MAS’ Transition Credits Coalition (TRACTION) outlines integrity, scalability, and demand considerations in utilising transition credits to accelerate early retirement of coal-fired power plants

18 December 2024

On 14 November 2024, the Transition Credits Coalition (“TRACTION”), which was convened and launched by the Monetary Authority of Singapore (“MAS”) in 2023 at the 28th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP28), released an interim report outlining insights and considerations on the use of transition credits to accelerate the early retirement of coal-fired power plants (“CFPPs”). This builds on the joint working paper by MAS and McKinsey published in September 2023 that laid out a proposed concept and framework to scale the early retirement of CFPPs in Asia through the generation of high-integrity transition credits.

More information on the launch of TRACTION is set out in our article “MAS launches Transition Credits Coalition (TRACTION) and pilot projects to develop transition credits for early retirement of coal-fired power plants in Asia”.

TRACTION’s interim report sets out key learnings from discussions over the past year among TRACTION members and experts involved in coal transition and carbon markets in the following three areas:

  • Supporting generation of high-integrity transition credits: Clearly defined and rigorous standards are critical to ensuring quality, trust, and confidence in transition credits. Across existing guidance and methodologies, there are four common high-integrity attributes: (i) demonstration of additionality - where a CFPP has a positive fair market value and positive absolute emissions savings compared to a business-as-usual scenario, (ii) ensuring permanent reduction of emissions and avoiding emissions leakage - this can be shown through commitments to cease the building of new CFPPs at power sector and/or entity level, and full or partial replacement of the retired coal power with clean energy sources, (iii) robust verification and monitoring of emissions reductions, and (iv) contributions to Just Transition and Sustainable Development Goals.

Coal retirement transactions that demonstrate these attributes will be more suited to generating high-integrity transition credits. Understanding these attributes and how different guidance and methodologies are applied will help governments, financiers, and plant owners prioritise coal assets for transition credits transactions.

In addition, TRACTION notes the encouraging development of multiple transition credit methodologies that adopt sectoral and project-based approaches. The availability of different approaches can cater to varying domestic circumstances. For example, where national energy transition plans are still under development, project-based methodologies can be used by individual plant owners to shorten the operating life of their CFPPs and plan for the development of replacement renewable energy.

  • Enabling transaction scalability: For transition credits transactions to scale, there is a need to develop risk mitigation solutions to address possible transition credits risks, such as timing mismatch, project delays caused by delays in crediting methodology finalisation, and carbon credit invalidation from the reversal of no new coal commitments. A combination of conventional and innovative instruments like carbon credits insurance and advance market commitments are essential to addressing these risks. In addition, a clear and strong demand signal for the credits is necessary to enhance the appetite for financing. The report lays out the different risk factors that feature in transition credits transactions and suggests possible terms, structures, and solutions to mitigate such risks.
  • Bolstering buyers’ confidence and trust: The motivations and requirements of different classes of buyers - compliance, voluntary, and investment - differ. For instance, preliminary insights from voluntary buyers indicate a preference for credits that are aligned with the geographic locations of their assets as they aim to support decarbonisation in regions where they operate. In the next phase of work, TRACTION will build on these insights to develop specific approaches to meet the requirements of each buyer segment, in order to tap a broad base of buyers.

MAS reports that TRACTION plans to build on the foundational insights gathered thus far and expand its engagements to develop possible solutions and ideas to advance the three critical areas identified. The final TRACTION report, which will be released at COP30, will serve as a playbook to scale the implementation of transition credits. MAS has invited interested parties to review and respond to the findings of the interim report.

Reference materials 

The following materials are available from the MAS website www.mas.gov.sg: