitory Clause. Until the adoption of a relevant Article 6 guidance on
carbon markets and carbon pricing, or any equivalent issuance/s, and which
provisions run counter to any of the provisions of this Circular, the provisions of this
Circular shall remain in full force and effect.
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Section 20. Separability Clause. Should any provision of this Circular be
subsequently declared invalid or unconstitutional, such parts that are not affected shall
remain in full force and effect.

Section 21. Repealing Clause. All other rules and regulations or parts thereof that
are inconsistent with this Circular are hereby repealed, amended, or modified
accordingly.

Section 22. Effectivity. This Circular shall take effect fifteen (15) days after its
publication in at least two (2) newspapers of general circulation. A copy of this Circular
Shall be filed with the University of the Philippines Law Center — Office of the National
Administrative Register (UPLC-ONAR).

Issued this SEP a3 2 the DOE, Energy Center, Rizal Drive cor. 34'" Street,
Bonifacio Global City, Taguig City.

. GARIN
retary