Singapore Weighs Novel Carbon Credits for Coal Phaseout in Asia

(Bloomberg) -- Singapore’s central bank released a proposal on the issuance of novel carbon credits tied to the phase out of coal-fired power plants, a move to ramp up financing for energy transition projects in Asia.

The Monetary Authority of Singapore’s proposal is for a new asset class called “transition credits” whose sales can make up for the revenue shortfall associated with the early retirement of coal plants. The credits could attract banks and other forms of private capital to transition financing, it said in a working paper produced with McKinsey & Co.

“If high-integrity carbon credits can be generated from future emissions reduction due to early coal retirement transactions, the additional revenue from selling the credits could significantly improve the economic case for CFPPs to be retired early,” Leong Sing Chiong, deputy managing director of the markets and development group at MAS, said at a briefing Tuesday.

The proposal comes as countries such as South Africa, Indonesia and Vietnam strike new climate finance deals intended to help them shift to cleaner economies. Under the so-called Just Energy Transition Partnerships, richer nations including the US and Japan, as well as banks, provide a mixture of grants and loans to emerging markets to phase out coal.

Singapore is keen for such transition finance programs to succeed in Asia, where coal plants account for a third of emissions and tend to be relatively young, with an average age below 15 years. But that effort is being hindered by a shortage of grants and fears about greenwashing. For example, many of the banks seeking to help channel a combined $10 billion toward the program in Indonesia have coal exclusion policies. To fund the winding down of coal plants, they’ll have to change those policies, risking accusations of greenwashing.

The involvement of MAS could further legitimize the funding of a coal phaseout and reduces the greenwashing risk. The proposal on carbon credits also opens up an alternate source of funds for the phaseout of coal plants ahead of the end of existing power purchase agreements. The paper stopped short of developing a new carbon credit methodology, however.

The credits should ideally be aligned with carbon principles set out by the Integrity Council for the Voluntary Carbon Market, the paper said.

“To programmatically agree on how we scale” transition financing is important, said Helge Muenkel, group chief sustainability officer at DBS Group Holdings Ltd. “We’ve been working on one deal now for so long, it’s mind boggling. If we multiply this by 5,000, we are not gonna get anywhere.”

Marisa Drew, chief sustainability officer at Standard Chartered Plc, said that while its reputational risk committee initially pushed back on the idea of financing early coal phaseouts, it eventually came round. “If you’re a financial institution, it is OK, as long as it’s very clear what the purpose of that is, that it isn’t running afoul of the concept of net zero. This gets us to net zero in a global way,” she said at the briefing.

(Adds details from paper and comments from DBS and StanChart in last three paragraphs.)

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