MAS launches transition credits coalition to hasten coal phase-out

The coalition will use the pilot projects to test the use of high-integrity transition credits in coal phase-out deals, MAS said, adding that the credits would need to meet the highest standards currently.

Traction partners include Citi, DBS Bank, Temasek, the Rockefeller Foundation, the Asian Development Bank, the International Energy Agency and World Wide Fund for Nature (WWF) Singapore.

Finding ways to finance early retirement of coal-fired power plants in Asia has become a key focus for MAS, big development banks, regional governments and financial institutions. About 60 per cent of the power generated in the Asia-Pacific comes from burning coal, whose emissions are the leading cause of climate change.

Hence, cutting carbon emissions while helping nations in the region scale-up renewable energy investments is seen as a key way to fight climate change and curb air pollution.

MAS has been working with a wide variety of partners to develop the concept of transition credits to help de-risk investments eligible for early coal retirement, which can be costly because such power plants typically have long-term power-purchase contracts with utilities. And many of Asia’s power plants are 12 to 15 years old, meaning they have several decades of operating life, and revenue generation, left.

“If the world does not break its over-reliance on coal, current and planned coal-fired power plants will release 273 billion tonnes of carbon dioxide over their operational lifetimes and trigger a catastrophe for our planet and the people living on it,” president of the Rockefeller Foundation, Dr Rajiv J. Shah, said in a statement.

“To retire coal plants and avoid those emissions, we need to create the right incentives for asset owners and communities, and mobilise additional finance,” he added.

For the first pilot, MAS is collaborating with listed energy platform of the Ayala Group, ACEN Corporation of the Philippines, and the Rockefeller Foundation.

The aim is to trial the Rockefeller Foundation-led Coal to Clean Credit Initiative (CCCI) methodology, or rulebook, governing how power plant owners and their investors can use carbon offsets to fund early plant retirement.

The partnership to explore piloting will focus on a 246MW coal plant owned by ACEN’s South Luzon Thermal Energy Corporation. Climate Smart Ventures, an advisory firm focused on energy transition, will be coordinating with ACEN and others on the project.

The aim is to retire the plant by as soon as 2030, which is 25 years ahead of the end of its technical life, using a mix of carbon credit revenues and low-cost climate finance.

The CCCI methodology has been developed over several years and is set to be formally reviewed by Verra, the world’s leading organisation that verifies carbon credit methodologies, projects and issues carbon offsets, the foundation said.

“The methodology will allow you to take an accelerated coal retirement project and its replacement with clean energy, and to measure and monetise carbon savings from that transaction,” said Dr Joseph Curtin, managing director of the power and climate team at the Rockefeller Foundation.

“It allows you to quantify what the potential carbon savings would be and then once you know the price, you know what the value proposition is to accelerating the closure of that coal plant early,” he told The Straits Times.

Each carbon credit would represent a tonne of emissions avoided by shutting a power plant early. In many cases this is likely to be in the millions of tonnes.

The CCCI is mainly a de-risking tool to provide an additional revenue stream and making a phase-out deal more appealing to other investors, the foundation said.

Dr Curtain said not all power plants would be eligible and that the methodology was very conservative in terms of calculating emissions reduction credits that could be issued. And a key element was ensuring the power plant owners committed to not building any new coal power plants anywhere else in the world.

Under the second pilot, the Asian Development Bank said it had been appointed transaction adviser by the Power Sector Assets and Liabilities Management Corporation, a Philippine government-owned corporation, to develop and execute the transaction structure, including the use of transition credits.

The aim was to retire the firm’s 200MW coal plant in Mindanao five years early, in 2026. The current power-purchase agreement ends in 2031. The plant, commissioned in 2006, has technical life up to 2046, the ADB said.