Lenders to power producers are witnessing increasing momentum in developing a new type of carbon credit designed to facilitate the phase-out of coal-fired power capacity.
Bloomberg reported that entities such as the Monetary Authority of Singapore have supported the creation of transition credits, which could be sold to help compensate for the revenue loss from power assets that are decommissioned earlier than planned.
Coal consumption, responsible for the largest share of global power sector emissions, reached a record high last year due to growth in China and India.
Achieving global goals to phase out coal will depend on strategies to transition Asia’s developing economies to cleaner alternatives and manage the shutdown of a relatively young fleet of coal plants.
According to a report on the development of new credits by McKinsey & Co. and Singapore’s central bank last year, shutting down a 1-gigawatt plant five years early would necessitate approximately $310 million in financing.
At the Bloomberg Sustainable Business Summit, Tan Su Shan, Institutional Banking Group Executive at DBS stated that a credit price of around $25 to $35 per ton would likely be effective.
Philippines-based Acen Corp.’s plant in South Luzon is among the facilities targeted by pilot projects testing strategies to expedite coal closures.
Read more: New type of carbon credits gaining momentum to phase out coal plants in Asia
Acen is collaborating with Singapore’s central bank to potentially shorten the plant’s operating life from 2040 to 2030 using transition credits, Jaime Urquijo, Chief Sustainability and Risk Officer at Acen’s parent company Ayala Corp., shared at the summit.
Although the concept is progressing, Urquijo noted that more work is needed. “The methodology for a transition credit still doesn’t exist and is currently being developed,” he said.
