MAS launches coalition, two pilots to test 'transition credits' for early retirement of coal plants

The coalition’s members include Temasek, GenZero, Citi, Standard Chartered, DBS and OCBC.

The Monetary Authority of Singapore (MAS) has launched 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).

The Dec 4 launch follows a working paper jointly published by MAS and McKinsey & Company in September.

Traction is supported by close to 30 members and knowledge partners, including Temasek, GenZero, Citi, Standard Chartered, DBS and Oversea-Chinese Banking Corporation (OCBC). It will study the challenges and propose solutions to scale the early retirement of CFPPs in Asia through “high-integrity carbon credits”, says MAS.

These so-called transition credits are generated by retiring a CFPP early and replacing it with clean energy sources. With the funds raised from selling these offsets, this “complementary financing instrument” could incentivise plant owners to retire their assets early and replace them with renewable energy.

To be considered “high-integrity”, these credits must be aligned with globally recognised standards like the Core Carbon Principles set out by the Integrity Council of Voluntary Carbon Market (ICVCM) and other Article 6 integrity requirements, as mandated by the United Nations Framework Convention on Climate Change (UNFCCC).

The 10 Principles are a global benchmark for high-integrity carbon credits. Launched in April, the criteria span governance, emissions impact and sustainable development. MAS says it will consult the ICVCM and explore ways for potential transition credits to align with the Principles.

A “whole-of-system approach” is needed to develop transition credits into a viable market solution, says MAS. Over two years, Traction will identify “system-wide barriers” and develop solutions for transition credits to be used as a credible financing instrument.

These include identifying robust crediting approaches that can be applied to both regulated and deregulated electricity markets, mitigating risks of disrupted credits and exploring avenues to build buyer confidence in transition credits.

Two pilot projects

MAS also announced two pilot projects to explore different approaches in integrating high-integrity transition credits in the early retirement of CFPPs.

One pilot will be a collaboration with Philippines-headquartered Acen Corporation and the Rockefeller Foundation-backed Coal-to-Clean Credit Initiative. The pilot aims to accelerate the retirement of the South Luzon Thermal Energy Corporation coal plant in the Philippines.

Climate Smart Ventures, a Singapore-headquartered advisory firm focused on energy transition, will be coordinating the project.

The other pilot is a collaboration with the Asian Development Bank (ADB), which is advising the Government of Philippines on the retirement of a coal plant in Mindanao under its Energy Transition Mechanism (ETM).

Launched in 2021, ADB’s ETM aims to use concessional and commercial capital to accelerate the retirement or repurpose of fossil fuel power plants and replace them with clean energy alternatives.

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 a possible standard approach that can be replicated across markets, says MAS.

Leong Sing Chiong, deputy managing director (markets and development) at MAS, says an ecosystem approach is needed 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,” Leong adds. “MAS is excited to be collaborating with our partners to assess the practicality and viability of integrating transition credits via the two pilot transactions.”

Read more about the early retirement of coal-fired power plants:​

• MAS launches Singapore-Asia Taxonomy, world's first to include 'transition' category (December)

• 'Transition credits' could sweeten deal for early retirement of coal-fired power plants: MAS, McKinsey paper (September)

• MAS panel discusses ways to phase out coal-fired power plants, adopt alternative fuels, attract private financing (September)

• MAS launches public consultations on coal phase-out, voluntary code of conduct for ESG rating agencies (June)

• Retiring coal-fired power plants is the 'mother of all transitions': MAS (June)

• GFANZ APAC Network launches public consultation on proposal to phase out coal-fired power plants (June)

• MAS to launch consultation on qualifying managed phase-out of coal-fired power plants (May)

Follow The Edge Singapore’s coverage of COP28 here.

See Also:

• Click here to stay updated with the Latest Business & Investment News in Singapore

• World Bank and Singapore-backed CAD Trust integrates Bhutan as its first national registry

• CDL first to obtain OCBC's 1.5°C loan with three-year GBP200 mil sustainability-linked facility

• COP28 President's fossil fuel phase-out talk draws condemnation

• Read more stories about where the money flows, and analysis of the biggest market stories from Singapore and around the World

• Get in-depth insights from our expert contributors, and dive into financial and economic trends

• Follow the market issue situation with our daily updates

• Or want more Lifestyle and Passion stories? Click here