As part of Climate Week NYC 2024, Sustainability Economics hosted a critical panel discussion on transition credits. The panel, titled Transition Credits: A New Financial Instrument to Accelerate and Enable Profitable CFPP Transitions,” took place on September 26th at One World Trade Center, New York.
The panel featured key voices from the carbon markets and clean energy sectors, including John Lo, Founder of the Asia Carbon Institute, Ignatius Denny Wicaksono, Executive Vice President at the Indonesia Carbon Exchange, Scott Eaton, CEO of Carbonplace, and Ely Sandler, Managing Partner at Article Six Group and Fellow at the Harvard Kennedy School.
Moderated by Kasu Venkata Reddy, CEO and Co-founder of Sustainability Economics, the discussion explored the critical role transition credits could play in financing and enabling a smooth and profitable transition from fossil fuels.
Transition credits incentivize the early retirement of coal-fired power plants by compensating operators. However, experts emphasized the need to scale these credits, particularly given the staggering $6 trillion annual investment required by 2030 to finance the global shift to clean energy.
Also read: Sustainability Economics Highlights Pathway to Profitable Energy Transition at Climate Week NYC 2024
Scott Eaton emphasized the value of financial credits in addressing the carbon footprint.“Financial credits are a real good financial tool and we should promote them in a variety of ways. They can be additional to the products themselves and should become something which the carbon markets and corporate clients look to have to offset their footprints,” Eaton explained.
Ely Sandler highlighted that in Asia, the high cost of capital makes financing renewable energy projects more challenging compared to regions like Europe and the U.S. While renewable energy is more cost-effective over time due to free resources like sunlight, the significant upfront investment required to build renewable infrastructure poses a barrier.
These projects recoup costs through long-term savings by eliminating fuel expenses, but in regions with high capital costs, borrowing to fund these projects becomes difficult.
“The problem is the upfront costs of renewable energy projects are massive, and they are paid back by the savings from not having operational costs over the asset’s lifetime. But with a high cost of capital, it’s difficult to borrow to build these assets” Sandler explained.
Ignatius Denny Wicaksono also stressed the importance of proximity to project sites in Asia, noting that this close location allows for better monitoring and performance tracking. “We are based here in multiple locations in Asia so that we can have closer proximity to where the projects are. We believe Asia has a lot of potential for decarbonization, including the phasing out of coal-fired power plants.”
He added, “In our framework, although we follow traditional ISO standards and the coal carbon principle (ICBCM), we also insist that technology like IoT is applied as a transitional line of defense for coal plant phase-outs. We insist phase-out projects regularly monitor the performance of units so we can be certain they are running at reduced rates until they eventually shut down.”
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One of the most pressing challenges discussed was the high cost of capital in Asia, making the transition to renewable energy more difficult than in regions like Europe and the US.
The panelists agreed that transition credits must be integrated into global compliance frameworks like the Paris Agreement’s Article 6 mechanism to realize their full potential. By combining financial innovation, regulatory support, and technological oversight, transition credits could play a pivotal role in global decarbonization efforts.
