The Monetary Authority of Singapore (MAS) today announced the launch of the Transition Credits Coalition (TRACTION) and two pilot projects to test the use of high-integrity transition credits in transactions for the early retirement of coal-fired power plants (CFPPs).

Supported by close to 30 members and knowledge partners across key stakeholder groups, TRACTION will study the challenges and propose solutions to scale the early retirement of CFPPs in Asia through high-integrity carbon credits. Pilot projects will be separately undertaken to test the feasibility of integrating transition credits for early CFPP retirement. TRACTION and the pilot projects will build on the concepts laid out in the working paper jointly published by MAS and McKinsey & Company in September 2023.

Transition credits are high-integrity carbon credits generated from the emissions reduced through retiring a CFPP early and replacing this with clean energy sources. They serve as a complementary financing instrument to reduce the economic gap [1] for the early retirement of CFPPs. To be considered high integrity, these credits must be aligned with globally recognised standards such as the Core Carbon Principles (CCPs) set out by the Integrity Council of Voluntary Carbon Market (ICVCM), and other Article 6 integrity requirements, as mandated by UNFCCC. MAS will explore ways for transition credits to align with the CCPs, in consultation with the ICVCM.

A whole-of-system approach is needed to develop transition credits into a viable market solution. TRACTION, comprising members and knowledge partners from carbon credit services, energy financing, project development, risk management and non-governmental organisations, will identify system-wide barriers and develop solutions for transition credits to be utilised as a credible financing instrument. These include identifying robust crediting approaches that can be applied to regulated and deregulated electricity markets, mitigating risks of non-delivery of credits, and exploring avenues to build buyers’ confidence in transition credits. TRACTION will conduct its work over a two-year period. See Annex (120.1 KB) for a list of the key members and knowledge partners.

  • MAS announced two pilot projects to explore and test the practicality of different approaches in integrating high-integrity transition credits in the early retirement of CFPPs. The pilot projects are in collaboration with – ACEN Corporation and Coal-to-Clean Credit Initiative [2] , to accelerate the retirement of the South Luzon Thermal Energy Corporation coal plant in Philippines. Climate Smart Ventures, an advisory firm focused on energy transition, will be coordinating the project; and the Asian Development Bank (ADB), which is advising the Government of Philippines over the retirement of a coal plant in Mindanao under its Energy Transition Mechanism [3] .

While TRACTION members and partners will not be directly involved in any pilot transactions, insights from these pilots will contribute to TRACTION’s work in examining the possible standardisation of approaches that can be replicated across markets.

Mr Leong Sing Chiong, Deputy Managing Director (Markets & Development), MAS, said, “We must take an ecosystem approach to address the complexities of energy transition. The strong support for TRACTION is a testament that the market sees the importance of exploring the potential of carbon financing as a complementary mechanism to finance energy transition in Asia. MAS is excited to be collaborating with our partners to assess the practicality and viability of integrating transition credits via the two pilot transactions. Through TRACTION and learnings from the pilot transactions, we hope to support the region in scaling the early retirement of CFPPs.”

For more information, please visit MAS’ website at https://www.mas.gov.sg/development/sustainable-finance/transition-credits .

  1. [1] The economic gap represents the forgone revenues arising from retiring a CFPP ahead of the end of its existing power purchase agreement. Revenues from the sale of transition credits, in conjunction with other financing mechanisms, can improve the economic viability of retiring the CFPP early and make the phase-out transaction bankable.
  2. [2] For information on the Coal-to-Clean Credit Initiative, please see: The Rockefeller Foundation and GEAPP To Design the World’s First ‘Coal-To-Clean’ Credit Program in Emerging Economie
  3. [3] More information about ADB’s Energy Transmission Mechanism can be found here: https://www.adb.org/what-we-do/energy-transition-mechanism-etm

 

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