Singapore Pioneers Transition Credits to Accelerate ASEAN Decarbonization

Singapore is spearheading a new financial tool called transition credits. These credits are tied to the early closure of coal-fired power plants in Southeast Asia. The goal? Speeding up decarbonization while boosting Singapore’s capital market.

The Monetary Authority of Singapore (MAS) is at the helm, collaborating with companies and financial institutions to set up the system. One key project involves ACEN, a Philippine power company, which plans to shut down a coal plant in Batangas by 2030, a decade ahead of schedule. Transition credits will be issued based on the carbon emissions saved. These credits can then be sold, with proceeds used to offset early closure costs.

Asia’s reliance on coal is stark—60% of its electricity comes from coal-fired plants, many of which are less than 15 years old. Waiting for these plants to reach the end of their natural life won’t cut it. Early decommissioning, however, means unrecovered investments. Enter transition credits.

MAS has been reaching out to banks and international organizations to develop this system. DBS Group Holdings, Singapore’s largest lender, is already on board, working with Indonesia to phase out coal plants.

Sharad Somani from KPMG notes that climate targets require mobilizing capital from various sources. Transition credits, combined with low-interest loans, government subsidies, and private investments, could make early coal plant closures more viable.

In essence, transition credits are a financial bridge, helping to close the gap between fossil fuel reliance and clean energy transition.