MAS to launch consultation on inclusion of coal phase-out criteria in Singapore’s taxonomy

THE Monetary Authority of Singapore (MAS) will be including specific criteria on the managed phase-out of coal-fired power plants in the Singapore taxonomy, and will be launching a consultation on its draft proposals within the next few weeks, said Gillian Tan, chief sustainability officer of the central bank.

This means that the final version of Singapore’s taxonomy, which was supposed to be published in June this year, might be pushed back for market participants to study the additional criteria on coal phase-out.

The decision to include coal phase-out in the taxonomy, which has been officially named the Singapore Asia Taxonomy, came about after extensive feedback during its third consultation which ended in March this year.

“So we definitely want to take some time to really cover it well... and review the feedback that came in,” said Tan, who was speaking to the media on Tuesday (May 30).

The taxonomy was developed by the Green Finance Industry Taskforce, an industry-led initiative convened by MAS to accelerate the development of green finance.

Tan said that financial institutions should look to the taxonomy for policy guidance on the financing of such projects.

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The inclusion of coal phase-out in the Singapore taxonomy comes after the second version of the Asean taxonomy, updated in March this year, spelled out clear conditions under which coal phase-out can obtain transition financing. 

In addition to these taxonomies, financial institutions can also get regional guidance being developed by a workgroup under the Asia-Pacific network of the Glasgow Alliance for Net-Zero, which MAS is a part of.

Laying out specific criteria for coal phase-out in the Singapore taxonomy may accelerate financing in what is typically considered a controversial area of financing that some banks have been hesitant to go into given their prior public commitments to exit coal financing.

Tan said that the financing for coal phase-out is necessary and that MAS is supportive of banks and other financial institutions participating in coal phase-out projects, provided that they take reference from global best practices, standard-setters and science-based experts.

An example is the pathway set out by the International Energy Agency, which calls for unabated coal power plants to be phased out by 2030 for developed markets, and by 2040 for emerging markets.

“We need to ensure that there’s credibility. So if a bank finances the managed early phase-out of coal, they should only do so where this is helpful to climate challenge and where it is credible,” said Tan.

“I think what will be important is that our financial institutions take their cues or take their guidance from international standards that are set.”

When asked how banks can avoid tarnishing their reputations if they start unwinding their policies to exit coal, Tan said that credibility is key.

“It means being very specific and granular about what sort of requirements must be in place for us to consider the phase-out to be responsible, early and helpful to the climate cause,” she said.

Regulators, financial institutions, standard-setters and scientific experts have to develop science-based criteria that must be met for the early retirement of coal-fired power plants to be viable and credible.

“We need more of that global ecosystem alignment. Because once we have that, then I think everyone feels safer to get on board,” Tan added.

“But more importantly, everyone also feels assured that they are financing responsibly.”

Credibility issues, a lack of clear endorsement and guidance, as well as economic viability have been the main challenges holding back the early phase-out of coal-fired power plants.

But while progress has been made around credibility and guidance, ensuring the economic viability of such projects has some way to go, said Tan.

Current models are premised on bringing the costs of capital down to buy out the owners of these plants, but there have been difficulties in scaling such transactions.

The use of carbon credits or the grouping of power plants with similar risk characteristics to bring about some standardisation could represent some possible avenues to improve the economic viability of coal phase-out projects.

MAS will also be setting out a road map for mandatory climate disclosures for financial institutions once the International Sustainability Standards Board standards – which will serve as the global baseline for climate disclosures – are finalised in the second half of this year.

This builds on current sustainability disclosure requirements in which financial institutions have to publish sustainability reports based on recommendations by the Task Force on Climate-related Financial Disclosures.

As for whether the central bank would consider providing incentives to banks by attaching favourable risk weighting to greener or more sustainable portions of their portfolios, Tan said that MAS, as well as global financial regulatory bodies, are still studying this possibility.

She added that this is a policy that has to be decided collectively at the global regulatory level.