COP30: Singapore, Philippines and Temasek support the use of transition credits in decarbonisation
One-third of Asia’s coal plants have the potential to generate such credits, says a report
[SINGAPORE] The governments of Singapore and the Philippines, as well as Singapore investment company Temasek, on Monday (Nov 10) expressed support for the development of high-quality transition credits as a financing mechanism to facilitate the early shut-down of coal-fired power plants in Asia.
They, along with 18 other entities, said they will participate in energy transition credit projects through offtake, financing and underwriting arrangements, in a bid to shore up market confidence for this new asset class.
The 18 entities include Singapore’s three banks: DBS , OCBC and UOB .
Transition credits were first proposed by the Monetary Authority of Singapore (MAS) and McKinsey in 2023 as a means to compensate coal plant owners for income lost when their plants are closed early.
These credits would be generated when a coal plant was retired earlier than scheduled and replaced by renewable energy.
The idea was for this new class of credits to increase the economic viability and scalability of early-retirement projects, which have long struggled to take off.
In a media release on Monday, MAS said that the “collective expression of interest from corporates, financial institutions, multilateral development banks and sovereigns” provides plant owners and host governments with “increased confidence to proceed with earlier coal retirement”.
The collective statement in support of transition credits was released alongside a summary report by MAS, which highlighted possible solutions to scale the application of energy transition credits across Asia.
Corporates look for government buy-in
Among the report’s findings were that voluntary corporate buyers would have the confidence to purchase transition credits if there were sovereign participation, or if they were recognised by international carbon-offsetting compliance schemes such as the Carbon Offsetting and Reduction Scheme for International Aviation.
“While there is clear interest, many prospective buyers continue to look for sovereign participation or compliance scheme recognition as they remain cautious due to the nascency of this asset class,” read the report.
Sovereign participation can be in the form of direct offtake, integration into national compliance regimes or recognition under Article 6 of the Paris Agreement, which governs global carbon trading rules.
Another key finding from the report was that about one-third of coal-fired power plants in Asia have the potential to generate transition credits, if they are shut ahead of schedule and replaced by renewable energy.
With a total generation capacity of about 207 gigawatts, the early retirement of these coal plants would represent emissions reductions of about 1 gigatonne of carbon dioxide equivalent annually. This means that there is a potential pipeline of transition credits if these coal plants are shut early.
The coal-fired power plants deemed eligible for early retirement were assessed to have the potential to meet a set of selection criteria developed by members of the Traction coalition.
The members had based their criteria on four characteristics that define high-integrity transition credits.
These are: additionality, which refers to how a project’s emission reductions would not have happened without the revenue generated from selling the credits; permanence of emissions reductions and mitigating risks of leakage; robust quantification of emissions reductions; as well as contributions to “just transition” and sustainable development goals.
A “just transition”, which refers to minimising the economic and social fallout arising from a country’s energy transition, is central to the credibility and long-term viability of early coal phase-out transactions in Asia, read the report. That’s because revenues from carbon credits should go beyond short-term compensation, and build long-term community resilience through re-employment, upskilling and business support.
“Asia holds substantial potential for generating high-integrity energy transition credits, but success depends on addressing region-specific needs and ensuring energy reliability, access and affordability,” stated the media release.
The report, which was developed by members of an international coalition advancing transition credits as a new asset class, follows an interim publication released at last year’s climate negotiations held in Baku, Azerbaijan.
Blended finance
Singapore’s ambassador for climate action, Ravi Menon, announced the collective support for transition credits as well the release of the report at the opening ceremony of the Singapore Pavilion at this year’s United Nations climate change conference – also known as COP30 – currently taking place in Belem, Brazil.
He also gave updates on Singapore’s blended finance initiative, also known as Financing Asia’s Transition Partnership, or Fast-P.
One of the three funds under Fast-P, which focuses on replacing fossil fuel-based energy with renewables, will be structured into two investment sleeves.
Clifford Capital, which is the fund manager for the Energy Transition Acceleration Finance, has been engaging with several regional banks and international capital providers to see how the phasing out of coal-fired power plants, as well as the replacement of existing or planned carbon-based energy sources with renewable energy can be managed under two distinct investment strategies.
The Green Investment Partnership, which focuses on the green economy and is the first of the three funds that recently achieved its first close of US$510 million, will be committing US$110 million to three sustainable infrastructure investments in South and South-east Asia.
These three investments will cover several projects and is expected to collectively reduce one million tonnes of emissions annually, said Menon.
The third fund, which looks at how hard-to-abate sectors can be decarbonised, is broadening its coalition of catalytic capital providers and commercial investors. Partners such as insurer Great Eastern has expressed intent to join the Industrial Transformation Infrastructure Programme.
A sovereign-backed framework on corporates’ use of carbon credits has also been endorsed by 10 national governments, announced Menon.
The set of shared principles was launched recently by a government-led coalition focused on developing carbon markets to provide guidance consistent across jurisdictions on how companies can voluntarily purchase carbon credits to offset their emissions in a credible manner.
Menon also said that a few more countries have agreed to join the coalition, which is led by the governments of Singapore, the United Kingdom and Kenya, with France and Panama as founding members.
Decoding Asia newsletter: your guide to navigating Asia in a new global order. Delivered to your inbox. Free.
Copyright SPH Media. All rights reserved.
